When most people think about homeowners associations (HOAs), the first thing that comes to mind is, “Would I be able to get away with painting my house that cool neon green I saw last weekend at Home Depot?” or “HOAs are run by a group of nosey busybodies who have nothing better to do.” Few stop to consider the legal or financial pros and cons of buying in an HOA community. Understanding the applicable laws and rules is essential to advising clients who are considering purchasing property in an HOA.
At first glance, HOAs (also known as common interest developments) may appear to be loosely organized fiefdoms of homeowners nitpicking at their neighbors’ lawns, trash cans, and barking poodles. However, they do operate under specific legal requirements. In general, HOAs are essentially private governments. In this context, HOAs are not too different from municipalities, but on a much smaller scale.
State laws and regulations. Even though HOAs are mostly autonomous, they are subject to specific laws outlining HOA powers. For example, in California, HOAs are regulated by the Davis-Stirling Common Interest Development Act, and several provisions in the corporations and government codes. These statutes provide the framework for how HOAs are created, what they can do, and how they are run. These statutes prescribe certain rights for homeowners to ensure HOAs are following the law. They also provide mechanisms by which homeowners can ensure the HOA is managed with the community’s best interest in mind, that business is conducted in a public and transparent fashion, and that board elections are properly conducted.
Rules. While cities are normally governed by a charter or a municipal code, HOAs set out rules through covenants, conditions, and restrictions (CC&Rs). These rules can vary from dictating the type and height of fences between homes, the paint colors allowed (yes, it’s likely that electric blue is frowned upon), and whether cars are allowed to park on the street or in driveways. However, most HOAs also set rules for things that would seem to be borderline invasive, such as whether you are allowed to line-dry your tighty whities outside and the sizes and types of pets permitted in the community.
CC&Rs are legally binding contracts and run with the land. Once a home subject to CC&Rs is purchased, the buyer is bound to comply with those rules. Potential buyers should carefully read the CC&Rs to avoid any surprises down the road.
Governance. Similar to a city council, HOAs are governed by a board of directors that comprise the policy-making body of the community association. Boards of directors are normally comprised of volunteer homeowners. Just like municipalities or any other form of democratic government, board members are elected by the homeowners to serve for a set period of time. The board is charged with the day-to-day management and operation of the HOA. Boards normally meet on a monthly or quarterly basis, depending on the needs of the particular community.
Taxes. HOAs are funded by fees or assessments assessed on all owners within the community, just like taxes. HOA fees can range from less than $100 a year to several hundred dollars a month. The fees are collected to fund the maintenance and improvement of the common areas within the community, including any amenities the HOA offers its residents. Depending on the community and type of HOA, typical amenities and facilities include landscaping, swimming pools, clubhouses, and fitness rooms. Just like any government entity, HOAs are empowered to collect these assessments for the benefit of the community and can also levy fines if the fees are late or not paid at all. If left unpaid, the HOA can place liens on the underlying property that could lead to a foreclosure. Fines can also be assessed against homeowners for violations of the CC&Rs.
Despite having a large amount of autonomy, HOAs must operate within a legal framework to protect homeowners’ rights and prevent mini-dictatorships. Informing your clients of the potential pitfalls and legal ramifications of buying property in an HOA community will help them avoid making a decision they are not willing to live with.