Homeowner association facts for kids

A Homeowner Association (often called an HOA) is a private group in places like the United States, Canada, and the Philippines. Developers usually create HOAs when they build new neighborhoods or apartment buildings. The main goal of an HOA is to manage and sell homes and land in these areas. After a certain number of homes are sold, the control of the HOA is given to the homeowners themselves.

If you buy a home in an HOA community, you automatically become a member. This means you agree to follow the HOA's rules. These rules are found in documents like the "CC&Rs" (covenants, conditions, and restrictions) and bylaws. They might limit things like the color you can paint your house or what kind of fence you can build. HOAs also play a role in how communities grow and how land is used.

Most HOAs are set up as non-profit groups and follow state laws. Some states, like Florida and California, have many laws about HOAs, while others have very few. HOAs have become very common in the United States, especially since the 1980s. In 2010, it was estimated that HOAs managed over 24 million homes and 62 million people in America.

History of HOAs

Some of the first HOAs started in the early 1900s in Los Angeles, California. They were created with rules that came with the land, often called "deed restrictions." These rules helped create planned neighborhoods.

Sadly, some early rules were unfair. They were used to stop certain groups of people, like African Americans, from buying homes in these areas. In 1948, the United States Supreme Court said these rules couldn't be enforced. However, it wasn't until the Fair Housing Act in 1968 that such discrimination was officially against the law. Even today, HOAs must be careful not to allow any unfair treatment.

In the 1960s, the government started to support HOAs more. This was partly because developers wanted to build more homes in smaller areas. HOAs helped manage shared spaces like parks and roads. This also meant that local governments didn't have to pay for these services, which saved them money.

Later, in the 1970s, land became more expensive. Developers started building homes closer together, often around shared green spaces. HOAs helped maintain these areas. Also, new laws about managing stormwater (rainwater runoff) meant that developments needed shared areas for water. HOAs were often created to take care of these common areas. Once an HOA was set up, developers often gave them more power to set rules about homes and landscaping.

How HOAs Work

For most HOAs, joining is a must when you buy a home in their area. As a member, you pay fees (called "assessments") and follow the rules. In return, you can help make decisions for the HOA and use shared facilities like pools or parks. If you sell your property, you stop being a member.

Rules and Documents

HOAs are usually set up as private groups. They follow state laws and their own "governing documents." These documents are like the HOA's rulebook and usually stay with the property, meaning all future owners must follow them.

The most important documents include:

• Covenants, Conditions, and Restrictions (CC&Rs): These rules often say what kind of buildings you can have, like no mobile homes, or how far your house must be from the property line. They might also limit pets or business activities.
• Articles of Incorporation and Bylaws: These explain how the HOA is officially set up and how it operates.
• Board Rules: Sometimes, the HOA board can make additional rules based on the CC&Rs.

CC&Rs are usually legally binding. However, if a rule goes against a new state or federal law (like the Fair Housing Act), it can no longer be enforced.

Board of Directors

An HOA is managed by a group called the board of directors. At first, the developer chooses the board members. But as more homes are sold, homeowners get to elect their own board members. Eventually, the board is made up only of homeowners.

Homeowners usually elect the board at a yearly meeting. To make sure one person doesn't control everything (especially if they own many properties), the rules might limit how many votes each owner gets.

Board meetings are often open to all homeowners, except for private discussions like legal matters. The board makes decisions about the HOA's money, protects its shared property (like parks), and makes sure everyone follows the rules. Board members have a duty to act in the best interest of the homeowners.

Managing the HOA

Many HOAs, especially larger ones, hire companies to help manage things. These companies can offer different services:

• Financial services: Handling bank accounts, collecting fees, and managing the budget.
• Full management: Includes financial services, plus helping with board meetings and maintenance (like getting bids for repairs).
• On-site management: Includes all full services, plus a manager who works directly with homeowners in the community.

The rules for who can be an HOA manager vary by state. Some states require managers to be certified.

What HOAs Can Do

HOAs provide different services and facilities, like pools or clubhouses. They also set rules for the community. They can collect fees (assessments) from homeowners and, if allowed by their rules or state law, they can fine people for breaking rules.

The HOA board can also create committees, like an "architectural control committee" that approves changes to homes, or a pool committee.

A major power of HOAs is their ability to make homeowners pay for shared expenses. These expenses cover the maintenance of common areas, which can range from simple landscaping to private roads, streetlights, and even schools in some large communities. These payments are called "assessments" and are usually paid monthly, quarterly, or yearly. They are not property taxes.

HOAs usually have two main funds:

• Operating fund: For daily expenses.
• Reserve fund: For big, expensive repairs or replacements that don't happen often, like fixing a roof or repaving roads. A good reserve fund helps avoid "special assessments," which are extra, unexpected fees homeowners might have to pay.

Effects of HOAs

Studies show that homes in HOA communities often sell for more money than similar homes outside of HOAs. People in HOA neighborhoods also tend to be wealthier and sometimes live in more racially separated areas.

For Homeowners

Benefits:

• Maintenance and services: The HOA takes care of shared areas, like parks or pools.
• Amenities: Access to facilities like swimming pools, clubhouses, or fitness centers.
• Appearance standards: Rules about how homes look can help keep property values high.
• Community planning: Members can help decide how the community develops.

Drawbacks:

• Fees and fines: Homeowners must pay regular fees and can get fined for breaking rules.
• Restrictions: Rules can limit what you can do with your property or how you live.
• Mismanagement: Sometimes, the board might not manage the HOA well, leading to problems or unfair rules.

For Local Governments

Many cities like HOAs because they can save money. Since HOAs often pay for roads, parks, and other services within their community, the city doesn't have to. This means the city can still collect property taxes from these homes without having to spend as much on services for them.

However, some studies suggest that HOA members might be less likely to vote for taxes that fund city-wide services. This could lead to fewer services for people who don't live in HOAs.

For Real Estate Developers

Developers create HOAs because they can help them build and sell homes more easily and profitably. By offering shared facilities and taking care of maintenance, developers can often build more homes in an area. They also get better deals from cities if the HOA handles maintenance. Developers usually keep some control over the HOA until most homes are sold.

A possible downside for developers is that HOAs can sue them if there are problems with construction or misleading sales information.

Criticisms of HOAs

HOAs have been criticized for having rules that are too strict. Some people feel that HOA boards don't always have a strong reason to avoid being overly rigid or unfair.

Some experts also say that HOAs can limit the rights of their residents. Because HOAs are private groups, they don't always have to follow the same rules as governments, even though they act like a local government. If homeowners think the board is doing something wrong, they can try to get elected to the board or, in serious cases, sue the HOA.

State laws usually say that the board of directors makes most decisions for an HOA. Homeowners only get to vote on certain big issues. It's important for boards to know and follow their state's laws. If a board doesn't follow the law, its members could face legal trouble.

Voting in an HOA is based on property ownership. Only owners can vote, not renters. Also, if someone owns many properties, they might have more votes, which could mean their interests are different from those who live in just one home. However, some HOAs limit votes to one or two per owner, no matter how many properties they own.

Some homeowners have tried to argue in court that HOAs should follow the same rules as governments, especially regarding free speech. But courts have generally said that private groups can limit certain rights on private property.

Financial Risks for Homeowners

In some states, an HOA can put a lien on a home (a legal claim) or even take and sell a home (foreclose) if a homeowner doesn't pay their fees or fines. For example, in 2008, a soldier serving in Iraq had his $300,000 home in Texas sold for $3,500 by his HOA because he owed $800 in dues. He later got his home back. Other states, like Florida, require a court hearing before an HOA can foreclose.

HOA boards can also ask for "special assessments" – extra fees for unexpected costs, like a big repair. Most states have rules about this. In California, for instance, a board can only impose a special assessment without a homeowner vote if it's a small amount (5% or less of the annual budget). For larger amounts, homeowners usually get to vote. However, for urgent issues like a broken sewer line, the board might be able to approve a large assessment immediately.

HOAs often handle a lot of money. Sometimes, there have been cases of dishonest board members or managers stealing money. Because of this, some states require HOAs to have insurance to protect against such problems.

In 2006, the AARP (a group for older Americans) said that HOAs can be a financial risk for their members. They suggested that all states should adopt a "Homeowners Bill of Rights" to protect people, especially seniors, from unfair HOA actions.

Preventing Financial Risks

Many HOAs have regular financial check-ups called audits to help prevent money problems. An independent accountant (CPA) looks at the HOA's financial records to make sure everything is accurate and follows proper accounting rules. After the audit, the CPA writes a report saying if the HOA's finances are healthy.

When are audits needed? Audit rules vary by state and HOA. Some HOAs must have an audit every year or every few years. For others, a simpler review might be enough. The HOA's budget and size often decide if an audit is required.

It's a good idea to have an audit at the end of each year. But an extra audit might be needed if there are big changes, like a new board, a large project, or if there's a suspicion of fraud.

What happens during an audit? 1. Planning: The HOA talks to an accountant to set goals, timelines, and costs for the audit. 2. Risk Assessment: The accountant checks for possible problems in the HOA's financial procedures. They interview board members, look at daily operations, and check security. The HOA provides documents like past audit reports, budgets, and meeting notes. The accountant also checks with banks and lawyers to confirm account balances and legal cases. 3. Fieldwork: The accountant compares the HOA's income and expenses. They pick a sample of transactions to check details, like invoices for money spent. They also look at bank statements, payroll records, and contracts. If the HOA's finances are different from what was planned, the board needs to explain why. 4. Reporting: The accountant writes a report about the HOA's financial health. * Unqualified opinion: Means everything looks accurate and follows rules. * Qualified opinion: Means there are minor mistakes that are easy to fix. * Adverse opinion: Means serious problems, like fraud or major carelessness, were found. * Sometimes, the accountant might issue a "disclaimer of opinion" if they can't complete the audit due to problems like missing documents.

The audit report can help the board fix mistakes and improve how they manage money. It also shows homeowners and potential buyers that the HOA is being managed responsibly.

Repeat Audits: If an HOA gets an "adverse opinion," they might need another audit after fixing the problems to show they are now managing finances correctly.

Limits to HOA Powers

HOAs do not have unlimited power. Their ability to fine owners is limited to what is clearly stated in their official documents.

For example, before 1996, HOAs could stop people from installing satellite dishes. But after the Telecommunications Act of 1996, most homeowners can install a satellite dish (one meter or smaller). HOAs can suggest where to place the dish so it's not too noticeable, but they cannot stop you from putting it where it can get a signal.

Similarly, many HOAs had rules against rooftop antennas for regular TV. These rules are also mostly not enforceable anymore. The antenna can be placed anywhere unless it's on common property, and it usually can't be more than 12 feet above the roofline.

In Florida, state law stops HOAs from banning "Florida-Friendly Landscaping," which uses plants that need less water. Even so, some homeowners have faced issues with HOAs for trying to save water by changing their yards.

Other Options for Communities

Instead of an HOA, some communities are set up as "multiple-tenant income properties" (MTIPs). In an MTIP, residents pay rent to a landowner, who then decides how to spend that money on the community.

The main difference is how they are managed. In an HOA, homeowners have a say. In an MTIP, the landowner makes the decisions. Supporters of MTIPs say that the landowner has a strong reason to keep residents happy and the property valuable because their income depends on it.

See also

• Gated community
• Housing society