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Understanding The Power of an HOA

A HOA (Home Owners Association) is put in place to protect home owners, their property, the integrity of the develop and the developer. The intent is to assure all property owners properly maintain their property to a specified set of standards to assure the property values are protected. An HOA is also in place to establish a set of rules that you agree to when you purchase the property. These rules are most often called the C&R (Covenants and Restrictions) but may also include additional documents by a different name like "Building Guidelines" or "Architectural Guidelines". These documents are legally binding and are referenced in the Warranty Deed that is attached to your property and filed with the local Clerk of Court. Always, always, always read the C&R before you purchase a property so you both understand and agree to these terms before making a commitment to purchase. Also understand these set of rules carry on to any subsequent owner of your property after you sell it.

The power and effectiveness of an HOA can be either good or not so good depending on your perspective and how well (or not so well) you maintain your property in accordance to the guidelines established in the C&R. While most HOA's have good intent to assure the values of all the property in the HOA is maintained at a minimum standard, some property owners and/or HOA Board Members can overstep their authority. This is why it is so important for all property owners in an HOA to read and understand the rules that govern their property. Attending monthly, quarterly or annual HOA meetings is vitally important to all property owners who want to stay abreast of what is going on in your development. Knowing what is in your C&R documents, what the HOA Board of Directors are planning for your community and participating in all votes that may impact your community is necessary for a well managed HOA community.

Transfer of Ownership - Most HOA's are controlled by the developer until a time specified in the C&R after which control is turned over to the property owners. This timeframe may be triggered by a specified time (like 20 years), a percentage of lots still owned by the developer or by any number of specified parameters written into the C&R. Common timeframes when the developer may turn the development over to the homeowners are:
  • When the developer no longer owns 51% of the development and thus voting power for the HOA now favors the property owners.

  • When the developer no longer owns a super majority of the voting power in the development (usually 2/3rd's. of the remaining unsold lots and thus the voting power for each).

  • When the developer no longer owns any property in the development. That's right, some C&R written by the original developer can specify they retain control of the HOA until ALL the lots are sold.

Amending the Covenants & Restrictions - It is not unusual for the C&R to be changed from time to time. This is typically done by a vote of the members of the HOA with the number of votes necessary to make a change specified in the original C&R. While it is common for a 2/3rd's vote to be required to make a change to the C&R, this may be different for your development. Read the C&R carefully to find out what the rules are for your community. Some HOA's only require a majority vote while others require a super majority (usually defined as a 2/3rd's vote). Also understand there are varying parameters from which a developer may retain a controlling vote within the HOA and/or a provision in the C&R that simply say the developer may override any vote of the HOA. If the development is young, the developer may still own the majority of the lots that are unsold, thereby giving him control to outvote any other property owner.

Unfortunately, not all individuals in an HOA's may have your best interest in mind. Understanding your rights and standing up to those rights may be necessary to assure that your community is managed legally and in accordance with those rules and regulations spelled out in the C&R. In recent years, a few bad apples in HOA’s all across America are flexing their muscles by stepping across the line and exercising authority they do not have and/or have gotten through backhanded methods. Power hungry board members are trying to enforce rules that do not exist and/or have been added to the C&R (Covenants & Restrictions) without going through due process. Homeowners are effectively learning how to fight these bullies both in and out of a court setting by learning what their rights are and by holding board members accountable for their actions. Here are a few areas you may want to keep an eye on where rouge HOA's may try to abuse their power:
  • Publishing Revised HOA Documents - Simply publishing a newly revised set of C&R do not make them binding on the property owners. I have encountered HOA's that have chosen to change & publish the parameters in the C&R without a proper vote and/or after a proper vote when they did not get the results they wanted. Simply putting a new set of C&R out on a website does NOT make that document binding to the residents of the community or the members of the HOA. Any changes to the C&R (or any other binding documents referenced in the C&R) must be voted on and approved, not just by the board but by the members of the HOA where a quorum was established and a vote sufficient to make the change as specified in the C&R. As mentioned previously, this is usually a 2/3rd's vote but may be different for your HOA. Refer to your C&R (and/or the laws of your state) to verify what the required vote is to make changes to your C&R.

  • Voluntarily Agreeing to Amend - An HOA may send out a document to all the members of the HOA specifying they want to change the terms of the C&R and ask you to commit to this change by signing the enclosed Amendment. Verbiage in the Amendment may also specify by signing you are in turn casting your vote in favor of the change. This method of making a change to the C&R accomplishes two things. It establishes a vote and if they get a quorum of votes returned, it establishes the necessary vote count needed to make and change and it binds the property owner to that change regardless of the vote outcome. That's right, I said it binds you to that change and allows the HOA to record that change to your deed of record with or without a majority vote simply because you agreed to and signed the document. The result can be a community where some property owners are governed by one set of C&R and other property owners governed by a completely different set of C&R. This typically occurs when the HOA did not get the necessary votes to make the change to the C&R for the community but got your vote in the affirmative, thereby binding those property owners that agreed to sign the amendment document. I have seen communities with multiple sets of C&R thereby requiring extensive title searches to verify which version a specific property is governed by. Just know in cases like this, you may be governed by one set of rules and your next door neighbor by another set of rules.

  • Sneaky Method to Change the C&R - Let's say you live in a community where an Amendment is presented to you to change the C&R, but for whatever reason you decide not to sign the agreement. You would naturally think you are not bound by that change, because you did not agree to it. That may not always be the case. Some HOA's are using affiliations as a method to change the terms and conditions of the C&R in a manor that hides the change in a way most people would not see. An example of that would be when a majority of the membership of an HOA agree to become a member of the American Homeowners Association. Membership to this organization may change the parameters of your C&R because in the fine print membership stipulates you are agreeing to a set of parameters that supersede those in your C&R. For example, if your C&R stipulate a simple majority vote is required to pass a change to the C&R, membership with the American Homeowners Association stipulates a 2/3rd's vote is required. As a result, a 2/3rd's vote is now required with your HOA. You may think this example sounds reasonable and be OK with this change, but wait till you hear the next one. Membership with the American Homeowners Association also stipulates that a 2/3rd's vote also binds all members of that HOA to the change stipulated in the Amendment even if you did not agree to the terms of that change. That's right, by simply being a member of the American Homeowners Association, you have agreed to be bound by ALL super majority votes. In essence, your membership with the American Homeowners Association has also resulted in a forfeiture of your legal rights to require written compliance to any changes to your Deed as long as there is a supermajority vote to do so in your HOA.

Questions & Answers:

Parking on the Street - One question I often get is "can the HOA prevent me from parking on the street in front of my house?" HOA’s have no authority outside their purview and that includes any public streets that may exist both in or out of the development. However, be careful to make sure your streets are in fact public and not privately owned before you stand up against a bully from the HOA. Most developers buy the land, build infrastructure (including roads, access to power, water, etc.) and may or may not turn those roads over to a municipality at some future point. Most towns, cities, counties and state governments will not accept or transfer ownership of roads in a development that has limited access (like a gated community). So, if your community is gated, chances are the roads are privately owned and maintained by the developer or HOA. If that is the case, he that owns the land makes the rules and the HOA can enforce rules and regulations regarding the use of that land. However, if the developer does not restrict access to the development and it is in fact open to the public and they have turned ownership of the roads and infrastructure over to a municipality, then that municipality establishes the rules and regulations for its use.

Disclaimer: This article was written by Joe Folsom, a licensed Broker/Realtor in Georgia and Tennessee. I am not an Attorney and do not offer legal advice in any way. This article is intended to provide information based on my many years of experience and knowledge of the Real Estate Market but in no way is offered as legal advice. Please consult an Attorney in your state to verify any laws that may or may not impact the information provided here.

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