Real Estate Defined: Homeowner’s Association
A Homeowner’s Association (HOA) is a legal entity that enforces rules and maintains common areas in many subdivisions and neighborhoods, including condominiums, townhomes, and single-family homes. These neighborhood organizations are typically created by the real estate developer of neighborhoods and housing types called common interest developments (CIDs), planned unit developments (PUDs), or housing cooperatives (co-ops). HOAs are frequently incorporated (corporations) and most maintain a non-profit status with a controlling board of voluntarily elected or appointed members from the association’s general membership. HOA membership is mandatory for all homeowners within the development and enforced with contracts signed during purchase. Membership contracts include regular membership fees or “dues,” and are subject to increases and assessments to cover costs associated with the HOA’s management duties.
A Brief History
HOAs gained popularity in the 60s and 70s, as developers realized that they could reduce their costs by building denser communities (more housing units on less land) while providing the sought-after suburban feel by providing shared public green spaces and amenities (typically pools, clubhouses, and other recreational facilities) rather than individual yards. They set up HOAs to collect dues from residents and maintain these shared facilities. HOAs also could be given authority to enforce rules that aim to promote neighborhood stability and preserve property values, which developers found to be useful selling points. Individual homeowners liked the increased housing affordability, the shared amenities (access without personal maintenance), and the sense of domestic security HOAs provided. Local governments (with supportive authorization from the Federal Housing Authority) liked that HOAs increased their tax base while simultaneously taking private responsibility for matters previously funded by those taxes (such as neighborhood roads, utilities, parks, and security), significantly increasing revenues, prompting many areas to exclusively support the development of HOA communities. Others legislative considerations, such as the Clean Water Act’s restrictions regarding water runoff created the need for storm water detention. In order to ensure such features were properly maintained (and privately funded), local governments soon began requiring these be public property under an HOA, instead of a single individual or the local government itself.
Purpose and Responsibilities
When created by the developer, an HOA helps to market, sell, and manage homes in the new development. Developers typically maintain privileged voting rights (controlling interest) in the HOA underneath the financial and legal cover of that community organization, and will transfer that control to the association after certain conditions have been met (usually a predetermined number of homes or lots sold).
The primary responsibility of an HOA is to maintain common areas. These can be as simple as a park or green space, a pool, or a recreational building, or as complex as enclosed community services such as sewer and waste disposal, childcare, schools, police and fire department, and other municipal services. While some small HOAs may fulfill their maintenance duties inside the membership, most HOAs hire full-time managers or management companies to oversee such maintenance.
Most HOA communities also include Covenants, Conditions, and Restrictions (CC&Rs). These are rules and requirements for all homeowners and are generally designed to promote uniformity and restrict homeowner activities or features than detract from overall property values and community harmony. CC&Rs are enforced through the citations and fines. HOA members are contractually required to comply with restrictions, pay fines, or face fine escalation leading to property liens and foreclosure. While most HOAs include an appeals process in their bylaws, many irreconcilable HOA disputes end up in civil court.
Currently, one in five, or 20% of all households in the U.S. live in an HOA community. Check out future blog posts to further discuss the Good and Bad sides of HOAs.
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About The Author: Tom Davidson is the acting Director of Sales & Operations for Express Schools, LLC. Since 1996 the companies under this banner have offered online real estate licensing and insurance licensing courses as well as online real estate exam prep and insurance exam prep.