Homeowner Association Feuds Growing Amid Rules And Fees

Investor's Business Daily

"Love thy neighbor as yourself" is a noble idea, but community governance brings complicating factors.

More and more U.S. homeowners live in community associations, also called homeowners associations or HOAs. Amenity maintenance, development plans, rules and amateur governance can all result in bitter feuding within these groups.

Buyers should study the rules before purchasing a home in an association. Owners should learn how to contest a decision if a conflict arises.

Evan McKenzie is professor of political science at the University of Illinois at Chicago and author of "Beyond Privatopia: Rethinking Residential Private Government." He says disputes in associations are on the rise, with many factors contributing to the problems.

Poor management, governance by poorly trained volunteers, owners struggling with high association fees, a lack of detailed association laws and the rise of this type of housing are all contributing to association infighting, says McKenzie. He said homes in associations are now "the predominant form" of new housing across the country.

The Community Associations Institute, in Church Falls, Va., says in 2012 some 24% of U.S. homes were in 323,600 community associations. CAI's surveys show "that by and large, Americans are happy in their community associations," said group spokesman Frank Rathbun.

Still, Rathbun acknowledges that some associations "struggle with residents and rules," and says associations "are not for everybody.

David Feingold, a California attorney with Ragghianti Freitas in San Rafael, Calif., who's handled association disputes, says they can get heated. "You're mixing your home, your money, your family and you're putting your neighbors in charge of that. So it's a pretty volatile mix," he said.

Association Trouble Spots

What gets owners and associations feuding? McKenzie says three issues cause most disputes: assessments and spending (fee amounts, reserves, late fees, liens and foreclosures), architectural issues (disputes over remodels, lighting, etc.) and association procedures (elections, meetings, notifications, etc.).

Even small architectural rules can result in big fights. North Carolina resident Jim Lane got into a dispute with his association over some flowers he planted in a common area. The association fined him for the act, and when he refused to pay the fine it placed a lien against his property. Lane sued, but later dropped the matter when the costs became prohibitive.

Full communication between associations and residents can go a long way toward curbing conflict, says Patrick Hohman, HOA board member in Louisville, Ky., and author of "Condos Townhomes and Home Owner Associations: How to Make Your Investment Safer.

Hohman said his association is "proactive in communications," talking with owners at the grocery store or elsewhere "if they don't want to come to an HOA meeting.

Laws Governing Associations

Stan Hrincevich, president of the Colorado HOA Forum in Littleton, Colo., got into a dispute with his community association over a request he made to audit its financial records. He felt spending wasn't handled properly. He sued, but a judge dismissed the matter. After that, he opted to work with owners and legislators to try to strengthen state laws regulating associations.

In 2012, Colorado created a specific office to register community associations and HOAs. Then this year, it limited the powers of these groups to send debts to collection agencies or to start foreclosure proceedings. Associations now must wait six months before sending a debt to collection or to start a foreclosure proceeding. And "it has to offer a payment plan option to the homeowner," said Hrincevich.

Colorado also passed a law requiring association managers to be licensed. The legislation was supposed to go into effect this year, but has been pushed back to 2014 or 2015, Hrincevich said. And he's pushing for a law that regulates the fees and penalties that associations can charge homeowners.

McKenzie agrees that associations should be licensed and regulated. "You need a license to sell a hot dog," said McKenzie. "Association managers need to be licensed and have background checks.

Plus, McKenzie says state laws should be more detailed in how associations must be run. "They're run by untrained and unsupervised amateurs and they need to be told exactly how to do these things in simple language they can understand," he said. He also says states need to enact laws that determine how an association is handled when it fails, "when owners run it into the ground.

However, Hrincevich and McKenzie both say CAI has fought states' efforts to enact new regulations. "It represents the lawyers and property managers who make their living off of associations," said McKenzie. "They don't want any more regulation, because right now they control the policies and the associations.

On July 1, a new law went into effect in Florida to help owners in associations abandoned by their developers or held by bankrupt developers, says Gary M. Kaleita, a real estate attorney with Lowndes, Drosdick, Doster, Kantor & Reed, P.A. in Orlando, Fla. In the real estate bust, owners were left with partially built or neglected communities.

Now if a developer "abandons a project for at least two years" homeowners can call a turnover meeting and with a quorum "take control of the HOA," removing the developer's representatives and electing new board members, Kaleita said.

Hrincevich also wants Colorado to enact binding dispute resolution for associations. Currently, he says, Virginia is the only state that has this program. It requires association disputes to go to mediation, and if an agreement isn't reached an arbitrator decides the matter. With this, individual homeowners would have a way to oppose an association ruling without exorbitant legal fees.

How to Fight

If you want to dispute an association decision, here's what experts advise: First, organize.

"The only way to fight them is with your neighbors," said Lane. "Don't do it on your own.

"Our system of government is responsive to groups, not individuals, and associations are the same way," said McKenzie. And if the matter involves development of an amenity or land, contact local planning bodies, environmental groups, neighbors outside the association and other possible political allies.

Second, pay your assessment fees no matter what. "If you don't, you're going to end up with a lien and late charges," or potentially a foreclosure action, said McKenzie.

Lastly, there's the atom bomb of association battles: a board recall. In California and other states, a board must provide a homeowner with the member list, including addresses, Feingold says, noting that with this, a member or group of members can institute a "recall of the board" and try to elect a new one.

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