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Emotions Run High Over Homeowners Associations

In a Scottsdale community governed by a homeowners association that prohibits overnight parking on its streets, a car is properly left in a driveway early one evening. The next morning, the owner discovers that all four wheels have been stolen from the vehicle, which now rests on wooden blocks left there by conscientious thieves. The police are called and a report is filed.

Two days later, the owner of the home where the vandalized vehicle was parked receives a notice from the HOA, warning that the CC&Rs (covenants, conditions and restrictions) prohibit working on a vehicle and leaving it in on blocks in a driveway.

“If they were so vigilant,” the homeowner says, “why didn’t somebody see the guys who were stealing the wheels?”

Whether residents love or hate them, HOAs appear to be here to stay. Nationally there are about 250,000 HOAs and their numbers are increasing. In 1998, there were 205,000, according to the Community Association Institute, a nonprofit group.

Cities welcome an HOA because it relieves them of the responsibility for maintenance of some common areas like parks and swimming pools. Builders like them because a well-run HOA keeps properties looking presentable. They also allow homeowners to go to a board to vent complaints about barking dogs or a neighbor’s weeds. However, the same powers that help keep a neighborhood neat and tidy have also been accused of overstepping their bounds. One critic says members of HOAs are “second-class citizens” with few rights or protections.

At The Legislature

Every year emotions run high at the Legislature as attempts are made to curb the powers of HOAs. One measure introduced last session, S1151, was loaded with 54 provisions that sought to do just about everything but outlaw HOAs. It was defeated in a committee, 2-7, and never surfaced again.

Another, S1318, sponsored by Sen. Toni Hellon, R-Dist. 26, was an attempt to require HOAs to hold board meetings in Arizona. You wouldn’t think a law was needed to compel in-state meetings, but Ms. Hellon says some HOAs with board members who live elsewhere were conducting business in their other home state.

“HOA bills have trouble getting through, especially in the Senate, because people tack too much on them as they go through the process,” Ms. Hellon says. “People tried to do it to my bill, but simple things can be taken care of without adding anything else on it.”

Ms. Hellon says House Majority Leader Eddie Farnsworth, R-Dist. 22, approached her shortly before final passage asking if he could add “his controversial amendment” to her bill.

“To his credit, he asked,” Ms. Hellon says, noting that Mr. Farnsworth probably could have attached his amendment without her permission. “I looked at it, told him we needed to keep the bill clean, and said no.”

The bill, which states legal challenges to the actions of a homeowners’ association board of directors are no longer limited by a requirement that at least 10 percent of the voting power or at least 50 members join the action, was signed by the governor May 12. Ms. Hellon says she has problems with HOAs and the power they wield. She could support portions of some bills, but other provisions were so egregious that she opposed them, like requiring a huge percentage of residents to approve any changes in HOA rules.

“There are a lot of things that residents think are unfair,” she says. “An association can take punitive action against a homeowner who fails to keep their property up. Some go overboard — weeds, grass needs cutting, too many cars, the color of paint.”

HOA problems generally involve fees and when an association can take legal action against a homeowner. Also, when an HOA incurs legal expenses, who pays the association’s bill? Ms. Hellon says the homeowner pays his own legal expenses and indirectly pays the expenses of the HOA through his dues.

“The rules say they have the right to take action,” she says, “but who reads all that tiny print? No one.”

Misuse Of Power Vs. ‘Heavy-Handed Bills’

Rep. Pete Hershberger, R-Dist. 26, who supported Ms. Hellon’s bill, says misuse of power by HOAs against residents seems to be widespread and needs to be addressed by the Legislature.

Nevertheless, he says, “Some of the bills are a little heavy-handed. We need to find a medium, balanced approach.” If all of the powers are taken from HOAs, that would hurt developers, he says. “We can’t leave them powerless,” he adds. “I haven’t seen that balance.”

Mr. Hersberger says a bill pushed by Mr. Farnsworth “went well beyond reason.” HOAs can’t be prohibited from taking action against residents who are delinquent in paying their dues or if their conduct goes too far, Mr. Hershberger says.

“For the good of the residents an association has to have some ability to maintain consistency,” he says.

One local HOA critic is George Staropoli, president of the Citizens Against Private Government HOAs, based in Scottsdale. Mr. Staropoli, who has served on HOAs in Pennsylvania and New York, says he was opposed to S1151, an omnibus bill that targeted HOAs, because “the language was vague and it would have hurt homeowners.”

“They had three years to work on the bill and they still didn’t get it right,” he says. “They haven’t done their homework. It was too big. They need to cut it down to a smaller bill.”

Mr. Staropoli says his nonprofit organization (www.pvtgov.org) provides “full and material disclosure of all the factors that can have profound effects on your decision to buy into an HOA controlled property.” He notes that an HOA is a private, nonprofit corporation that is subject to corporation laws and not municipality laws.

On his Web site, Mr. Staropoli says, “The HOA is allowed to bypass fundamental governmental protections, including due process against arbitrary actions and the equal protection of the law for homeowners who have grievances against their board of directors.”

He says members of HOAs “are second-class citizens with less protection than minorities, women, the handicapped and even gay people.” Asked to recall a “horror story” related to an HOA, Mr. Staropoli says, “There are so many.”

He tells of a case in which a lawyer sent dunning letters to a condominium owner whose hot water tank was alleged to have caused damage to a condo on the floor below. The lawyer wanted $5,000 to cover the insurance deductible, but the owner of the faulty hot water tank says he never saw any repair work being done or written documentation of the work, Mr. Staropoli says. Eventually, Mr. Staropoli says, he intervened and the lawyer backed off.

“Without proof, that was extortion,” he says. Three fixes are needed to better serve homeowners, he says. They are:

• Restore homestead protections.

• Get rid of or restrict foreclosures. CC&Rs are interpreted as a contract. Mr. Staropoli says it’s an “adhesion contract,” similar to a non-negotiated guarantee or warranty that a person receives after buying an appliance. Such contracts, he says, give one party tremendous power over the other party. “It’s unconscionable and against public policy,” he says.

• Require full disclosure of documents. “There is nothing in the CC&Rs that tells you the impact, that you lose your constitutional rights,” Mr. Staropoli says.

Group Backs HOAs, Says They Can Be Made Better

The Communities Association Institute (www.caionline.org), which has two chapters in Arizona, bills itself as “the only national organization dedicated to fostering vibr
ant, responsive, competent community associations.” Its mission is to “assist community associations in promoting harmony, community, and responsible leadership.”

Curtis Ekmark of Scottsdale, president of the Central Arizona Chapter, says the task is “to figure out ways to make them [HOAs] better.” Developers generally decide whether they want an HOA and in some cases municipalities mandate them.

“It’s a win-win situation,” Mr. Ekmark says. “It’s a great way for a city to keep taxes lower because the association maintains such things as streets and swimming pools and keeps curb appeal up for developers.”

Like Mr. Staropoli, Mr. Ekmark has three recommendations for improving HOAs, which he says would eliminate 90 per cent of the problems.

• Make it easy to amend “bad” CC&Rs.

• Give residents an efficient way to remove board members they don’t agree with. HOAs are required to hold annual elections, Mr. Ekmark says, but sometimes a problem arises two months into a board member’s term.

• Give associations a way to recover monetary damages from developers who leave major construction defects behind. Mr. Ekmark says, “Some developers are writing into CC&Rs that neither individuals nor homeowner associations can bring action against homebuilders. If you get a number of roofs that leak, now you have to pass a special assessment. We need law that says sweetheart provisions in CC&Rs are unenforceable.”

Veto Of H2034

Mr. Ekmark applauds Governor Napolitano’s veto of H2034, which was backed by the Home Builders Association of Central Arizona. It would have required an HOA to obtain the approval of a majority of its members voting on the issue before it could file a lawsuit against the builder for a construction defect. The original version would have required approval of a majority of all members of the HOA before a suit could have been filed against a builder.

In her veto message, Ms. Napolitano said homebuilders were given protections in 2002 against potentially frivolous lawsuits and she feels it was unwise to make it even more difficult to file defective-housing lawsuits.

Spencer Kamps, deputy director of the Home Builders, says he was “surprised and disappointed” by the veto. “We did support the amended version,” he says. “It was a bipartisan bill that we felt was good public policy. We wanted homeowners to have a voice when they put the assets of their HOA at risk [by filing a lawsuit].”

Mr. Kamps says builder involvement with HOAs generally ends with the sale of the last home in a development.

An Economic Force

Grant Parker, president of the Southern Arizona Chapter of the Communities Association Institute in Tucson, says HOAs are a major economic force. Nationally they receive and spend $23 billion a year on goods and services.

“They are in business for one purpose — to provide services and amenities outlined in CC&Rs, such as for landscaping, pools, common areas, playgrounds, tennis courts, club houses and various buildings,” says Mr. Parker, who is director of management services for Cadden Community Management in Tucson. “Homeowners associations are tailored to fit the needs of every demographic group, whether they live on the beach, in the mountains, on a golf course, or in the desert.”

The Institute has developed a 67-page policy manual that covers myriad situations. Listed alphabetically, the first deals with Aesthetics As An Economic Issue and states that the organization “opposes any and all attempts at the federal, state and local levels to enact laws or regulations that ignore or negate the economic importance of aesthetic controls.”

Mr. Parker says H2307, which was sponsored by Mr. Farnsworth and was defeated in a Senate committee, would have crippled HOAs. According to a legislative staff report, the bill would have allowed an HOA to place a lien on a unit for monetary penalties only after a favorable judgment in court and would have prohibited foreclosure of the lien for monetary penalties. It stated that monetary penalties, fees, charges, late charges or interest charges unrelated to the payment of assessments are not enforceable as assessments.

“We were against it,” Mr. Parker says. “Every association has the absolute right to collect dues, and to limit an association’s ability to do that would do harm to the association.”

Polls have shown, Mr. Parker says, that 75 per cent of homeowners are satisfied or very satisfied with having purchased a home in an HOA community. He sees as one of the biggest challenges the fact that HOAs are largely run by volunteers. “They have no training, no experience, no code of ethics, and they don’t know the statutes that govern corporate board members,” he says. “There is room for abuses. Some members get on the board for the wrong reason.”

Mr. Parker believes it is important that property owners understand their rights. He also says HOAs would benefit from a national uniform certification process established by the industry, not government, for property managers so they could “demonstrate to a board of directors that they have a baseline knowledge of the fundamentals of managing homeowners associations.”

Next Session

Will there be another round of HOA bills next year? “You can count on it,” says Ms. Hellon, a Tucson Republican, “but if people are smart, they’ll try to do a little at a time.”

Mr. Hershberger hopes that before next year’s legislative session interested parties will get together and take a measured approach to resolving association issues.

Mr. Kamps of the Home Builders declines to speculate on future legislation, except to say the debate will focus on a “balance between the homeowner’s voice and HOA authority.” —

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