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Homeowner’s Association (HOA)

A private organization formed by property developers to establish and enforce internal regulation that controls land use

What is a Homeowner’s Association (HOA)?

A homeowner’s association (HOA) is a private organization formed by property developers to establish and enforce internal regulation that controls land use. It is sometimes referred to as Properties Owners Association (POA) and may also engage in such activities as marketing and selling of properties on behalf of its members.

 

Homeowner’s Association (HOA)

 

Individuals who purchase properties with an HOA become members automatically and are legally bound by its rules. Members are required to pay subscription fees, otherwise known as HOA fees.

An HOA can do many things that the government does, including collecting fees, regulating behaviors, and holding elections – hence its infamous name “private government.”

 

Summary

  • A homeowner’s association (HOA) is a dominant organization in housing developments that exercise greater control over the provision of services and the use of funds.  
  • An HOA assumes various responsibilities of homeownership and regulates the use and misuse of properties within a particular community.
  • HOAs are mainly focused on management efficiency, quality of services offered, the use of funds, decision-making process, and control over the quality of service.

 

How a Homeowner’s Association Works

Homeowner’s associations are common in newly-built condominiums, a subdivision, or a planned community with automatic and mandatory membership. Sometimes, members in a neighborhood do not like each other, yet they own properties in the same area.

Developers must establish a set of guidelines for the use and upkeep of the jointly owned properties. A requirement for membership is usually to buy a home in a community with a homeowner’s association. In turn, a member can access the HOA’s amenities and participate in its governance.

The internal regulations of HOAs create standards that allow property owners and residents to live together and maintain the common facilities in a manner that preserves their rights. Pre-existing rules are binding to all members and can only be amended by a vote of the majority.

 

Homeowner’s Association - How It Works

 

Governance of a Homeowner’s Association

A homeowner’s association is often headed by an elected board of directors. The directors’ central role is to enforce and oversee the organization’s rules and regulations. An HOA usually formulates a Declaration of Covenants, Conditions, and Restrictions (CC&Rs) as the enforceable legal document that lists rules and conditions.

The governing documents dictate the size of the board. The limitations vary from structural to aesthetic choices. For example, the governing document may outline the type of landscape or fences permitted or the house paint type.

Punishments to violators are in the form of denial of privileges, use, fees, or even litigation. HOAs with upscale amenities hire professional managers to handle management duties such as on-site management, financial only, or full management. The management may have the authority to place liens on the property, depending on a state’s laws.

Most homeowner’s associations meet once per year to elect board members and vote on a budget. During the meetings, discussions usually focus on the organization’s priorities and funding needs.

In non-controversial issues, voting members are, in most cases, unanimous in their decisions. HOA meetings are also attended by residents, where most of their discussions relate to planning, expenditure, building, and investments. Most of the board members comprise retirees who have enough free time to manage the property where they live.

 

Homeowner’s Associations vs. Community Associations

Most homeowner’s associations are incorporated and governed by state statutes that cover non-profit corporations. Nevertheless, some HOAs are considered different in other states.

Particularly, institutions governing cooperatives (co-op boards) and HOAs in condominiums are assumed to have a different property interest, making them distinct entities.

As a result, a conventional designation – dubbed “community designation” – is used to incorporate co-op boards, condominiums, communities, and homeowner’s associations.

HOAs are covered under the umbrella of the trade union called the Foundation for Community Association Research, which seeks to influence state legislation.

Available data from the union shows that in 2018, areas with community associations are inhabited by 26% of the population and that there was a total of 347,000 community associations in the United States.

 

Pros and Cons of Homeowner’s Associations

 

Pros

The rules and restrictions that HOAs provide to their members are intended to better the community’s property values. The guidelines often deal with the houses’ structure and appearance, so they address the alterations, cleanliness, and general conditions of the properties. It ensures uniformity of all properties within the area.

Members also benefit from additional amenities in exchange for the association fees. The management may provide complementary services and facilities, such as landscaping and swimming pools, respectively. Management services may also cover snow removal and garbage collection.

From a theoretical standpoint, HOAs embody democracy and governance to the members. In this sense, community managers may come from within and understand problems and challenges facing residents.

 

Cons

One downside of the association is the high membership fees. It discourages several prospective buyers. In relation, the internal regulation is stringent and unreasonable, denying property owners the flexibility to customize their homes.

Occasionally, board members of an HOA comprise volunteers who may lack basic managerial skills. It may explain the disagreements that are common in annual general meetings of HOAs.

 

More Resources

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  • Real Estate Joint Venture
  • Home Mortgage
  • Home Equity Loan
  • Real Estate Owned (REO)

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