If you purchase a new home, there is a high likelihood that you are joining a community governed by some sort of community association, such as a homeowner association or condo association. You may have chosen to live in such a community because of the amenities it provides: common green space, a pool, a playground for your children. Or, you may have just chosen a new home that happened to be part of such an arrangement without giving much thought to the matter. Whatever your reason, however, you may be getting more (or, in some cases, less) than you bargained for.
According to the Community Associations Institute, one in six Americans live in some sort of common interest development. In North Carolina alone, there are an estimated 18,000 homeowner associations. In effect, these entities function as a third form of government, often performing many of the duties that would otherwise be taken care of by a municipality; erecting street lights, maintaining streets, keeping up common spaces. Homeowner associations are governed by a volunteer board elected by fellow homeowners in the community. This board is responsible for the association's general management including levying and collecting fees and assessments. These boards also have the power to place a lien or foreclose on a home for unpaid assessments and fees.
This massive transfer of authority to an unpaid and untrained volunteer, however, can sometimes lead to serious challenges. Because of this knowledge gap, some boards opt to hire a management company and others depend heavily on hired lawyers, whose steep costs are passed on to community members.
While this system works for some, particularly lawyers, developers, and management companies, it can often have very negative effects on the homeowners it was created to serve. In North Carolina, there have been many cases of the misuse, mismanagement, and embezzlement of association funds, violations of open meeting laws, and improper election of board members. There have also been cases in which the same lawyer represents multiple related entities, developers associations and management companies and/or benefits from collection activity.
Most alarming is that homeowner associations can actually foreclose on homeowners who have fallen behind on assessments or fees, even if they are current on their mortgage payments. Some associations will move to foreclosure over small amounts owed and will not offer payment plans to homeowners. This has particularly hit homeowners with low to moderate incomes as well as first time homebuyers.
Under current law, there is little recourse that homeowners can take if they feel that illegal activity regarding their homeowner association has taken place. There is no state agency that governs or oversees these associations. The only course of action you can take is to hire an attorney to represent your interests. For most homeowners, this option, the only option, is far too expensive. Frustrated homeowners either give up the fight because they see no other or even choose to sell their home and leave the development.
Clearly, there needs to be a way to ensure that the laws governing homeowner associations are followed. Laws and regulations do no good unless there is some way to enforce them.
One sensible course of action would be to create a division within an existing state agency dedicated to representing homeowners in instances where illegal activity has occurred. This organization could be funded through a minimal annual fee on homeowners associations. It could also require associations to register on a yearly basis and provide certain information regarding the community and its "financials."
There also should be minimum protections in place to better protect homeowners from abusive association practices. Such protections could include adopting minimum accounting standards, significantly limiting the use foreclosure in the collection of debts, provisions against the selective, arbitrary and discriminatory enforcement of covenants, and provisions to ensure fair elections and open meetings, just to name a few.
At the General Assembly this spring, the House of Representatives has created a "Select Committee on Homeowner Associations" in order to investigate the challenges surrounding these communities and develop a set of recommendations for consideration when the legislature returns in May.
Let's hope this group puts together a strong list. Homeowner associations can be an efficient and useful way for communities to come together to accomplish important common goals. The law should provide affordable and consumer-friendly ways to make sure they don't stray from this mission.
Carley Ruff is the Policy and Outreach Coordinator for the North Carolina Housing Coalition