Tim 4 OC Real Estate

For most people, the only time they think about their Home Owners’ Association is when they pay the bill, or receive a notice that something is wrong.   People don’t like to pay fees, and they don’t like being told what to do, so often the HOA is only seen in a negative light. 

Actually, a good HOA will protect your investment.  Property values are higher in associations because the neighborhood is well maintained.  Having consistent rules makes the homes more desirable when they are re-sold, and that leads to a better return on the owner’s investment.

HOA policies also increase good neighbor relations.  Associations typically prohibit actions that intrude on the other residents.  Thus, you won’t see abandoned vehicles parked for months at a time on the front lawn, you won’t have streams of cars to a “residential business”, and you won’t see ugly additions / paint / landscaping.  New homeowners know all the rules before they purchase, so their rights are not being infringed upon.

A good association will also protect your long term investment.  There are common areas which must be maintained, and the cost is the responsibility of all the owners.  The use of reserve accounts makes special assessments less likely which certainly helps the owner’s budget.

For most people, the only time they interact with their association is to file a complaint.  It is helpful to remember that the board consists of volunteers who also own property in the association.  You may disagree with their policies, but they are trying to move forward in a direction they believe is best for the community.  

If you feel changes should be made, approach your board at a regular meeting.  Let the manager know you wish to be on the agenda.  Then take your suggestions to the board with plenty of material to backup what you wish to share.  You don’t have to present it all verbally, but you can certainly hand it to them for reference if they wish to explore your ideas further.  Be prepared to listen, because sometimes the comments you wish to share may have been explored previously.  If your idea is good, but not new, maybe you can share some thoughts on how to “get there from here” that doesn’t add a strong financial burden on the association.

You can communicate with your board in writing, but keep the comments focused on a positive expression and specific outcome you would like to achieve.  Offensive language has no place in verbal, or written, communications with your HOA board.

Finally, if you believe the board is truly out of touch with the realities of the community, and you can’t get the message across, maybe its time for a change of leadership.  You can wait for the next election, or move forward on a recall.  In either case, be prepared to collect proxies, campaign hard, and then be ready to devote your own time, as a volunteer, should your movement be successful.  You may get rid of some people, but unless you are ready to step in and take a leadership role, your actions will probably not be helpful.

For further study, get to know your HOA.  Read the CC&R’s you received when you moved in, and also become very familiar with the Rules and Regulations.  You can view the minutes of previous board meetings and you will have a better understanding of what is occurring at the meetings.  Also, start attending the meetings.  It is, after all, your association and being involved is a great way to know your neighbors.

Many people think a Home Owners’ Association is some distant company that tells them how to live, charges assessments, and is intent on making life unpleasant for some residents.  The residents don’t feel they have a voice, or representation.

Actually, the company who sends the bills, and those sometimes annoying letters, is hired by the Board of Directors of the Association.  There are many companies that provide management services, but they are all under the direction of the Board.

So who makes up the board ?  The property owners !  In a new development, the builder holds the seats on the board, but then releases them to residents as the units sell.  Ultimately, the board is made up of only owners. 

Every year the HOA holds an election.  The owners receive a Proxy ballot, usually with names of candidates.  This is not a simple process unfortunately.  First, the board can use Proxies to cast ballots for anyone they want if the owner returns it without designating how the votes are to be cast.  Candidates can collect proxies, even if an owner has sent one in, and they can use it if the signature date is later then the original returned to the board.  A ballot can be used to cast votes equal to the number of openings, so a proxy could be worth 3 votes if there were 3 seats available.

When a board becomes entrenched and seems intent on retaining power, they do so by collecting the ballots that are used for “quorum purposes” and don’t specify candidates.  They can then cast the votes for the individuals on the board which usually is sufficient to retain the seats.

A group of owners, concerned about the direction of the association, can get elected and take control.  This is usually done by “walking the neighborhood” of the association homes, and asking people to sign proxies on behalf of themselves, or the slate of candidates they wish to elect.  This is usually done fairly close to an election, and the ballots are then presented at the annual meeting when the officers are chosen.

Most people simply won’t get involved.  However, if you have concerns about your HOA, and how it is being run, then perhaps you, and other like minded owners, should seek seats on the board and redirect the efforts of the association in the direction you believe will be best for everyone.

Next:  The Management Company

The Home Owners’ Association brings immediate feelings to residents, some good, and some otherwise !  In reality, the HOA is simply an extension of the the owners in a community which is designed to handle issues in common.  How it works is really dependent on the involvement of the property holders.  Its success, and failures, are directly related to the involvement of the property owners.  In this series, I will discuss key issues everyone should know about HOA’s.

What is a Home Owners’ Association ?

When neighborhoods are developed, many builders now place all of the homes into an HOA ( Home Owners’ Association ).  This is done by forming a legal corporation, and binding all of the homes in that development into that entity through their deeds.  Often the association is designed to handle common areas, like slopes, parks, recreation centers, and parkways.  The association is tasked with maintaining these areas which are deeded to a group of homeowners in common. 

Where does the association get its authority ?

The Association gets its authority from a document commonly known as CC&R’s.  This stands for Covenants, Conditions, and Restrictions.  When someone purchases a home in an HOA, they sign a document agreeing to abide by the CC&R’s.  This is not optional because all homes in the domain of the HOA are bound to these CC&R’s.  This is a pretty large document, but to fully know your obligations you should read it.  CC&R’s are usually created by the original developer and rarely change.  The CC&R’s are bound to the property and transfer with it whenever ownership changes.

The Rules we live by

The specific rules that govern life in the association are in a separate Rules & Regulations document.  These are also created by the original developer, but they are often modified, enhanced, or reduced, by the HOA Board of Directors.  These rules can be very specific, ie. discussing acceptable landscaping, parking, color selection, property use, etc.  When conflicts arise between an HOA and residents, it is about these rules.

HOA assessments

Most HOA’s have property to maintain.  The actual obligation varies depending on the location, type, and size of the common areas.  There are also variations in responsibilities.  Gated communities have “private” streets so the association pays to pave and repair them.  Condominiums have structure in common, so the association usually must pay to paint the exteriors, fix all walkways, handle termites, and more.   Some gated communities hire guards.  Hillside communities must maintain the slopes, which involves plainting, trimming, watering, and damage repair.  HOA’s with recreation areas must maintain them, and pay for ongoing maintenance.  In addition, HOA’s should set aside reserves to handle unexpected needs in the future. 

All of this must be paid for by the member homeowners who actually benefit from these services.  HOA’s are not profit making companies.  They collect funds from the homeowners for actual and necessary expenses.  As costs rise, assessments may also rise.

When people fail to pay their assessments, it harms the Association and places a burden on the other residents.  The costs for the upkeep of the properties in common will not reduce or go away because someone doesn’t want to pay their assessment.  To protect the interests of the residents in common, the HOA does have authority to penalize people who miss payments, and to even place leans against properties. 

It is important to remember an HOA is not a voluntary membership.  If you purchase a property inside a development that has an HOA, you will be bound to its rules and regulations, and will be required to pay an assessment that covers costs in common.  You have no legal alternative if the property you own is governed by a Home Owners’ Association.

Next:  Who runs the HOA ?

You may have been surprised by the headlines announcing  home sales are on the rise.  Most of the economic news is really bad, and the warnings are out that credit will be hard to find.  However,  there are lenders with money available … if you have a good credit history and can meet the standard rules of finance ( a stable job, down payment funds in the bank, low debt ).

The price of homes has dropped generally about 25% from their peak value.  The exception are the multi-million dollar homes that just keep growing in value.   A large percentage of the homes are bank owned or available for short sale ( priced below the current debt ), and this has set the lower prices.

Short Sales require patience.  It takes time for the bank to go through the paperwork and agree to a price.  Sometimes this can take many months, but the patient buyer could get a good deal as a result.  Bank owned properties, taken through foreclosure, can be sold faster because the banks already know the price they are seeking.

Competing with these price levels are owners who have no financial difficulties, and have room to negotiate a lower price.  Often they are priced to compete with the bank pricing, but they can close deals in days instead of months.

There are a lot of great opportunities on the market today.  Many beautiful homes are available at great prices.  If you are interested in finding out more, lets sit down and talk .. call me toll free at 800 504-6787 and we can get together right away.

Tim