The comments in this post are excerpts taken from an article by Robert Metcalf as it appears on http://hoanewsnetwork.com/ in 2007. I consider this to be one of the best researched and documented papers of thought provoking commentary on HOA governance today. In his opening statement he says:
"My Name is Robert Metcalf. I currently reside in, and serve on the Board of Directors for a Common Interest Development (CID) known as Concord Crossing, located in Chadds Ford, PA. When I began my term in May of 2006, I decided to educate myself concerning CID’s to enhance my performance as a board member. Frankly, what I learned shocked and scared me. The purpose of this paper is to illustrate and provide some possible remedies to what I perceive as the greatest injustice perpetrated upon the American citizen in history."
THE ROOT PROBLEM.
"There are two basic issues concerning CIDs:
(1) The basic legal framework in which they operate.
(2) The lack of disclosure required by law for perspective buyers.
As American citizens most of us take for granted the responsibilities and protections provided for us in our laws. It is unfortunate however that a sizable part of us have had these rights and protections stripped away without being afforded the opportunity to really understand what it means to purchase a property in a CID.
Furthermore, they (the real estate developers) discovered a very seductive tool to entice the local governments to give their approval. That tool is this. The developers, through the HOA, would provide basic services for a fee charged to the homeowners. The local governments for their part would get to tax the residents at the full rate, without providing any services. A true "Quid Pro Quo."
What most people fail to understand is that when they sign off on the documents at settlement, they have subjugated themselves to an "adhesion" contract. They have agreed to live in a corporation, and live under corporate governance. While operating under the "Business Judgment Rule’ is appropriate and necessary in the working world, it has no place in one’s personal life."
THE PRIVATE GOVERNMENT.
"The result is a law created by, and in the interest of, the real estate developers and the real estate developers alone. The foundation of good governance is the idea of checks and balances. An HOA is devoid of this. The end result of this is that a small number of people, a majority of the board, can rule arbitrarily and absolutely, with little or no fear of consequences. Rules can be created, modified, or revoked without considering the community’s desires at all, in effect changing the "terms of the contract" at will".
THE "BIG LIE" – Lack of Disclosure and Disillusionment.
"Another issue that needs to be addressed is the lack of disclosure provided by the developers during the sales phase of a project. The average person simply has no idea of what they are getting involved in. Everyone who has ever gone through the settlement process realizes the notion of reading every document that you must sign is unrealistic, therefore the standard CID industry defense, "you signed the contract so live with it", is as disingenuous as it is hollow. How could such a large percentage of the home owners be so completely ignorant about something that could potentially bankrupt them and perpetrate the losing of their property? Again, there is only one possible answer, the lack of proper disclosure."
"THE FATAL FLAW".
"It is simply impossible for residents to make impartial judgments concerning other residents. This results in the "Fatal Flaw". Every violation notice, fine, or ruling handed down by the HOA is taken as a personal slight. It cannot be avoided. The effect over time is cumulative; a corrosive force that slowly, but inexorably, destroys the fabric of the neighborhood, setting neighbor against neighbor, raising pettiness to a high art form, and creating deep-seated resentments that never dissipate. Unfortunately impartialness and fairness are diametrically opposed to personal involvement and friendship."
ARE THERE ANY SOLUTIONS?
"I think the first thing one has to realize is how widespread this problem is. The number of complaints about HOA abuse has become so great that even the AARP has issued "A BILL of RIGHTS for HOMEOWNERS in ASSOCIATIONS. For my part, I believe there are two distinct levels of remedy that could be enacted to provide relief for HOA owners.
Provide perspective homeowners with adequate disclosure including:
(1) Be the first item in any sales information as well as the settlement documents.
(2) At settlement it should be notarized as a separate action.
(3) The buyer is entering into a binding contract with the HOA and agrees to live under the rules of corporate governance.
(4) Corporate governance provides for the Board of Directors to control every aspect of life in the HOA as provided for in the declaration, bylaws, and rules and regulations.
(5) The monthly assessment is in fact a lien on the buyer’s property, and failure to pay will result in foreclosure.
(6) The "business judgment" rule allows the BOD wide latitude in creating and enforcing rules and regulations, without seeking the approval of the unit owners.
(7) The BOD will hear any appeal of a decision by the BOD.
(8) Any decision by the BOD that is in conflict with the buyer’s constitutional rights will take precedent and by agreeing to this contract the buyer acknowledges that fact.
This may sound dramatic, but the fact is that this represents exactly what the buyer is agreeing to.
Adopt a "Homeowners Bill of Rights" similar to AARP’s.
(1) First and foremost, it should subjugate the HOA to the law of the land, and provide for the upholding of all the rights of citizens as provided for in The US Constitution, Federal law, State law, and Local law.
(2) It should mandate that HOAs provide for outside oversight, either in the form of an ombudsman, or preferable the courts through an administrative judge. If either of those two solutions proves insufficient any litigation that may result should operate in the same legal framework as any process.
(3) It should mandate that the burden of proof fall on the accuser and not the defender.
(4) It should require that any change to any rule or regulation by approved by a majority of the homeowners.
(5) It should require that the annual budget be approved by a majority of the home owners.
(6) It should define the monthly assessment as a debt, and not a lien on the home owners property.
(7) It should disperse the powers now concentrated in the BOD among independent committees.
(8) It should allow any deed restriction to be modified and eliminate deed restrictions that "run with the land" in perpetuity.
(9) It should force local governments to rebate taxes collected for services not rendered."
"It is my firm belief that someday, after enough people have lost their homes of over zealous and unscrupulous law firms, after enough people have been forced to suffer the indignity of a self-righteous, self-absorbed, BOD spouting endless edicts of minutia about "rules and regs" and "fiduciary responsibility" all rapped up in the mythology of "maintaining property values" this fraud will be seen for exactly what it is; a systematic infusion of corporate culture and governance into the domestic lives of an ever larger share of the American population. Who wants to live at work?
One might ask; "If you dislike it so much why don’t you move?" My answer is simple; "I don’t want to." Care must be taken not to confuse the neighborhood with the HOA. The two things really have very little to do with one another. In the end, you can have a corporation or you can have a community, but you cannot have both."
For the full text of Robert Metcalf's paper, log on to the website http://hoanewsnetwork.com/.
