As HOAs continue to proliferate, critics and a few lawmakers increasingly are calling for more regulations to protect homeowners.
Among the measures:
At the state level
▪ Establish an HOA ombudsman office.
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Proponents say an ombudsman can investigate complaints from homeowners about their HOAs, help homeowners and board members understand their rights and obligations, and provide informal mediation. Only six states have an ombudsman or similar program; Missouri and Kansas are not among them.
“We can remove board members for things like bullying, conflict of interest, retaliating against homeowners or making a lot of unilateral decisions without the approval of the rest of the board,” said Sharon Jackson, ombudsman for the state of Nevada’s Common-Interest Communities and Condominium Hotels program. “We get calls from other states that are wanting to know about our law.”
As they’re currently set up, though, most of the state offices have little power, critics say.
“You can call them up as a sounding board, but they don’t necessarily have any authority to investigate anything and they only have limited jurisdiction,” said Deborah Goonan, an adviser for the Coalition for Community Housing Policy in the Public Interest, a group that pushes for HOA reform.
▪ Mandatory training for board members and licensing of community managers.
Board members need to learn how to better manage the HOA’s money, understand the importance of building up a reserve fund and be more skilled at handling conflicts with other homeowners, reformers say. Missouri and Kansas have no training requirements.
The property managers run the day-to-day operations of 60 percent to 70 percent of the country’s HOAs, yet only nine states require them to be licensed. Neither Missouri nor Kansas is among them. It makes no sense, reformers say, that many states require licenses for barbers, real estate agents and wrestling referees, but not for someone overseeing a substantial HOA budget.
“Some states do have mandatory licensing for property managers and some minimal training for board members,” said Sara Benson, a real estate broker and co-author of “Escaping Condo Jail.” “But there’s really no enforcement.”
Some also push for a federal licensing regulation.
Even Nevada, which Jackson says has more laws and regulations on HOAs than any state in the country, has no mandatory training for board members.
“We wish there was, but that’s not something we’ve been able to do thus far,” Jackson said. “The problem with that is that you have voluntary board members. It’s kind of hard to mandate them to do something when you have a hard enough time just getting people to run and get on the board.”
The Community Associations Institute says it conducts training if board members are interested.
A licensing program for managers puts a financial burden on a state, the CAI says. It offers a professional certification program for community managers but prefers that states allow them to self-regulate.
“We have more than 15,000 managers who have taken and passed that certification examination,” said Dawn Bauman, the CAI’s senior vice president for government affairs. “However, there are about 50,000 community managers in the country. So not every one of them has taken education programs and is credentialed.”
▪ Set term limits on board members.
Limiting the length of board members’ terms can keep officers from becoming too powerful — something that can lead to unethical or even criminal activity, reformers say. Term limits also can help prevent “bully boards.”
“That’s the primary reason that some of the associations have limited terms — so somebody doesn’t go on a power trip for 10 years,” said Clarence Foxworthy, executive director of the Homes Associations of Kansas City, an alliance of 63 HOAs.
But Foxworthy points out that some experienced board members who have done a good job would have to step down, and it’s already difficult to convince homeowners to run for the positions.
The CAI says a state law isn’t necessary.
“We really support self-regulation of the community so that the community can create rules and restrictions and guidelines that are good for their community,” Bauman said.
▪ Require HOAs to conduct reserve studies.
It’s crucial for an HOA to have money in its reserves to pay for major projects or unexpected repairs, reformers say. If it doesn’t, homeowners could be hit with a hefty special assessment and even lose their homes if they can’t afford to pay.
Only seven states, not including Missouri or Kansas, mandate that HOAs conduct studies to determine how much they need in their reserves, and some require them to keep a certain amount of money in the fund.
But even among the states that do require studies, the laws “are vague and seldom enforced,” said Carson Horton, co-founder of Capital Reserve Consultants, an Oregon-based company that conducts reserve studies for HOAs.
The CAI argues that, although reserve studies are important, mandating them isn’t practical for every homes association, as they differ in size and in the amount of property or amenities they have.
▪ Create a state registry for HOAs.
Registration will help law enforcement contact residents in case of an emergency or natural disaster, proponents say. Rather than trying to reach out to hundreds of individuals, authorities can contact the HOA to help distribute information.
Registration also helps ensure building code compliance and promotes accountability. Many cities have no idea how many homes associations are within their boundaries.
“We have tried for years to develop a database of homes associations within Overland Park,” said city spokesman Sean Reilly, who estimated the city has about 150 HOAs. “We have no master list.”
Neither Missouri nor Kansas has a registry.
The CAI says a registry can become a financial burden on a homeowners association. Charging “per door” fees for registration is not fair, it says, and it’s hard to keep the registries updated.
“Some states, during a corporate annual report filing, will have a check box that says, ‘Are you an HOA or community association?’ ” Bauman said. “That’s a great way to do it.”
At the federal level
▪ Mandatory disclosure on home purchases.
Homebuyers need to know what it means to live in an HOA, reformers say. Disclosure laws will allow buyers to find out what shape an HOA is in before — not after — they purchase in one.
“When it comes to HOAs, there’s no standardized mandatory disclosure,” Benson said. “And we’re talking a $90 billion-plus a year industry that has no federal oversight. People need to know that the HOA can foreclose on them for unpaid dues; they need to know the risks involved in terms of their liabilities.”
The disclosure, she said, should include the amount of the HOA’s dues and special assessments, a copy of the restrictions, covenants, bylaws, budgets and board meeting minutes and information on any pending lawsuits.
The CAI’s Bauman said most states already have some kind of disclosure requirement. Missouri and Kansas are among them.
“What varies is what’s required to be disclosed,” she said. “Some states will have a list of 20 items, and others will have a list of five.”
▪ Require background checks on those who run HOAs.
Currently, there’s little vetting of those serving on HOA boards or the property managers who run the day-to-day operations. A board president, for example, could have a felony record, might be in arrears on his or her own dues or might even have a history of judgments or bankruptcy.
Even Nevada, with its ombudsman office, does not require background checks. But Jackson, who runs the office, said she’s not sure that’s a serious problem.
“I don’t know that it’s a bad thing,” Jackson said, because it might discourage homeowners from running for a board. “It’s a fine line. You need people who are actually going to run.”
While HOA boards are often painted as the villains when problems arise, even critics say homeowners share some responsibility.
Most don’t bother to read or understand the often lengthy governing documents — called CCRs, or covenants, conditions and restrictions — and few attend their HOA board meetings or know who is on the board.
“Come on, homeowners,” said Donie Vanitzian, author of “Villa Appalling!”, a book that cautions readers about deed-restricted communities. “Stand up at the plate. If you’re expecting your neighbor to do your job for you, you’re going to deserve what you get.”