Saturday, February 29, 2020

Homeowners’ associations (HOAs) are an increasingly popular form of residential housing in the United States. Encouraged in part by federal government policies, approximately 63,000,000 Americans—about 20 percent—live in 25,000,000 housing units in HOAs, according to the Community Associations Institute. HOAs are the governing bodies of a private development in which your home is located.

A homeowners’ association is a private corporation, typically established under the Not-for-Profit Corporation Law. The HOA is created by a real estate developer for the purpose of building and managing a community of homes. These could take the form of, for example, single-family homes, townhouses or condominiums. Prior to the sale of the homes, the developer forms the corporation which is given the authority to enforce the Declaration of CC&Rs—covenants, conditions and restrictions—and also to manage the common elements of the development, such as a clubhouse, swimming pool, roads, etc. The CC&Rs are legally binding so when you buy into a planned community you automatically become a member of the HOA and are subject to its bylaws.

In New York State, the attorney general requires that, unless he is exempt by law or regulation, the sponsor who develops an HOA must file an offering plan for the HOA and then carry out the commitments which were included in this plan. The attorney general’s jurisdiction is limited to ownership and maintenance of the HOA’s common property. Therefore, after the development is sold, the developer exits, and New York State’s jurisdiction, which is limited to making certain that the developer has complied with his offering plan, ends. Because an HOA is a private corporation, the attorney general has little post-sale control and does not intervene in owners’ disputes with their boards after the developer is no longer in control of the board. However, if the developer fails to keep the commitments to which he is obligated in the offering plan, then owners may contact the Real Estate Finance Bureau of the New York State Department of Law.

A board of directors governs the HOA via the bylaws of the corporation. The board is initially appointed by the developer and, as the units are sold, the board’s members are elected by the homeowners. The board maintains the common areas and enforces the bylaws. Many boards will hire professional management companies to help them fulfill their fiduciary obligations to the homeowners. These obligations include recordkeeping of financial transactions, payment of taxes and contractual services which must be provided to members.

When one buys a unit in an HOA, that buyer automatically becomes a member of the HOA—he/she cannot opt out—and is subject to its rules and regulations that are contained in its bylaws.  At this point, the buyer forfeits his ability to make individual decisions which run afoul of these rules and regulations.  Some of these rules have been deemed to be unduly invasive, elitist or downright silly. Association members have been fined for infractions such as painting their homes in non-approved colors, planting non-approved plants in their yards, erecting a forbidden flagpole, harboring an excessive number of pets, building a fence that is too high, violations of behavioral norms, drying their clothes on clotheslines, erecting TV antennas, failing to keep their garage doors closed and parking vehicles in driveways after dark. Therefore, if a person wants to do something that is currently prohibited, it would be wise to ask permission of the board, or to seek a variance, or to run for a position on the board; it would be most unwise to refrain from paying association dues during the dispute because boards have extensive and legally enforceable punitive powers. Therefore, if a prospective buyer suspects that he may not be able to live in a community which uncomfortably restricts his ability to make decisions about his private property, it is then very important that he insist that he be allowed to examine the CC&Rs prior to purchasing the property; his contract of sale should be contingent upon such examination prior to closing. The offering plan should include the bylaws with information about the responsibilities of the HOA, how to amend the declaration, procedures for electing and removing board members, what the board is authorized to do, how owner meetings are called and procedures for dealing with homeowner defaults on his/her obligations, including maintenance charges and assessments.

In order to maintain the common areas of the association, boards have the authority to impose association dues and to assess members for needed improvements and repairs to the common elements. Members who do not pay their assessments and association dues are subject to penalties—including, in extreme cases, forcing the sale of their individual units and expulsion from the association. This is in keeping with, as the attorney general states, the primary purpose of the association, which is to “protect and preserve the value of the privately and commonly used property.” Thus, the board may take actions which it believes furthers the common good but which may be detrimental or distasteful to an individual homeowner.

Finally, it is important to note that the 1968 federal Fair Housing Act and Supreme Court decisions such as Shelley v. Kraemer (1948) prohibit discrimination in the sale of HOA housing units. Restrictive covenants were made enforceable in Shelley but private restrictive contracts continued to exist until the 1968 Fair Housing Act made them illegal. State and local laws also outlaw discriminatory actions in the sale and advertising of housing.

By Vivian J. Oleen,
Associate Broker,
Sopher Realty

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