Friday, August 28, 2009

HOAs Try To Reduce Investment Risk By Imposing Restrictions On Properties

A common goal of homeowners associations is to maintain and protect property values, and in essence, acting as insurance for a owner's property value.  Unfortunately, this view is very problematic, inciting discontent between neighbors, because one person's belief in what is aesthetically pleasing or profitable may be another's nightmare.  It is also flawed because it is not a democratic system, but closer to a communist authoritarian rule, run by a volunteer army.  This army cites their covenants and restrictions, and fine, assess, lien, or foreclose on those who do not fall in line. 

My main problem with homeowners associations is that they are corporations that try and govern your rights, and generally do so at the whim of the minority.  Participation in private association government is only a fraction of involvement in our real government.  Associations claim that their system is democratic because you can vote people in and out, but what commonly occurs is a few homeowners decide to be board members, and typically they are the type that want to enforce covenants and protect home values.  Understandably, covenants run with the land, and allow for the existence of HOAs.  They also allow for the homeowners to ammend or abolish them, but homeowners tend to be to apathetic to do so, fearing any cost associated with doing so.  This is the same reason why HOAs have poor attendance and participation. 

Because HOAs claim to be democratic, one would believe that majority rule would be the rule, but in reality, it is not.  Because of the lack of interest in HOAs, they are not capable of getting a majority of homeowners to do anything, and so they establish quorums, which only requires a fraction of the membership to be present, so business can be conducted.  This process can also be used to make changes in the articles of incorporation or by-laws, as well as budgets and expenditures.  Board of directors can even use this process to create rules in charging the homeownership.  As opposed to actually achieving a majority, associations use this process to do the things they want to do with only a small percentage, like in some neighborhoods I am familiar with, where they attempt to do business with less then 20% of the people present.

During the board's meetings, they discuss important things that effect property values and determine the best way to make people's investments better.  Apparently every board member has a business degree, and they must have taken courses that determine risk assessment in home ownership, with chapters in their text including landscaping, external paint colors, trash can placement, and pet limitations.  I view the HOA's involvement as reducing possible returns on investments.

If I sold a car, but told the person buying it that they must only drive 20 miles per hour, I doubt anybody would buy my car.  The same goes for a home.  HOAs limit investment into properties because they try to create a neighborhood standard.   I can't paint my home neon colors because someone on the HOA has considered that spectrum of colors to be a risk, and if I were to, my neighbor's property values would potentially lower.  Why should I care about my neighbor's property values?  If I believe a neon home would sell for more, then I would want my house neon. 

What makes this situation worse is not only unprofessionals joining what legally is a corporation's executive branch, it is when ignorant people rise to power.  They misinterpret statutes annd governing documents, and cause problems for the membership, or even worse, the non-members, who then have to pay to protect their property rights, while the board members can act anyway they want without accepting liability for their actions, especially if they have insurance, and what compiles the problem even more is that HOA's are funded and can raise funds from your neighbors, making an uphill battle for the poor homeowner.

Homeowners should do themselves a favor and legally abolish any covenants tied to their land.  I am certain property values would be better.

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