When an individual purchases a home, a common line of thinking is that since he now owns the property he should have the right to alter or update the dwelling as he pleases. For many homes this is correct. If, however, the home falls in a neighborhood with a homeowner’s association (HOA), this may not be the case. HOAs are commonly seen in neighborhoods where an entity buys a plot of land and builds several homes on the land, creating a subdivision.
A Brief History of HOAs
The first modern type neighborhood was Levittown which was built on the site of a potato farm on Long Island off the coast of New York. The builder, William Levitt, developed the area, creating a series of inexpensive homes designed to be purchased by veterans at a lower interest rate guaranteed by the 1944 GI bill. The area grew between 1947 and 1951 to include more than 17,000 houses build on or around the original location. Those who purchased these homes had small restrictions such as no clothes lines, but a formal homeowner’s association did not exist.
Suburban living continued to grow and become attractive to homeowners. Transportation into and out of cities became easier with the development of more roads and people began looking farther away from the city for a place to live. As a result, smaller, more contained neighborhoods began popping up. These new neighborhoods had stricter covenants which governed a plethora of topics related, not only to the home but to the landscaping and public areas as well.
In the 1970s, a growing scarcity for land surrounding popular cities forced developers to begin increasing the density of dwellings on each plot of land. In order to maintain attraction, they would often surround open green spaces with tightly packed rows or clusters of houses. They began offering amenities that were previously only available from public sources. These amenities, such as neighborhood pools, tennis courts, club houses, etc. were designed to attract new buyers and compensate for smaller individual lot sizes.
Along with all of these changes came the formalization of homeowner’s associations. Covenants became stricter and were accompanied by, not only annual fees, but penalties and other fees if the rules were not followed. The HOAs we are most familiar with today are similar to this. Homeowners are charged monthly or yearly fees and in exchange are given access to amenities such as pools, clubhouses, playgrounds, tennis courts, etc. While this sounds great, these homeowners are also held to a set of very detailed and strongly enforced do’s and don’ts.
On average, HOA fees will cost homeowners between $100 and $300 a month but could be less or much more depending on the neighborhood. These fees are typically held in a fund by the association and used to maintain common areas and make upgrades to the neighborhood. In addition to these fees, however, if a major expense arises such as a clubhouse needing a new roof, and there is not enough money in reserve, the association may charge an additional assessment to all residents to cover these expenses.
In addition to the management of common areas and amenities, HOAs also enact and enforce rules called covenants, conditions and restrictions (CC&Rs). These rules are in place to maintain quality of living for residents and regulate the appearance of the neighborhood. For example, your neighbor won’t be allowed to let his grass grow two feet tall in the front yard or have his car propped on blocks in the drive way so, these regulations go a long way towards keeping a neighborhood clean and aesthetically pleasing. Many HOAs have very detailed and specific regulations, however. For instance, it may limit how many guests you may have in common areas, what color you may paint your house or doors, what type of grass you may plant in your yard, what type of mail box you may have, what type of yard decoration, bird houses or flag poles you may have, what type of holiday decorations you may display and how long they can remain before and after the holiday and many, many more restrictions.
If you are found to be in violation of any of these rules, the HOA has the right to enforce penalties. For instance, in one Savannah neighborhood a written warning is given for the first offence. This notice will detail the exact violation and generally give a time frame for the error to be rectified. If the violation is not corrected, the second offence for the same violation will result in a $100 fine. This fine, and all others, are added to the HOA fees to be paid and are collected in the same manor. If fees are not paid, it could result in a lien being placed on the property. On the third offence and all subsequent offences, a $175 fine will be imposed and the HOA then has the right to fix or repair the violation themselves at the owner’s expense or repeatedly charge a $175 fine at regular intervals until the problem is fixed.
Types of HOAs
Voluntary HOAs: These are not as common and are seen in older neighborhoods typically. They are usually informal and have no legal standing or rights to enforce regulations. They deal mostly with mediating or organizing specific events like blocking certain outside development or organizing seasonal parties. They generally have small dues but residents are not required to join the HOA or pay these dues.
Mandatory HOA’s: As the name implies, these HOAs mandate that homeowners join and pay dues. There is no provision for you to opt out. These neighborhoods usually have significant amenities in exchange for these dues. The covenants and restrictions will be presented at closing and the new homeowner must sign, acknowledging the receipt and understanding of the HOA contract.
Condominium HOAs: This type of HOA is very similar to mandatory HOAs but will usually include more substantial amenities. In contrast to buying a house where you purchase not only the home but the land it is build on, when you buy a condo, you own only the interior of the property. While this does allow condo HOAs to be more restrictive, they also hold more responsibility as they are on the hook for all exterior updates, repairs and maintenance. Often HOAs fees will be higher than those seen for detached homes but this is because they are covering far more expenses.
Benefits of HOAs
There are several benefits to living in a neighborhood with an HOA. With regulations in place to govern outside appearances and structures, you don’t have to worry about the neighbors turning their yard into a junk yard and subsequently lowering your property’s value. With an established HOA infrastructure, there is already a committee in place for mediating and settling community disputes. HOAs often organize neighborhood events which will help residents get to know one another and instill a sense of friendship and comradery and help homeowners form attachments not only to their own home but to the community as well. Finally, HOA neighborhoods offer amenities that traditional neighborhoods do not. Homeowners can enjoy pools and spas a short distance from their home, clubhouses with facilities for larger gatherings, tennis or basketball courts, parks, playgrounds, hiking trails, or dog play areas. These amenities are typically not open to the public unless they are a guest of a resident so the facilities can be enjoyed without the larger crowds of comparable public facilities.
Downfalls of HOAs
The primary purpose of HOAs is to maintain and improve the property values of a neighborhood. While this sounds like a great thing, remember that the way we live our lives is often times not consistent with what is necessary to increase property values. For anyone desiring individuality, HOA neighborhoods often work against this. If you drive through most HOA neighborhoods, especially newer ones, you may notice that the houses are often nearly identical or there are a handful of designs that are repeated throughout the neighborhood. This is because conformity is easier to enforce this way and any form of customization will be easier to pick out. As mentioned before, the covenants will drastically restrict what types of alterations, upgrades or renovations you are allowed to make. They may also restrict what types of vehicles you may have on the property (no RV’s for example).
HOA fees. These are a huge downfall. Most HOAs are mandatory and so the homeowner has no say in whether to participate or how much they will contribute. The amounts are set by the HOA and as I said before, additional fees can be demanded at any time for neighborhood projects. What’s worse is that if these fees are not paid the HOA can place a lien on your home.
HOAs generally do not have any sort of hardship waiver, meaning if you cannot pay your dues as a result of a legitimate financial hardship, the HOA is not going to give you a break. For example, if you were able to pay your dues when you moved into the neighborhood but subsequently lost your job or had a significant medical crisis the HOA will still demand money on time. Beyond that, they may limit your ability to earn this money in creative ways. For instance, they may not allow you to rent a room in your house to a boarder, may not allow large gardens for subsistence growing, may not allow you to run a small business out of your house and do things like park a commercial vehicle in your driveway or meet clients in your home.
Is an HOA Neighborhood for you?
The Bottom Line
Like many things, home owner’s associations came about from good intentions. They are designed to ensure neighborhoods are clean and well maintained and property values increase. They also allow homeowners to enjoy low cost amenities such as pools and recreation areas, in close vicinity to their house. There are pros and cons on both sides of the table so research the HOA in the neighborhood you are looking to buy in to be sure it is a good fit for you. If you are totally against having an association have a say in the maintenance of your home, be sure your realtor is aware of this to avoid falling in love with a home only to learn there is an HOA. When properties are listed online, typically HOA fees are disclosed so that you have some idea of what to expect but be sure to verify this before making an offer.
Getting behind in HOA fees or penalties can be as detrimental to your credit as falling behind on mortgage payments as many HOAs can enforce their right to foreclose on a property if fees are not paid. If this process is begun, the property will become very difficulty to sell since this lien must be paid at the time of closing and most buyers are unlikely to want to pay this additional amount. For real estate investment companies like Emmaus Property Investments, LLC, however, this is not an issue. Investment companies are more accustomed and prepared to cover these additional fees and are also not scared off by having to make repairs to bring a property back in to compliance with the HOA. So, if you find yourself with outstanding penalties or fees or you have upgrades that you cannot make to be in compliance and want to sell your home, contact Emmaus Property Investments to learn how we can help!