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General Information about HOA's:

A homeowner's association, or "HOA," is comprised of all unit owners of a common interest community, and must be organized as a corporation, nonprofit corporation, corporation not for profit, or a limited liability company ("LLC"), under Colorado law. An HOA operates in order to manage, market, and sell homes in a residential subdivision. A property developer incorporates the HOA before the initial sale of homes. Until this point, the developer can have multiple votes accounting for each lot the developer still owns. The justification for heavy developer control during an HOA's early organization is that the developer knows everything about the community and the developer's incentive is usually to maximize the property value of the community, which also directly benefits homeowners.

The developer creates an HOA by recording a declaration where the land is located, which, among other things, describes the HOA and provides procedures for its management. The property developer later forfeits all or most of its control over the HOA after selling a certain percentage or number of units or lots, and then the community of owners assume the role of managing the HOA through an Executive Board of Directors ("Board"). However, a developer can reserve some rights to exercise at a later time, such as to add real estate to the community, subdivide or convert existing units, create units and common elements, and withdrawal real estate from the community. Many HOA Boards hire professional property management companies to assist in managing the community's financials, common area upkeep, and violation control.

American HOA's originally began in the mid-nineteenth century as gated communities reserved for the wealthiest segments of society. However, in the late twenty-first century, the number of HOA communities skyrocketed, climbing from an estimated 36,000 in 1980 to 130,000 in 1990, and then to 222,500 in 2000. Statistics from 2011 estimate there are 314,200 HOA's in the United States, affecting a staggering 25.1 million housing units and 62.3 million residents. This boom, which began in the 1960's, is attributed to national growth and a push toward large-scale residential development spearheaded by the Federal Housing Authority and the Urban Land Institute. Additionally, 1960's America ushered in a growing cultural preference for architectural uniformity, a decrease in available land coupled by rising construction costs, and modified federal mortgage insurance rules that included condominiums and cooperatives - foundations of the modern HOA.

In 1963, the Federal Housing Administration authorized mortgage insurance for HOA's governing condominiums or subdivisions, which diverted development and improvement in the inner cities to the suburbs, causing a mass exodus of Americans to these new HOA's. Developers benefited from this switch because rising land costs made it more profitable to develop densely on a plot of land. Because these growing communities and cooperatives began providing services that were traditionally performed by local government, local governments also promoted HOA development as a way to cut costs and improve cash flow while decreasing responsibilities.

Throughout this explosion of HOA's into mainstream America, discrimination played an unfortunate role in HOA restrictions, known as restrictive covenants. For example, a racial covenant in Seattle prohibited persons of certain races and ethnicities from owing or occupying units in the HOA. But in 1948, the United States Supreme Court ruled in Shelly v. Kraemer that courts could not enforce such racially discriminative covenants. Later, in 1968, the Fair Housing Act prohibited private discrimination in the sale, rental, or financing of housing, and provided those injured by such discrimination a cause of action to bring suit.

Homeowners are almost always required to become a member of the HOA within which their home resides, and therefore contribute Association dues and assessments that pay for, among other things, common elements, common areas, and any property management or landscaping services provided to the HOA. Along with the Declaration recorded by the property developer, other important documents a homeowner or renter in an HOA should review are the HOA's Bylaws and Rules and Regulations, which contain often contain restrictions on home maintenance, alteration, aesthetics, upkeep, pets, and noise, to name a few common examples. A homeowner has a right to copies of these documents, and many HOA's now place them on a website.

Only homeowners have the right to vote on the association's affairs; renters must direct any issues to their landlords. Because absentee landlords could thus theoretically cast a majority of the votes, HOA "democracy" is sometimes criticized as overvaluing homeownership over those who are actually living in the community and have the best frame of reference and motivations. Delinquent homeowners are also not permitted to vote on the association's affairs.

HOA's provide valuable services to their members, usually including maintenance and repair of common elements, desirable amenities such as exclusive gyms and pools, and transparency regarding the association's business and finances. Thus, HOA members obtain access to facilities and services that they would otherwise be unable to afford on their own. For condominium associations, the roof and exterior of the building are typically owned, and thus repaired and maintained by, the HOA. To preserve and increase property values in the community, HOA's often control exterior appearance and mandate conforming aesthetics of HOA homes and buildings. In fact, some HOA's provide services traditionally performed by local government, such as utility services, trash removal, and street lighting. In this sense, some HOA's could be mistaken for small self-sufficient towns, but members are still required to pay state and local taxes as if they did not belong to an HOA. For an argument opposed to replacing traditional local governments with HOA's, see The Voluntary City by Donald J. Bourdreaux and Randall G. Holcombe. In the chapter entitled "Proprietary Communities and Community Associations," these authors argue that HOA's wrongly emphasize profit, exclusivity, and control over human relationships and American ideals of freedom.

To provide these services, HOA's levy dues and assessments on their members, usually apportioned per unit or based upon the square-footage of each unit. Assessments and dues vary widely, as they are heavily dependent upon the types of services provided and whether the community consists of condominium units or single-family homes. Some associations have no common property, whereas others have a large amount. Americans pay billions of dollars per year in HOA assessments, which are not classified as property taxes. Assessments are placed into HOA operating or reserve accounts. Homeowners have a right under Colorado law to request a review or audit of the HOA's financials if at least one-third of the units request, or, for an audit only, if the HOA's annual revenue or expenses total at least $250,000.

The HOA Board controls and manages the association, although usually with extensive help from a professional property management company. Initially, the developer appoints the Board, and the members become increasingly elected by homeowners as the developer relinquishes more control over the community as more units are sold. Members of the HOA elect a Board of at least three members, who can then elect officers and establish committees. Common types of committees include landscaping, pool, architectural control, and neighborhood watch. The Board must notify and permit members to attend its meetings and make meeting minutes available to those who cannot attend, except executive board meetings. The Board is only required to meet in the presence of homeowners once per year, but many HOA's attempt to meet more often, such as monthly or quarterly. Owners can also call homeowner meetings on their own initiative by following conditions set forth in the HOA's Bylaws.

Despite the benefits of HOA's, the negative consequences of HOA's have also come to light in recent years. For example, scholars have written extensively about restriction of constitutional rights to speech and expression embodied in restrictive covenants that limit residents' display of political signs, flags, and other protected speech in order to maintain an orderly and uniform community with steady property values. Even restrictions on "for sale" signs have been upheld in federal court. Because HOA's are private organizations they are not required to afford their members full constitutional rights of speech and expression; restrictions need only be reasonable. Specifically, HOA Boards are not "state actors" and therefore not in a position to violate constitutional protections. Also, with the prevalence of HOA's growing each year, many Americans cannot escape them, and are essentially forced to agree to restrictions that the HOA imposes on homeowners. Other complaints about HOA's include that Boards and property managers enforce violations in an arbitrary and inconsistent manner, and that members of the Board have no financial incentive to satisfactorily perform their duties because Board positions are voluntary and uncompensated.

Homeowners are also subject to the HOA's tremendous powers, including the power to charge fines for violations, charge assessments and fees for expenses of the association, and even obtain a lien on a delinquent member's home. In an extreme example, an HOA in Texas foreclosed upon a soldier's home, selling the soldier's fully paid-for $300,000 home for only $3,500 to avenge the soldier's $800 overdue assessments accrued while he was serving in Iraq. In Colorado, HOA's that are organized as LLC's have a statutory lien against an owner's unit for any unpaid assessments, dues, fines, interest, or any other balances. In addition to a homeowner's dues to the HOA, an association has the power to levy special periodic assessments on homeowners to pay for new or unexpected needs.

Statistics are inconsistent regarding homeowners' satisfaction with their HOA's. In one study, 19% of respondents had been "at war" with their HOA, and 54% claimed they would rather deal with a sloppy neighbor than belong to an HOA. However, in a 2009 study by the Community Associations Institute, 71% of HOA members rated their overall HOA experience as positive. Yet another study reported that two-thirds of members found their HOA "annoying." The Internet is full of stories and blogs of odd HOA rules that Boards and property managers enforce in a nearly militant manner. On the flip side, HOA members frequently seek legal counsel when their HOA is reluctant or unwilling to enforce a covenant by fining or warning the violator, causing injury to the rule-abiding member.

Because condominium HOA's typically own the exterior and roofing of multi-unit buildings, homeowners and their HOA's sometimes fail to see eye-to-eye regarding necessary repairs and maintenance. While the Board owes a duty to the entire association to spend its resources wisely, the homeowner wants the absolute best care and functionality for her home. Other common issues members encounter with their HOA's involve alleged misconduct by the Board of Directors, members of which can be sued personally for wanton and willful misconduct hurtful to the HOA. In extreme cases, instances of embezzlement by dishonest HOA Board members have occurred, resulting in millions of dollars of loss to HOA's and their owners. In cases like embezzlement, criminal charges could also result from HOA Board misconduct. Colorado corporation law and principles largely apply to HOA's and their Boards. A homeowner may bring a lawsuit against the Board for breach of fiduciary duty at his own expense. Typically, the association's insurance does not cover a homeowner's lawsuit against the HOA, but only provides funds for a valid judgment against the HOA Board. Also, homeowners risk becoming personally liable for any counterclaims or attorneys fees and costs awarded against the homeowner by the court.

Because of the immense power and responsibility HOA's hold in Colorado, HOA Boards also seek legal counsel for a variety of reasons, including advising on how to comply with the law and effectively manage their community. HOA Boards also hire attorneys as General Counsel to represent and advise them in any and all of their legal issues and needs.

In an attempt to counter some of the power imbalances and disadvantages of HOA's, the AARP has recently suggested that a homeowner's Bill of Rights be implemented in each state to protect homeowners, and vulnerable elderly homeowners in particular. In 2010 the Colorado General Assembly created the HOA Information Office and Resource Center, which is housed within the Colorado Division of Real Estate ("DORA"). The HOA Information Office and Resource Center compiles statistical, legal, and other helpful information about HOA's and also receives complaints from HOA members and assists owners in their HOA issues. The organization can be found at DORA Website.

Government oversight of HOA's varies from state to state. In Colorado the Common Interest Ownership Act ("CCIOA") governs HOA's, which is a group of statutes substantially modeled after the Uniform Common Interest Ownership Act promulgated by the National Conference of Commissioners on Uniform State Laws. Florida and California also maintain a large base of HOA law. However, Massachusetts has very little HOA law.

Community Associations Institute (CAI) is a large organization in modern HOA industry. CAI consists of individuals and businesses that partner to sell supplies and services to HOA's, such as property management companies or HOA attorneys, as well as to lobby state legislatures for sound HOA policy and law. CAI's website is CAI Website.