The failure of the HOA to protect against obsolescence

Tyler P. Berding, CAI and the Foundation for Community Association Research (CAI affiliate) member, has come to realize that HOAs will become obsolete for a variety of reasons and property values will plunge. His “exit strategy,” as stated in his article, is unclear.  He writes (my emphasis),

The challenge is . . . formulating an appropriate exit strategy that will protect the individual’s investment when the inevitable occurs. At present, no appropriate strategy for preserving individual interests in the face of an obsolete community exists. It should be a legislative priority to find one.

The individual owner is trapped in this cycle. He cannot ‘opt out’ of the system. His only choice is to vote for increased assessments or not, or to sell. If he sells, his successor will be given the same choices. If the community fails, the owner’s interest will be lost. There is no present means by which an owner can salvage his separate interest in a failed community.

To better understand HOA obsolescence, think of your car. You bought it and it depreciates or becomes obsolescent over time.  Most people cannot buy a new car until the sell their old one, or trade it in; but, there are no “home dealers” to make home selling a relatively quick and easy process like car buying. As your home grows old, like the HOA’s common areas, repairs and maintenance demands continuously pop up.  Your property value drops – forget about the HOA’s common areas – your home value drops.  The obsolescence of the common areas does not help your home value. In a non-HOA subdivision, the county pays for the neighborhood maintenance.

Berding does not address what I call your home’s architectural obsolescence; that is, the layout, floor plan, or design of your home, which may no longer be fashionable as people’s tastes change. What the HOA can try to do, which would be a value of HOA living, is to mandate special assessments for repairs and maintenance.  It can do it simply by amending the CC&Rs since there is no protection in the HOA constitution against ex post facto amendments as in the US Constitution.  But, then again, was this part of “the deal” when you bought your home?

What if a homeowner has the cash to remodel his home to make it ‘fashionable’?  Would he get ACC approval? Fat chance!  Would the HOA revise its character of the community and allow homeowners to remodel and create more fashionable homes?  I mean, doesn’t that help maintain property values?  Fat chance!

But wait Berding, what about government intervention to preserve the HOA as quoted above?   What do you think that legislative priority will be, as the state faces a multitude of HOA communities becoming blighted areas?  My guess is that a law will be made mandating the payment of special assessments into reserve accounts to prevent HOAs from becoming obsolete.  Don’t think so?  Have you heard of Obama Care?

In this lengthy article Berding rambles and introduces aspects but fails to tie them all together, like, “It [the HOA] is more than a quasi-governmental agency” and “It is a multidimensional mix of principles” (referring to special or sui generis laws).   Is Berding saying below that the homeowners alone are responsible for the financial condition of the HOA, and individual rights get in the way (my emphasis)?  You know, you’re on your own. Judge for yourself.

In America, individual self-determination usually prevails, and that basic truth illuminates the fundamental flaw in the common interest development concept. In CID living, the success of the group is wholly dependent on the voluntary contribution of capital by each owner.

A community association in trouble cannot simply close the doors and walk away. The ‘village’ [note the reference to public governance terminology] has to pay the utilities, remove the garbage, and maintain the buildings if the owners are to have shelter. This cannot be effectively done without a consensus of the owners, because without owner approval, the association cannot raise sufficient funds to operate.

And in the absence of a consensus?  We know about consensus and member involvement in HOA matters, don’t we?  It seems obvious that the state must intervene, right?

Berding does make the important point that is essential for a healthy community – it’s up to the members to “do right.”   However, the mass merchandising of the HOA concept has worked against members pitching in to maintain property values, because that’s the HOA’s job, that’s why they bought into an HOA – them, not us.  Faulty indeed, but if the financial aspects of a close corporation where financing must come from the limited membership were disclosed, including the joint and severable liability of the members, who would buy an HOA home?  The home would lose all its traditional humanizing, family aspects and become just another dehumanizing material asset.

There’s much more to Berding’s article, which unfortunately gets bogged down in too much irrelevant detail.

 

See, Tyler P. Berding,  “The Uncertain Future of Common Interest Developments,” August 10, 2014.

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