From Ross Guberman’s “Home Is Where the Heart Is” (Legal Affairs: November/December 2004):
ABOUT 50 MILLION AMERICANS BELONG TO HOMEOWNER ASSOCIATIONS, also known as HOAs or common-interest developments, which are composed of single-family homes, condominiums, or co-ops. Four out of five new homes, ranging from starter homes to high-rise apartments to gated mansions, are in one of the nation’s 250,000 HOAs. However they look or whomever they cater to, HOAs impose the same obligations: If you want to buy a property in an HOA development, you must join the HOA, allow a board you help elect to manage shared grounds and other public spaces, pay regular dues and any “special assessments” for upkeep or other costs, and obey a host of quality-of-life rules, even if they’re added after you move in.
In return, the HOA keeps the welcome sign painted, the sidewalk cracks filled, and the flower beds fresh. It may also provide streets, parks, playgrounds, security, snow removal, and utilities that were once the province of local government. But the HOA does more than beautify the neighborhood and preserve property values. It is often the sole driving force behind the Halloween parades and holiday parties that are increasingly rare in an age of bowling alone.
Although structured as nonprofit corporations, HOAs operate as private governments. An HOA can impose fines on those who flout its quality-of-life policies, just as a municipality can penalize those who violate its zoning, antismoking, or noise-control laws. An HOA also levies dues and assessments that are as obligatory as taxes and sometimes less predictable. In exerting these quasi-political powers, HOAs represent one of the most significant privatizations of local government functions in history. …
About half the states allow “non-judicial foreclosures” if owners lapse on their dues. Typically, the HOA’s collection attorney places a lien on the property and announces its new legal status in a local newspaper. The home is then auctioned. Homeowners get none of the due-process protections they could use to ward off other creditorsÃ¢â‚¬â€no right to a hearing and no right to confront their HOA board.
Even in states that require court approval for an HOA foreclosure, the HOA nearly always wins. Under current law, any unpaid dues, no matter how small, can be grounds for foreclosure, particularly once the amount of the delinquency is swelled with interest and fines.
… According to a 2001 study of foreclosures in California by Sentinel Fair Housing, a homeowner advocacy group, when HOAs foreclose, the typical homeowner is $2,557 in arrears. When banks or municipal governments foreclose, by contrast, the typical homeowner owes $190,000 in delinquent payments or back taxes.