Friday, February 3, 2023

Here’s how Homeowners Associations get their considerable, sometimes subjective, control over residents

Unpacking the mysterious power behind homeowners associations: Where does their power come from, and how are they authorized to collect fees and place liens on property?

When there's an HOA, there's an associated declaration of covenants, that empower the HOA to make assessments, place liens on property and issue fines. (Port City Daily photo/Johanna Ferebee, Courtesy New Hanover and Brunswick County Register of Deeds)
When there’s an HOA, there’s an associated declaration of covenants, the legal document that empower the HOA to make assessments, place liens on property, and issue fines. (Port City Daily photo/Johanna Ferebee, Courtesy New Hanover and Brunswick County Register of Deeds)

SOUTHEASTERN, N.C. — Realtors use their absence as a selling point. Bad ones are often described as “rogue.” They can put a lien on your property, demand fees, and issues fines with little notice.

No, it’s not the feds, it’s a homeowners association. They’re seemingly everywhere, and wield a lot of power. But where does that power come from?

Two state laws govern homeowners associations. One outlines single-family communities, while the other determines how associations function in condominiums.

Though the statutes are extensive, the origin of homeowners association’s (HOA) power is pretty simple: it boils down to a civil contract between two parties.

Declaration of Covenants

When property owners accept title to land in a subdivision with an HOA, they’ve automatically accepted a civil contract that’s already bound to that piece of land. An HOA’s authority is backed by a Declaration of Covenants applied to an entire development, specific covenants for neighborhoods within a development, and any amendments to original covenants.

These rules are drafted by a developer and an attorney before any homes are built, and apply to all property within the subject development.

“There’s no voluntary joining a homeowners association,” Charles Meier, a leading area HOA attorney with Wilmington-based Marshall, Williams & Gorham, LLP, said. “You are a part of it just like you’re a part of the City of Wilmington when you buy in the city limits and you’re subject to the decisions City Council might make with regard to your property, whether you like it or not.”

Even if the HOA is not listed on the deed, and an attorney fails to locate covenants or declarations during a title search, property owners are subject to HOA rules and fees regardless.

“Their authority and power really derive from — not Chapter 47C or 47F — they derive from a principle of real estate law which has been in effect and recognized for hundreds of years,” Meier said. “That principle goes back to a time of man not knoweth to the contrary.” 

Quasi-governmental powers

HOAs operate a lot like local government units. They follow parliamentary procedure, can elect board members, keep minutes, charge fines, collect monthly fees, make assessments, place liens on property, make rules about how to use property, and so on.

The formation of HOA is so much like a town or city, they can help give rise to the creation of government units (Author’s note: More on how this happens later this week).

But, they’re not a unit of government. They’re non-profit corporations. Some are even tax exempt, but most do pay taxes.

After a review of several Declarations of Covenants, most all area HOAs are granted the authority to collect fees, charge fines, and borrow money for common area interests. Some even have granted themselves the power to enforce local laws or rules impose sanctions for fine violations.

At the same time, many are not be obligated to take action to enforce any one rule. This can give rise to subjective enforcement, where property owner-initiated lawsuits typically come into play.

“It’s the subjective requirements which are oftentimes sources of controversy,” Meier said. 

A Declaration of Covenants can give birth to an Architectural Review Board. This board, along with the HOA itself, is tasked with enforcing rules in the declaration.

Some rules are objective. Rules like how large an American Flag can be (in Brunswick Forest, four by six feet) or how long its pole can be (in Compass Pointe, no longer than five feet, six inches from a pole holder attached to a home, reached by hand from the ground) are measurable.

No dogs, no garage sales, no motorcycles visible from the outdoors, no pickup trucks, no colored Christmas lights — these are all rules that can be enforced with fines that typically vary from $50 to $100, sometimes with daily fees following a period of non-compliance. While residents may or may not agree with them, the rules are pretty clear cut.

But some rules, like Compass Pointes’ restriction on “things that may be noxious, dangerous, unsightly or unpleasant,” are much vaguer, and it’s left up to HOA boards to exercise their judgment on when they’ve been violated.

Meier said there’s a lot of case law about subjective HOA decision-making. He said the decisions must be made in “good faith” and cannot be deemed “arbitrary and capricious.”

“When you buy into a subdivision that has a homeowners association, you are subject to the rules and regulations of that homeowners association,” he said.

(Author’s note: More on the rise of HOAs, and when HOAs become their own towns, later this week.)


Send tips and comments to Johanna Ferebee at johanna@localvoicemedia.com

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