Residential America has changed dramatically over the last 50 years. Gone are the days when housing consumers bought a house or a plot of land and were lords of their mansions, kings or queens of their castles, where their word was law – within the confines of their property, of course. Increasingly living in residential America is more complicated, more restrictive and more expensive. Do American homeowners know and understand how and why their lives and homes have changed?
Donna Fossum joins us On The Commons this week. Donna is an attorney, a long time resident and condo owner in the City of Alexandria, Virginia. She was a senior policy analyst at the Rand Corporation, a former member of the Alexandria Planning Commission and a one time candidate for City Council. Donna, with her analytical background, has written the most comprehensive and complete report on the changing residential communities. After a lot of research, Donna discovers what is essentially two cities in one, divided more or less equally by the east side and the west side of the City of Alexandria. She explains how this shift resulted in double taxation for approximately half of the homeowners in Alexandria. But probably one of the most eye opening discoveries she made was the differences in the political process and participation by the citizens of the two different halves of the city. Tune in and hear her talk about all the issues that significantly affect the way we live in America today and read her report, Fossum Files . While her research and analysis centered on Alexandria, the same issues and resulting problems exist across the country.
Currently, every H.O.A. household is subsidizing four non-H.O.A. households, to the tune of $500 per household per year.
The U.S. population is currently 320 million people.
There are 65 million H.O.A. residents.
They pay $65 billion per year in H.O.A. assessments.
That means that every H.O.A. resident pays $1,000 per year in assessments.
The average household size is 2.5 persons.
That means the average H.O.A. household pays $2,500 per year in H.O.A. assessments.
For whatever it’s worth, http://wallethub.com/edu/states-with-the-highest-and-lowest-property-taxes/11585/ says that “The average American household spends $2,089 on property taxes for their homes each year”. Let’s round that down to $2,000 per year.
This means that the average H.O.A. household pays $2,000 in property taxes + $2,500 in H.O.A. assessments = $4,500 total in taxes and “private taxes”. Granted that not all H.O.A. assessments are used to replace traditional municipal functions, but I’m keeping this simple.
If H.O.A. corporations were eliminated, and the $65 billion in H.O.A. assessments were billed as property taxes to the general population, then:
$65 billion / 320 million people = $203.13 per person.
Let’s round that down to $200 per person.
= $500 per household ( $200 x 2.5 people per household )
The average H.O.A. household, which is now paying $4,500 in property taxes (public and private) would pay $2,500 in property taxes — a 45% savings.
The average non-H.O.A. household would pay $2,500 in property taxes — a 25% increase.
Granted, this is a very rough back-of-the-envelope calculation based on some assumptions that aren’t necessarily true (e.g., not everyone is a home owner) and a lot of rounding, but it gives some idea of how much H.O.A. home owners are subsidizing non-H.O.A. home owners.
Feel free to check my facts, assumptions, math, etc., and tell me where I’m wrong.
I just realized that that paragraph is a bit ambiguous. It should probably read:
“Currently, every H.O.A. household is paying $2,000 a year to subsidize four non-H.O.A. households, to the tune of $500 per non-H.O.A. household per year.“
re cities reimbursing H.O.A. corporations for trash removal:
Are the individual home owners, who are the ones paying the property taxes, reimbursed? Or does the municipality reimburse the H.O.A./condo corporation?
If the latter, that doesn’t really do the individual home owners any good, unless the H.O.A./condo corporation either passes on that reimbursement on to the owners, either directly or by lowering assessments. And what are the odds that either of those ever happens?
Excellent interview. I agree with Donna and have said for a long time that the cities and counties need to have professional staff available to settle conflicts in HOAs. When a homeowner or condo owner is not receiving the services and dealing with a breach of contract they should not have to spend their life savings on an attorney to enforce that contract.
It has never made sense that hundreds of millions of dollars worth of real estate are left in the hands of a bunch of inexperienced people (not applicable in Donna’s case but in most cases this is true) with absolutely not a clue what they are doing. The has no knowledge about construction, maintenance, strategic planning, budgeting, and financial management. Yet, they are calling shots on what needs to be done and who is being hired for such projects. I have been a victim of a crippled HOA and my bank account has been wiped out because of it.
I would like to talk with Donna. The wheels are turning, progress is being made, and soon it will be revealed. 2015 will be the year of education about HOAs!
According to C.A.I., the “value of homes in community associations” is $5 trillion (with a “t”). OK, they say $4,950,000,000,000, but let’s just round that up to $5 x 10^12
source: “National And State Statistical Review For 2014”
http://www.caionline.org/about/press/Documents/2014%20Stat%20Review.pdf
And I see that “assessments collected from homeowners” is now $70 billion (with a “b”), up from the $65 billion I’ve been using. Five years ago the commonly accepted figure was around $50 billion.
…just like a person running south on a north-bound train.
Keep telling yourself that.
If you go read the archives at Evan McKenzie’s blog, 10 years ago he was predicting a wave of H.O.A. reform legislation. Here we are in 2015, and I think things are, and will continue to get, worse for home owners in corporation controlled communities.
Robert,
I meant in my HOA the inexperienced were in charge of a hundred million dollars worth of real estate. Due to their lack of skills the cumulative value in now approximately $45M. That is proof that you can’t run a business by guessing that you might be doing the right thing. You and I both know that, but very few board members have a clue about what they don’t know when they fight for a seat on the board.
Yes, I do believe 2015 is going to be the year of progression in the education of HOAs for the general population. With the internet and other resources it’s not possible to keep the brutal secrets about HOAs quiet anymore. However, this insanity cannot be stopped by trying to educate people fifty and older. I believe it has to start at the high school and college level. If that age group won’t buy into the HOA scam the developers won’t keep building them.
I for one will not be discouraged from trying to expose the truth about HOAs. I’ve lived in one for a decade and spent too many years learning all the ugly details (like yourself) and I feel obligated to share my knowledge.
Excellent paper and analysis by Donna Fossum. Thanks for starting a valuable discussion, Shu. Double taxation is an issue that should resonate with 65,000,000+ American voters.
Two issues: defining “essential services” and providing non-CID choice for homebuyers
First, In detached home HOAs and master planned communities, essential services provided by Associations that used to be provided by cities or counties include:
Road Maintenance, resurfacing, repair (in addition to snow removal)
Maintenance of complex storm water drainage systems that includes retention ponds, canals, flood gates, drainage channels, underground compnonents, etc.
Private water and sanitary sewer utilities that must adhere to DEP regualtions to ensure health and safety of residents
Private Security, especially in gated communities, that cannot replace traditional police protection — and that creates additional liabilities for Associations
All of the above should be deemed essential services, with administratitive management provided by public governing entities rather than volunteer CID Boards.
Second — let’s look at alternatives to CIDs. If, as we hear repeatedly from CAI and others in the CID industry, “HOAs are not for everyone,” then we must stop building nothing else as an alternative! Stop shoving this way of living, and the associated dilution of rights and increased financial risk, down the throats of current and future home buyers.
I’d add a third: legislative and regulatory protections for home owners already in some type of H.O.A. corporation.
Even if you addressed the double-taxation and municipal-mandates issue, home owners governed by some type of H.O.A. corporation would continue to be abused by the industry.
And by “protections for home owners”, I mean substantive protections that remove the perverse incentives and moral hazards that currently exist, not the usual worthless crap like licensing management companies, or creating an ombudsman’s office, or merely providing an affirmative defense that addresses a specific harm; e.g., laws that allow water-conserving landscaping, or the display of the American flag — ask Larry Murphree how that worked out for him. If the H.O.A. industry can make a profit by violating a home owners rights — even rights explicitly stated in the law — they will do so. As Evan McKenzie told Shu on this program five years ago (June 27 2010):
[0:22:48] It’s like something you would see in Nazi Germany or Soviet Russia. People think these things don’t go on. But we know they go on every day in condo and homeowners associations. These people who have no idea how to use power at all. They won’t even accept limits on their power. They don’t even know what the law requires of them, these directors. They go by what some lawyer tells them to do, which the lawyer tells them to do only because he or she knows they can get away with it. Because the only recourse you have is some civil suit. Here in Illinois, we don’t have an Ombudsman. Most states don’t. There’s nowhere for owners to turn. If the lawyer tells them “Oh, just jack ’em around. Who cares what the rules are? Who cares what the law says?” it doesn’t make any difference. The transaction costs of enforcing an owners rights are so great that they are hardly ever able to do it. [0:23:40]
emphasis added
Three years ago, the Des Moinse Register that
Mr. Brauch is the Director of the Consumer Protection Division at Iowa Attorney General’s Office. Think about how much more powerless regular home owners, who are not an Assistant Attorney General specializing in consumer protection, are in their H.O.A.s.
How many people are even aware of what they’re buying into? Without going into depth about the legal fiction of constructive notice and whether or not home owners consider covenants to be contracts, let me just point to one example:
In a news story about “another isolated incident” — in this case, home owners being threatened with fines (and by extension, liens and foreclosure) for their children’s normal childhood behavior — the H.O.A. management company issued the following statement:
source: https://www.youtube.com/watch?v=-hB02x1okPc at 1:27
Chalk Drawing Draws Citation From HOA
kxan
published on Aug 22, 2013
114 views
In many neighborhoods, playful, colorful sidewalk chalk art is a summertime staple. But in one Hay’s county neighborhood parents are finding out their kids’ art isn’t a game.
screen shot at https://twitter.com/ColoradoHOA/status/594597365689942016
1) How can the home owners have consented to the so-called contract when even the H.O.A. management company admits that “homeowners are unaware of deed restrictions”?
2) In what world is threats of fines, backed by liens and foreclosure, a “friendly reminder”. The H.O.A. industry reminds me of Soviet-era communist propogandists. There’s a reason I refer to the C.A.I. as the “Communisty Associations Institute”.
3) re the “Home Management” company: We’re paid to be managed at work. Who wants to be managed at home, and why do we have to pay for the “privilege”? It is absolute insantiy, yet we Americans accept this as normal.
Shu,
You began the program by trying to agree with your guest upon a term to describe the various types of H.O.A. corporations — home owners association, condominium association, etc. — and settled on “common interest development” (C.I.D.).
While it is widely used, I object to the description of these corporations as “common interest” anything *. The home owners don’t necessarily have common interests, but they do have common liabilities.
I just use “H.O.A. corporation” because 1) I think most people are familiar with the term “H.O.A.”, and 2) add the word “corporation” because that’s what they are, to counter the notion that they are somehow just an association of home owners.
I also use the term “communisty” — a combination of “communist” and “community” — in my humor; e.g., referring to Comrade Skiba’s 501(c)(6) trade, lobbying, and propaganda organization as the Communisty Associations Institute, since H.O.A. corporations are literally ** about the collective ownership of your private property.
In a more serious vein, I would suggest “corporate controlled community” to describe the neighborhood and “community control corporation” to describe the organization. Both terms are more accurate than “community association” or “common interest”.
* FYI — the State of Colorado refers to them as “common interest communities” (C.I.C.), another example of Soviet-style nomenclature.
** and I do mean “literally” and not “figuratively”, since they have a perpetual lien on your property that can never be paid off.
A reader in the comments section at http://www.news-press.com/story/news/investigations/melanie-payne/2015/05/05/driver-license-swipe-cancels-repair-call/26954427/ refers to “gated communities” as “caged communities”.
License Swipe At Gated Communities May Be Illegal
by Melanie Payne. May 6, 2015
I thought I was the only person who didn’t want my driver license swiped at the entrance of some gated communities in Lee and Collier counties. . . . .
. . .Sears told him there were seven communities in Florida they won’t service because they insist on this practice. . . .
Chuck Smith
. . .He chooses to live in a caged community for the false sense of security. We can accomadate his attitude by making sure that the next time he wants to do business with any of us we demand that he allow us to swipe his licesnse and capture his pesonal information for whatever future purpose we decide is appropriate.
There was a series of posts on Evan McKenzie’s blog addressing this issue that are worth reading :
– 01 –
HOA Convenants Not Generally Regarded As Contracts
by Fred Pilot
Saturday, December 31, 2011
9:57 AM with 14 comments
http://privatopia.blogspot.com/2011/12/hoa-convenants-not-generally-regarded.html
– 02 –
Do Americans consider CC&Rs Contracts, Revisited
by Evan McKenzie
Monday, January 02, 2012
1:55 PM with 7 comments
http://privatopia.blogspot.com/2012/01/do-americans-consider-cc-contracts.html
– 03 –
Do Owners Believe CC&Rs Are Contracts, Part Trois…
by Tyler Berding
Monday, January 02, 2012
10:24 PM with 3 comments
http://privatopia.blogspot.com/2012/01/do-owners-believe-cc-are-contracts-part.html
– 04 –
George Staropoli On The “Do Owners Believe CC&Rs Are Contracts?” Debate
by George Staropoli
Wednesday, January 04, 2012
9:48 PM with 1 comment
http://privatopia.blogspot.com/2012/01/george-staropoli-on-do-owners-believe.html
– 05 –
Fred Fischer On The “Do Owners Believe CC&Rs Are Contracts?” Debate
by Fred Fischer
Wednesday, January 04, 2012
9:49 PM with 3 comments
http://privatopia.blogspot.com/2012/01/fred-fischer-on-do-owners-believe-cc.html
Of course, substantive change is needed for residents that currently reside in HOAs – primarily homestead owners, but also long-term tenants.
The best way to motivate the HOA industrial complex to make the necessary beneficial transformation is to create market pressure. Give buyers a true choice to live without the burden of common ownership, CC&Rs, and corporate HOA governance. Buyers are already telling Realtors, “no HOA, please” and “no condos” in markets that are not fully saturated with CIDs.
So what would be a policy proposal to “create market pressure” and “give buyers a true choice”?
Prohibit contracts that require mandatory membership in an H.O.A. as a condition of home ownership, and allow home owners to opt-out of their H.O.A.? Or do you have something else in mind?
Well, you have the general gist of it. The fact is, if we build new development without common ownership of assets and infrastructure, we eliminate the need for an HOA. We would have to enact policies prohibiting common interest development – or at least capping the percentage of new development as a start.
To the extent that people living in existing communities can transfer ownership of common areas to a public entity (a municipality or county or even a limited purpose tax district), the need for private, corporate governance is reduced or even eliminated. Policies need to be written to facilitate options for an HOA-exit plan for owners in communities that would rather not live under HOA rule.
When you think of it in simple terms, common interest development is not truly private – because individuals share ownership collectively – but actually a limited-public development. And as Donna Fossum points out, Common Interest Development results in class division, political division, and social division.
Definitely not what we should expect from the UNITED States of America.
It’s going to take a lot more than that, at least here in Colorado. There was a court case back in 2008 – 2009, Hiwan Homeowners Association v Patrick Knotts, et al. Long story short: the courts ruled that an H.O.A. corporation does not need to actually own property or common elements to be considered a “common interest community” under the “Colorado Common Interest Ownership Act” (CCIOA). All an H.O.A. corporation needs to do is enforce covenants and/or provide services, and they’re granted the powers in the CCIOA.
Given that Hiwan is just a few miles from where Ward Lucas lives, I’m surprised he never mentioned this in his book Neighbors At War.
PS — I forgot to include this quote from the court ruling:
And I should add that the court rulings make it explicitly clear that the judges considered enforcement of covenants as a “service” provided by the H.O.A. corporation.
As interesting as it is to read this case summary, it can still be concluded that, without commonly owned property there is not a bonafide NEED for a mandatory Association simply to enforce restrictive covenants. Without a mandatory Association, any homeowner is able to seek enforcement of restrictive covenants against a neighbor’s property in civil court. The Association need not exist! The argument can be made that owners should be able to opt out of collectively paying to enforce restrictive covenants, because in many cases, one might not agree that a particular restriction is reasonable, or that one’s neighbor’s use of their property is bothersome enough to drag the entire collective membership into a civil lawsuit.
Unlike mainteance of essential infrastrucure such as “private” roads, that all owners collectively share and derive a benefit from, enforcement of restrictive covenants provides no readliy quantifiable, concrete benefit to homeowners — and may, in fact, harm some homeowners to the advantage of others.
The fact that the industry has written the Uniform Acts with the intent of creating broad cirumstances for making a mandatory Association valid under the law, does not also make it functionally NECESSARY or beneficial in the public interest.
The Court has to interpret the Uniform CCIOA law as written, but that doesn’t mean that the law cannot be amended. And it is also possible that this opinion could be reversed in the future.
Then there is the argument that enforcing CC&Rs that impact use of private property, where there is no compelling public interest with regard to health, safety, and quiet enjoyment of property, is, in reality, a “taking” of private property without just compensation.
I don’t disagree with you about the lack of necessity for an H.O.A. corporation. You and I have commented about this extensively before, both here and on Ward Lucas’s web site. But our policy makers haver created a system of law where H.O.A. corporations “need” to exist, because the purpose of an H.O.A. corporation is to perpetuate itself. It has become a very circular arrangement.
Until they get over that mindset and deal with the fundamental issues — and I don’t see any sign of that happening any time soon — real substantive reform is not going to happen.