J. Patrick Sutton Cases & Issues Blog

The Fundamental Flaw with HOA's

The governing documents (CC&R's -- covenants, conditions, and restrictions) and governing laws for the running of homeowners associations (HOA's) are too legalistic, abstruse, and technical for non-lawyers (i.e., your neighbors) to understand and enforce. That's why lawyers and property managers are getting rich at the expense of homeowners stuck with HOA's. We elect local governments and hire local officials to handle the complexities of property rights. HOA's should handle parties, beautification, and gripe sessions, not foreclosures and restrictions on others' freedoms.
HOA's are far too complex for your neighbors to run. That's why they don't!

When I was a kid growing up in a subdivision near Dallas in the early 1970's, the neighborhood busy-bodies got together and formed a "Neighborhood Association." The NA did some cool things, usually involving ice cream being served out at the park. Sometimes, it got involved in lobbying the city or county to fix something or beautify something. That was all very nice.

As the building industry increasingly created planned subdivisions for most new housing, the gentle idea of a "neighborhood association" morphed into a more specific "homeowners' association," with certain quasi-government duties devolving upon such groups. (Evan McKenzie's superb book Privatopia provides a nuanced history and discussion of all this.)

Now, HOA's are the rule in new subdivisions, and these organizations often command a great deal of authority over individual property owners' use and enjoyment of their properties.

Concomitantly, an army of lawyers and professional property managers has more or less seized control of the HOA system. Why? Because doing so creates a fee machine for these professionals. Since HOA's levy assessments upon property owners, and since a $10,000 attorney fee doesn't look so bad when allocated to hundreds or thousands of people at a bit per month, it's straightforward to rig up a scheme whereby HOA specialists maintain a private fiefdom of fee generation.

I won't go into the details of how this happens. But there is a fundamental flaw in the HOA concept that practically demands the result that a group of legal and property management specialists will grow rich on HOA's.

The flaw is that the covenants, conditions, and restrictions ("CC&R's") that govern HOA's are highly technical legal documents that non-lawyers (and many lawyers, for that matter) cannot understand. Your busy-body neighbors may be drawn to running the HOA because they have axes to grind, but don't kid yourself: they require lawyers and property managers to explain how to run things. Every time an HOA board member takes a significant action, professional fees are generated.

A lot of frustration gets directed at those who serve on HOA boards, and often rightly so. But the annoying lady who patrols the 'hood looking for CC&R violations would literally be nothing without the machinery of the legal system behind her. In Texas, not just the CC&R's, but also the Texas Property Code, are complex and pro-HOA.

I fight on behalf of HOA's seeking to downsize and simplify, and on behalf of victims of HOA abuse. But I, too, make fees from that. It seems to me wrongheaded from the start that complex legal instruments are given over to neighborhood groups to interpret and enforce. We build local governments and hire public officials for just these reasons: helping us manage the complexity of life in an ownership society.
J. Patrick Sutton Cases & Issues Blog