North Carolina has well over 63,000 Homeowners Associations, and almost everyone who has lived being regulated by one probably has a story to tell. Many of the stories are not nice ones. Living in an HOA community gives you access to amenities that most families cannot afford on their own. Those amenities come at a price.
Those buying real estate in North Carolina are forewarned of HOAs’ existence by a section in the N.C. Residential Property and Owners Association Disclosure Form. As someone who spent a few years in real estate, I can tell you most buyers ignore it, and some do not even bother to read the covenants. They seem to think, “How bad could it be?” Many would be surprised that not only can it be awful, it can also be expensive.
After eight quiet years living in our HOA, I was elected to the board. My first two years on the board were uneventful, but the third was pretty well a descent into HOA hell.
Just as our second year was ending, our developer – who was also our property manager – told us it was going to drop us. We scrambled and took over running the HOA ourselves. In doing so, we learned just how poorly it had been run. We also got a very good look at how bad it can get when HOAs have to come to grips with problems that were hidden or ignored.
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Our first hurdle was sending out bills for annual dues. With the help of an accountant, we accomplished that, but we learned that the bills had been done improperly for the first 10 years. We hired a lawyer to help us navigate the problem. Even so, we spent the rest of the year caught between two sets of homeowners, one threatening to sue us if we enforced the covenants and the other threatening to sue us if we did not enforce every single covenant.
As the going got tough, board members kept resigning, and we hired a management company to help. We found it talked a good game but delivered almost no real help. Six months later, the company resigned when we asked it to do what it had promised to do when we signed the contract.
We had many other surprises along the way, like finding out that we had no insurance on our roads or gates. I called the insurance agent to ask how to handle private docks built into our common-area pond. She said, “You have a pond?” Of course we have no insurance on the pond.
As the annual meeting approached, the developers who still owned about 20 lots decided to use their proxies to push through what they called “a more flexible board.” This happened even though all the current board members had declined to run for re-election. It seems the developers needed a relative on the board to make certain the board took care of issues in a way favorable to the developers. Since the new board has taken office, we know almost nothing about what is happening. The HOA seems to have fallen into a black hole.
HOA ISSUES LIKE FAMILY FEUDS
North Carolina needs an HOA Commission similar to the NC Real Estate Commission. One of the biggest problems with volunteer HOA boards is finding someone who can answer difficult questions. Often lawyers, developers and management companies are so intertwined in small communities that getting good independent advice is not easy.
We need someone to make a quick ruling on situations and provide good information. It is hard to get lawyers involved with HOA issues, which most view as a family feud. Even if you do get a lawyer and win a case, you still have to enforce the judgment. The HOA Commission could provide online training courses for board members. It could also license HOA management companies and pull their licenses if they violate their fiduciary responsibilities. Developers would also have to be licensed to create HOAs.
We also need:
▪ A state-supported way for HOAs to report delinquent dues to credit-reporting companies. Giving people a negative mark on their credit reports would work far better than the current system of liens and foreclosures.
ndependent governance of HOAs. Many subdivisions have unbuildable or undesirable lots. In some situations, subdivisions can be stuck with a developer/management company that has enough votes to control the subdivision for a long time. After five years, a developer should not be able to cast more than 10 percent of the votes in board elections. An independent board is the best guarantee of a well-run HOA.
It is clear HOAs are not going away. We need to make them functional so they can get their important jobs done with less pain, or the problem is going to get much worse.
David Sobotta is vice president of marketing for WideOpen Networks. He lives near Swansboro.