84% of newly built single family homes sold in 2022
belonged to what's called a homeowners association,
which are organizations that oversee properties in a
community.
Certain local governments require almost all new
construction to have an HOA.
They're rooted in the desire for municipalities to
offload their responsibilities, for taking
care of things that you would normally associate
with paying your taxes.
Homeowners associations provide value to owners.
But there's been a backlash to HOAs because of some
homeowners' negative experiences. When I first
bought this house, I was very excited.
It seemed like it was a very nice, cozy, close knit
community. Then it started turning into a horror story.
I'm a huge believer that, you know, you do sign away
your civil rights when you're signing into an HOA
or a condo association.
It's a matter of personal preference. Some people like
anchovies on their pizza and some don't.
Some people really like living in homeowners
associations. Others don't like it.
So why are HOA fees so powerful and do they make
homes more valuable?
Homeowners associations are run by a board of directors
that's made up of volunteers who own property
in the community. The HOA typically handles communal
responsibilities, which can vary from managing amenities
such as swimming pools to making sure property owners
follow home maintenance rules. The board may hire a
management company, which tend to be for profit, to
help run the day to day operations.
Homeowners in the community pay into a fund for the HOA
to have an operating budget. In the U.S., the
typical home in an HOA pays between $200 and $300 per
month in fees.
HOAs have the authority to hand out fines to residents
in the community that the association feels is not
following the rules. Those fines may also accrue
interest in some cases.
The Inostroza's annual dues for their HOA in Newnan,
Georgia is $200 per year, which is lower than the
national average.
So on paper, their HOA membership doesn't seem like
that much of a financial burden.
But that's not been their reality.
When we moved in in 2008, we found out that there was a
balance that was attached to the home because it had
been sitting in the community and they were
fining us for that balance and late fees and any other
type of fines that they would put onto the home for
lawn care or anything.
All of that was attached to this home when we moved in.
From 2008 to 2014, we tried getting in contact with the
HOA and we never had a reply from them, and we just
kept trying and no answer.
By August 2015, the HOA put a lien on the Inostrozas'
home. In the court documents, the HOA said the
Inostrozas owed more than $6,300.
A lien is when a party has a legal claim to an asset,
such as a home, which can serve as collateral to
satisfy unpaid debt.
This can open the door to the HOA escalating to the
next level of debt collection, such as
foreclosing on the home or, in the Inostrozas' case,
garnishing wages.
In mid 2015, they started garnishing my wages.
The first time I learned of that was when I got my first
paycheck that they garnished. I didn't get any
prior notice.
I got a notice two weeks after.
Even though the HOA was collecting from Jill's
paycheck. Invoices filed with the court showed they
were adding fines rather than deducting from the
overall balance.
By December 2016, the HOA said the Inostrozas owed
more than $4,300.
In 2016, I decided to go into debtors court.
My attorney and the HOA's attorney came to an
agreement that I would pay $3,200.
We paid in installments and we finally paid that off in
January of this year.
But it seemed like never got to the management of the
homeowners association, just adding fines and adding
interest. That's all they was doing.
So they were still saying that I owed almost $8,000,
while my attorney and their attorney agreed on $3,000
something.
The Inostrozas estimate that they've paid about $12,000
in fines and garnished wages to the HOA, along with
thousands of dollars in legal fees to their own
attorneys. The latest invoice they received on
August 18th, 2023 says they still hold a balance.
Even after paying $12,000, they're still saying that we
owe them $8,000.
After the past – what, 23?
After the past ten years.
Ten? Yeah, about ten years, yeah.
CNBC reached out to Homeowners Management LLC
for comment and received automated responses
directing us to contact the current management company
as of August 2023.
A representative from the current management company,
Sentry Management, told CNBC: because it just became
the management company for this community in the last
couple of months, Sentry has little ability to
comment on historical facts regarding the Inostrozas'
case. The former director of the HOA board, who
oversaw the association from 2020 until her
resignation in October 2023, declined CNBC's
request for comment.
The attorneys representing the HOA board did not
respond to CNBC's repeated requests for comment.
Jessica Navas and Matt Bazan, who are also
homeowners in the subdivision, began
investigating their HOA.
I started to have this feeling that there was
something odd about the HOA during the pandemic.
They discovered a history of at least 25 foreclosures in
the community over the past 15 years.
Just one house can have a record between 2 to 3
foreclosures within that time frame.
If Jessica hadn't just took the initiative to go to
everyone in the community that she knew were
homeowners, we never would have known any of this
because all we did was basically go to work, come
home, raise our children, that's it.
And we never knew that anybody else was going
through this, because for the longest I felt like, is
it just me?
I feel like it should be a positive thing when the
community work together, keeping our houses looking
good and good for property value.
A big part of an HOA sales pitch is that the presence
of the organization can help increase property
values.
The board is responsible for protecting property values
for most people in the United States, the single
biggest investment they're ever going to make.
There's mixed evidence about whether this is true.
A 2019 study found that on average, HOA homes cost at
least 4% more than non-HOA homes.
That comes out to an extra $13,500.
But those property values can vary significantly by
location. A different 2019 analysis of three U.S.
cities found that the home values in HOA areas were
less than those in neighborhoods without them.
The Inostrozas' property value has increased between
the time they bought it in 2008, following the housing
crash, to 2023.
I don't think that HOA has anything to do with our
property value going up.
I feel like, with the HOA, the management company don't
increase the property value.
They're just there as employees. The community
that increase the value of the property.
HOAs can also be necessary in order to manage shared
amenities or land, which can be a value add for
homeowners.
There are associations out there that handle all the
landscaping. Even though you may own your lot.
The association cuts the grass and they do all the
landscaping. So is that a cost saving?
Sure.
Management companies can help a community function
smoothly, especially when a board of volunteers needs
assistance.
One large company will manage 20 or 30 or 40 HOAs
in a region, and they tend to have it down to a
science. They know how to deal with trash pickup.
They know how to deal with yard maintenance.
They know how to deal with complaints.
They have their fines and their enforcement down to a
science.
Relying too much on a property management company
is going to cause problems, and relying too much on the
homeowners to run their own association is also going to
cause problems.
The management company and the manager are simply a
contractor to carry out the board's direction.
They may handle all of that routine activity on behalf
of the board, but those folks who live in the
community and volunteer remain the decision-making
authority. The board in that situation is still
responsible. They are still the fiduciary.
They are legally and financially responsible for
the decision-making in that community.
I think that there are times and places for HOAs, and I
think that they could be positive, but the abuse
negates that benefit.
A lot of people have trouble thinking of community
associations as a business, even though statutorily in
many cases, they are.
You have to think about it like running a business.
At the same time, you have to think about it from the
perspective of a group of investors who all have this
shared goal of making sure their investment's safe, and
nobody's quite sure how to do that.
And when you bring in an outside adviser to help run
your organization, those people's goals are not the
same as the goals of the people who made the initial
investment.
Professional involvement in HOAs is increasing, with the
for-profit homeowner association industry growing
to $38 billion.
Jessica and Matt have been fighting for more
transparency about where their HOA fines are going.
We had four months of pulling teeth.
We wanted a general ledger, but they gave us a balance
sheet and a budget.
We contracted a forensic audit or CPA.
It is very concerning to see that the amount of
income that they are receiving is coming from
these particular aspects – fines, citations,
collection, legal fees, and her recommendation was
remove the board, freeze the account, get access into
the bank account. The numbers don't align with
each other.
In most cases, association management companies charge
a flat fee for their management services for the
association each month.
They're not getting a share of the proceeds.
That's not how they're compensated.
If we didn't have a management company, we
wouldn't have to be dealing with these different
problems that we're having.
Basically, they're just milking the community.
The Inostrozas' experience with their HOA highlights
some patterns seen across the country when it comes to
how much power HOAs have.
57% of homeowners polled disliked living in an HOA,
with more than 3 in 10 homeowners saying they feel
like the HOA has too much power.
People need to understand how much power a board of
directors has.
Governments are giving the power of the municipality to
these communities.
They act as hyper-local governments and in many ways
supersede all the other laws that exist when you
sign into a covenant that runs with the land.
Covenants is shorthand for covenants, conditions and
restrictions, or CC&Rs.
These are documents that outline the HOA board and
homeowners rights and obligations.
A homeowners association usually enacts the CC&Rs, as
well as the bylaws that outline procedural matters
when it's incorporated by the subdivision developer.
The board in the beginning is controlled by the
developer, so it starts out as a board of people that
are paid on behalf of the developer to operate that
community, and it transitions 100% of the
time — in some cases, it takes years.
In other cases, it might only take 1 or 2 years – to
a set of volunteers.
Homeowners who have disputes with their HOA say they have
trouble getting help from official government
channels.
I have personally contacted the city officials.
None of them want to get involved in the HOA.
There are only seven states that have an office of the
Ombudsman: Colorado, Delaware, South Carolina,
Florida, Illinois, Nevada and Virginia.
However, the Ombudsman office is usually not very
well funded and they have limited jurisdiction over
the types of complaints they can take, and in some
cases, that's all the Ombudsman office can do is
take your complaint. They can't even take an active
role in investigating or resolving the complaint.
As far as the regulation goes, I think a lot of that
regulation is predetermined. So in other
words, there's already laws that are set up in place.
And so inherently they're already being regulated that
way. And of course you've got the court systems for
checks and balances in case you have a disagreement
within your homeowners association.
I think that education is really key to these
communities. I mean, they need to know that there's
nobody that's going to help them, that in a lot of
cases, civil court is the only answer.
So you can't even take some of these communities to
small claims court.
There's really a very limited number of scenarios
where a court can say that something that's binding in
your covenants is not valid.
Lawmakers in several states, such as Texas, North
Carolina and Florida have introduced policies to
address some of the issues homeowners have been
raising, but it's been met with backlash from the
professional management industry.
There's always going to be a wide variety of perspectives
and concerns. So no solution, no bill, no piece
of advocacy is ever going to garner 100% support from
everyone. We try to find the best middle ground that
makes sure the association runs effectively and
people's investments are protected.
As of right now, change has to happen at the grassroots
level, with homeowners fighting through the court
system as well as through voting for a board they feel
represents them. Matt was elected president of the
board in October 2023.
So these are your new officers. Thank you very
much.
I did the oath when I became a naturalized U.S.
citizen. It was my duty and regardless of my economic
condition. I have to fight for them.
I would feel bad, you know, selling this home to someone
else. Especially if they don't know what's been going
on in the neighborhood.
And I feel like I would probably just be like, hey,
look, I don't think you want to move in this
neighborhood. You may want to think about it.