HOA Fees: Nourishing A ‘Little Democratic Sub-Society’
Nobody likes to pay taxes. But, for the most part, we accept that a certain level of taxation is necessary for an orderly society. We want our kids to attend good schools. We like having well-maintained public roads, and we enjoy the national parks, libraries, and other community services paid for with our tax money. When everyone chips in their “fair share,” our society receives benefits that couldn’t possibly be provided by any single person acting alone. Condominium and homeowners associations work on the same principle, though admittedly on a smaller scale.
A district judge in Florida described community associations as “a little democratic sub-society of necessity.” And, as with federal, state, and local governments, for the “little sub-society” to function, it needs revenue. Association revenue comes in the form of HOA fees paid by homeowners – the functional equivalent of property taxes paid to a local government.
The HOA's Authority to Collect Fees
An association’s authority to collect HOA fees (or “assessments”) arises from two places: state law and the HOA’s declaration. The declaration is a document recorded in the county land records that serves as the association’s constitution. It grants certain powers to the HOA and imbues homeowners with certain rights and obligations, one of which is the duty to pay assessments. An elected executive board in turn uses the funds raised through assessments to provide for the common benefit of the development.
What do HOA Fees Cover?
Although the board has some administrative discretion in its use of the funds, it is by no means unfettered. Both state law and the declaration impose limitations on the use of assessment revenue, generally by limiting disbursements to “common expenses.” What constitutes a “common expense” depends upon the statutory and declaration definitions, but common expenses typically include the costs of maintaining any commons areas like pools, playgrounds, sidewalks, and private roads, along with any expenses or fees involved in enforcing community covenants.
The HOA Fees Calculation Method
The method by which assessments are calculated and collected is laid out in the association’s declaration and bylaws and varies depending on the needs of the community. Ultimately, though, the declaration must comply with the common-interest statute of the state in which the development is located. Although state HOA laws vary considerably in their specifics, the general theme of promoting efficient operation of the association while protecting individual homeowners’ rights is consistently recognized.
The Uniform Common Interest Ownership Act (“UCIOA”) was proposed by the National Conference of Commissioners on Uniform State Laws in 1982 with a goal of encouraging jurisdictional consistency and consolidating HOA and condo association laws into a single statutory framework. Alaska, Colorado, Connecticut, Minnesota, Nevada, Vermont, West Virginia, and Washington State have adopted the UCIOA approach, and many more states have enacted similar laws inspired at least in part by the UCIOA. Some states, most notably California, have unique HOA laws that provide a more (or sometimes less) detailed statutory framework than the UCIOA. California’s Davis-Stirling Act, for instance, protects homeowner rights ranging from keeping pets to displaying the American flag.
Under the UCIOA approach, assessments are calculated based upon an annual budget proposed by the elected executive board and ratified by owner vote. UCIOA §3-123. A formula for determining the percentage of the budget apportionable to each unit is established in the association’s declaration. UCIOA §2-107(b). Because members vote to approve or reject the budget, assessment increases implicitly require majority consent.
California’s Davis-Stirling Act allows an association to levy assessments in an amount “sufficient to perform its obligations,” leaving the calculation method to the declaration. Davis-Stirling also restricts the board’s ability to increase assessments but only requires a majority vote if the increase is more than twenty percent over the prior year.
UCIOA jurisdictions allow flexibility in situations where benefits or costs are not evenly distributed among owners. For instance, if not all owners benefit from a particular common expense, the association can limit assessments for that expense to the owners who actually benefit. UCIOA §3-115(c)(2). Similarly, insurance costs must be assessed according to owners’ relative risk factors and, if utility costs are included within assessments, they must be proportionally assessed based on usage. Id. When a common expense results from an owner’s “willful misconduct” or “gross negligence,” such as repair costs for damaged community property, the association can assess the costs exclusively to the responsible owner. UCIOA § 3-115(e).
HOA Liens & Foreclosures
A common feature of all HOA laws is the power of an association to place a lien for unpaid assessments upon the property of non-paying owners. Under the UCIOA, the lien can include reasonable attorney’s fees, late fees, fines for violations of community rules, and interest of up to 18%. UCIOA §3-116. California and Arizona both cap interest at 12.00% and prohibit inclusion of fines within liens. California allows for non-judicial foreclosure of HOA liens, which means the association can foreclose upon and sell a delinquent member’s property to pay off the lien without going to court. The amended UCIOA allows non-judicial foreclosure in states that permit non-judicial foreclosure of mortgages. UCIOA §3-116. However, most states require HOA lien foreclosures to proceed through the court system.
While common interest statutes give associations substantial power relating to assessments and liens, it’s important to note that members are also afforded considerable rights. Perhaps most importantly, members have the right to inspect HOA records, allowing them to examine how their money is being spent. When combined with owners’ voting rights and the fiduciary duties imposed on board-members, the right to inspection creates a strong incentive for HOA officers to behave ethically.
Statutory notice requirements also protect owners by ensuring they are aware of enforcement actions taken by the board. Many jurisdictions, though not the UCIOA, require HOA boards to provide notice prior to recording a lien. California allows owners to opt for dispute resolution before a lien is recorded, and Florida provides a statutory means for contesting a filed lien without going to court. The requirement of pre-foreclosure notice is nearly universal. Notably, the procedural rules imposed upon associations are not just technicalities – failure to strictly comply can render a lien invalid and even result in liability for the association. See Diamond v. Superior Court, 217 Cal. App. 4th 1172 (2013).
The Bottom Line
The simplest way for owners to safeguard their other rights is to exercise the right to vote. It’s easy to disregard letters from your association board and skip member meetings, but doing so negates an essential feature of community associations: their democratic character. “Little democratic sub-societies,” as described by the Florida judge, work best when all members participate. The oft-repeated (and occasionally maligned) political line, “if you don’t vote, you can’t complain,” may be more appropriately applied to HOA’s, a realm in which each owner’s individual vote carries greater weight and anyone can run for president.