Convertion from a Voluntary to a Manditory HOA

I am looking for thought on converting an HOA from voluntary (owner many chose to join and pay dues) to manditory (owner must pay an assessment). I realize this is a very difficult process. I am aware of one nearby HOA which has done it.

First and foremost, I think all owners would need to become aware of and appreciate the value of having a manditory association. The advantages would need to be presented to all owners in several ways. In other words lots of PR needed.

Next, to achieve conversion I think it will require allowing those who do not want to pay a manditory assessment to be grandfathered in the amended Covenants. Meanwhile, when they sell their property the new owner is not grandfathered and will have a manditory assessment. This can be a selling point when buyers want to be assured the restrictions are enforced.

Finally, I believe it may take ALL owners signing a document, and possibly having their signature notorized. This would involve a lot of door knocking and explaining.

Anyone been involved in this process? Any other comments would be appreciated.

RogerB - The thought of owning a fee simple, non HOA property and seeing it converted to an HOA is abhorrent at best. First, what needs to be maintained that isn't being maintained. Second, why let the borough, municipality off the hook for maintaining what needs to be maintained, that's what taxes are for. Third, who's getting greased for this "sweetheart deal"?

All speculation aside, it's challenging enough to market and sell homes in today's marketplace. Now tack on the fact that new buyers would be bound to join a mandatory HOA? Some buyers are aware and may come from an HOA and are seeking a different type of ownership. You state, "selling point when buyers want to be assured the restrictions are enforced"???? You've got to be kidding me. As for "lots of PR needed", you mean lots of BS. Please, I live in an HOA and now the pitfalls.

Not only would I be pissed, I'd sue anyone and everyone that tried to make me change my fee simple deed to include covenants and restrictions of an HOA. I'd sue on the grounds that you and the HOA would have no right to limit those that I market and sell my home to, you have no right to force me to force my home buyer to accept the terms, whatever they may be, of an HOA. Unless of course the HOA is willing to pay my selling price for my home when I decide to sell, I don't see how you would be successful in your endeavor.

I have mentioned before that when a HOA concern arose, (homeowners discovered the developer screwed up documents that would have ensured all residents of a planned HOA would have access to a strip of beach between the clubhouse and town park as originally communicated to buyers by sales staff), and when the beach access couldn't be restored, it left us not wanting to be part of a HOA because we felt we were being left with all the liabilities (CCR's) and none of the main reason we bought (beach access to park), we felt we didn't get what we paid for. We involved our lawyer who discovered that the developer apparently had made another major screwup (if he intended all homes to be part of a HOA) in that he didn't register the CCR's on all lots before he began selling. (~34 of ~114 sold, almost 2 years before finally filing the CCR's).

This led the mainly homeowner based BOD left to convince the 34 to 'join'. I believe lies and deceit were used to influence at least some others to join, and some of them recognized the misleading statmements and declined to join. At least some of this BOD and some of their two faced spouses, and some homeowners turned against us even though they would not have known about this except we directed our lawyer (spent our money) to advise the BOD and Developer/his lawyer of the failure to properly form what he apparently had intended..a 114 home HOA. We did so so the Homeowners wouldn't take over a HOA from the developer leaving him off the hook once again (beach) for the costs to fix his screwup.

This situation quickly got out of hand thru lack of communication (BOD refused to hold a homeowner meeting instead choosing to go door to door to the 33 of the excluded and give a variety of inconsistent stories/facts as to why they should join).

As is typical of many HOA's when one speaks up with a dissenting view, they are targeted. This convinced us to never be a part of a HOA and in fact specifically because of the BOD members and certain of their spouses actions, we intend to have a (CCR) restriction registered on title for our property binding all future owners of the property from joining the HOA when we sell. If they do wish to join then there will be a fee payable to us/heirs to remove the CCR.

So to bring this back to voluntary/mandatory HOA, good luck with the PR cause it will be an uphill battle as people involve their lawyers who will ask, why do you want to limit who you can sell your house to by joining?

Harold, I thought I made that obvious. Prehaps you failed to read the two words I stated just before those your quoted - "amended Covenants".

Thanks for the input from the anti-HOAers. Anyone have a positive contribution?

Roger:

I think the hard part would be finding a set of documents that would be agreeable to all. As we have seen from so many posts on here everyone has their own taste and some like to express that. Obviously you could grandfather in everything that has been done, but if your restrictions say no chainlink fences and half of the houses have then what have you accomplished? Also, when you talked about grandfathering in a property until it is sold, what happens if the existing owner puts up a 40 foot flagpole, a two story shed and turns his front yard to gravel, all of which are against adopted covenants? Would those be grandfathered in or would the new owner face a lot of work?

I like HOA's, for those who judge them on what is discussed here are obviously putting their head in the sand. Maybe the admin here should be create an HOA success story board and I think you would see a lot more chatter on there.

Roger, I would be curious to see how that would work, as you said it would involve a lot of campaigning and convincing.

BradP - Boo to you on your comment. HOATalk provides excellent insight into the national trends of HOA's. What other format would you suggest to make a judgment?

I like HOA's as well, have lived in two in the last 9 years. The benefits are collective maintenance that reduce individual owner costs, general consistency and enforcement in the look of dwellings and landscapes that can increase property values, shared common areas that promote community spirit. However, one would have their head in the sand if they didn't admit the national trend that the benefits of HOA's and COA's are consistently diminished because of agenda's, ignorance, laziness, and a virtual impossibility to make everyone happy. The latter of which presents an almost insurmountable challenge when trying to convert a non-HOA/COA.

Harold, I thought I made that obvious. Prehaps you failed to read the two words I stated just before those your quoted - "amended Covenants".

Thanks for the input from the anti-HOAers. Anyone have a positive contribution?
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RogerB - You asked for input in your first post, got responses that seem against the concept of conversion and questions of which you've provided no answers. Plus you now categorize those who've responded as anti-HOAers?? Boo to you. IMO that's not a fair characterization of any of the members who've posted replies. Sounds to me like you're looking for responses that will convince you to forge ahead with a conversion.

Answer the question how you intend on legally requiring owners to sell and market their homes and land with HOA cc&r's that were not their upon original purchase?

I would not characterize myself as anti-HOA. As I posted to BradP, I like HOA's as well, have lived in two in the last 9 years. The benefits are collective maintenance that reduce individual owner costs, general consistency and enforcement in the look of dwellings and landscapes that can increase property values, shared common areas that promote community spirit. However, one would have their head in the sand if they didn't admit the national trend that the benefits of HOA's and COA's are consistently diminished because of agenda's, ignorance, laziness, and a virtual impossibility to make everyone happy. The latter of which presents an almost insurmountable challenge when trying to convert a non-HOA/COA.

BradP - disagree 100% with you on the fact that HOATalk with 5000 members does not reflect a national trend. Glad you can take the boo on the chin in good spirit because that is the way it is intended, not as a permanent knock because I value your input and experience.

JoeW, No need to worry about me not paying the fees because when we learned the CCR's weren't registered we automatically we not part of the HOA we were mislead into believing we were a part of.

Roger, I recall seeing cases where HOA's changed the rules so fundamentally that courts ruled the new 'rule' unenforceable. I see a similarity to what I now understand your situation to be..that the homeowners already have CCR's registered on their properties but the only real change would be to make the fees also mandatory?

Even though all homeowners may have bought with the understanding there were CCR's they also bought with the understanding that fees were voluntary and, I would hazard a guess (I could be wrong) that if you were to force the change upon someone who does not want to willingly join, they would have a good case for the courts. Just because majority can change the CCR's doesn't mean they are always going to be valid.

No, Joe. I am not looking to be convinced; I am seeking and appreciative of all comments, pros and cons, by others.
competent HOA attorney will be used to provide an answer that key question. As stated in my first post "I believe it may take ALL owners signing a document, and possibly having their signature notorized." However, every owner did agree to abide with the Covenants and amendments to them when they purchased their property, so it may only require amending the Covenants. And amending the Covenants does not take approval of every owner (some takes a few as a simple majority of all owners).

Following are advantages I see to for a voluntary HOA to convert to manditory assessments. What are other advantages you believe are important for an established manditory HOA over a volunary HOA?

1) Greater appreciation in property values and a better quality of life of the residents which are the result of more effective enforcement of Covenants
2) Better enforcement of restrictions
3) Better maintenance of common areas
4) Incorporate and provide insurance to protect Board and committee members
5) Hire a managing agent to assist Board in achieving their responsibilities
6) For unincorporated areas:
a) Stronger voice (more influence)in County activities which effect the community, e.g., better fire and police protection
b) Better road maintenence
c) Unified trash collection with less cost and better service

The main disadvantages I see are:
1) Many owners feel "My home is my castle. I want to do whatever I want."
They do not want to be required to get permission to make changes to the exterior of their property nor do they want to be held accountable for their family members' disruptive activities.
2) Dictatorial Board members who are control freaks would gain more power.
3) Required assessment payments rather than volunary dues payments.

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RogerB - You categorized some that responded as anti-HOA. If that's appreciative I'd hate to see what unappreciative is.

I think DJ1’s response to you was classic, couldn't have said it better but will add the following:

I don't buy the PR spin and remain staunchly unconvinced by your argument in favor of the conversion and the "advantages" of an HOA.

That said, your main disadvantages outweigh the advantages.

I do not want to be hindered in any way shape or form by my ability to market and sell my home (#1 investment) the way I originally purchased it. I wouldn’t appreciate being subject to a conversion that runs the risk of buyers not wanting to purchase my home with deed restrictions, and HOA drama as a result of the conversion into a mandatory HOA. I would back this up with a high powered attorney and seek the maximum compensatory and or punitive damages.

I’m already paying taxes for the municipal services I receive of which are fire, police protection, trash collection, and road maintenance. How is the HOA going to make these services better? Let me guess, the HOA is going to fund for the services and spread the cost collectively amongst all the members, right??? Is the borough going to lower my taxes because I’m now picking up the tab for the municipal services that the borough is supposed to provide??? Doubt it. At best the HOA may be able to fight for reimbursement at the borough’s cost. This of course would involve, guess what…..AN ATTORNEY and a protracted court battle I’m sure. Therefore, buyers purchasing my home may see the HOA as a serious disadvantage, get turned away hence homes for sale (in the now mandatory HOA) may sit on the market much longer than when the community was non HOA.

As for your #5 Hire a managing agent to assist the Board in achieving their responsibilities??? Why should I line the pockets of an MC to benefit from the creation of something that does not need to exist. If I knew the concept for the conversion originated from the MC itself I'd be claiming a big conflict of interest to my attorney.

As for your #4 - Incorporate and provide insurance to protect Board and committee members. That’s an increase in my out of pocket expense, which is paying for D&O insurance to protect an entity that I currently do not have to worry about.

Isn’t the borough maintaining the common areas now, if not, why not, and won’t the maintenance increase my out of pocket expense?

In the end Roger I see the conversion as an increase in my bottom line and a risk to the future sale of my home. Life enough is hard as is, what compelling reason is there to make it more complex? If I was living in the community you are thinking of converting my first reaction would be that if I wanted to live in an HOA I would have bought a home in one to begin with.

Harold and Joe, thanks for your comments. However, many make no sense since there already are Covenants and a HOA. So grandfathering would not relieve anyone of complying with the restrictions. Those grandfathered could chose not pay assessments and would not receive certain benefits, such as, saving money on trash collection and being a member of the HOA with voting rights.

Do I think owners would accept this? As I said, it would be difficult. Only if the benefits can be shown to be to their advantage - then I think a reasonable person would approve.

Several people have asked questions about voluntary HOAs in the past 18 months. Joe questioned if I am presenting a hypothetical example and if management companies need the business. The answers are no and no. Let's see if I can convince you to vote to approve coverting from voluntary to manditory if you lived under conditions described by Harold (with an assumption regarding your personal finances).

You live in a typical voluntary HOA which does not have funds to enforce the Covenants. Why? Because it costs several tens of thousands of dollars to go through the court system - trial court, apeallate court, and possibly the defendant's legal fees if the HOA loses. Thus the HOA can not take a case to trial, so the restrictive Covenants have no "teeth".

You acquire some undesirable neighbors. One sets up as a perpetuity trust for a half-way house - never to be sold! Neighbors paint with all sorts of weird paint colors and have a passion for yard art - the funkier the better. They install spotlighted high flying flags that snap loudly 24 hours a day, a thousand wind chimes, etc., etc...... Then rentals go in with families with teenagers and 15 vehicles, on which they are constantly working and tinkering.

What can you do? Prices plummet on homes in your community so you can not afford to sell. Likewise, you personally can not afford to bring a legal suit. You are stuck!!

You could kick yourself. Why? Because just a couple years ago your HOA tried to change from voluntary to manditory and you voted against it. If only you had foreseen the future you could have sold and moved.

This example illustrates a fundamental reason for manditory HOAs. While each of us feels our home is our castle and we should be able to do what we want, we still want to maintain the value of our property and enjoy living on our property. IF ONLY OUR NEIGHBORS WOULD BE MORE CONSIDERATE, LIKE US, WE WOULD NOT NEED TO HAVE CC&RS AND ASK PERMISSION. The problem is each of us has differing values based on our life experiences. I like white paint, you like blue. I love dogs and don't notice them barking; you can not stand barking dogs. You have a dozen kids and are used to them screaming and playing ball in the street; I am retired and want peace and quite (but do enjoy my grandchilden). Thus compromise with clearly stated CC&Rs is necessary when we live close together.

Now, given another chance, how do you vote?

Be advised that you can elect to be grandfathered. This means you can elect to not pay assessments but when you sell the buyer will be required to pay assessments. If you elect to become a manditory HOA members you will be provided trash collection at a cost savings which will offset part of the assessment.

_________ Yes, I approve coverting to manditory
_________ No, I do not approve coverting to manditory

Roger,
If the agreement on fees was 'voluntary' going into the community, I personally would have to investigate the revised docs and ask for clarification on all the changes, and how will this benefit me?. As far as being grandfathered in now, and at the sale of my unit, the new buyer must become manditory?--no. It would be too big of a negative for the sale of my home, and could be for others in the community; before long you have a bad reputation within the real estate network, and unsold homes going to foreclosure.

To strengthen your argument FOR mandatory, you state that a typical HMO does not have funds to enforce the covenants and take cases to court, so the covenants as they exist now have no 'teeth'. This sounds like you believe being Mandatory will provide adequate funds to take cases to court, if necessary, and then the covenant docs are adequately enforced.

You, yourself, have continually recommended if the Board and/or Prop. Mgr. are not doing an adequate job and/or following covenant, remove them and get new. You also stated that your firm has never had to go to court, and you have an excellent record on enforcing covenant docs.

It seems to me that the issue is not MANDATORY vs. VOLUNTARY at all.
For communities to ensure adequate funds for operating budget, and those high priced special amenities or long-term capital expenditures--EVERY UNIT OWNER would have to be a Mandatory Assessment Resident of that community.

Have you looked at the percentage of communities who have gone from voluntary to manditory? their resales? percentage of rentals? units sitting empty/foreclosures?

By the way, could you share the reasons WHY the community you noted 'successfully went from a voluntary to mandatory'... How are they doing now?

I would vote no.

Roger, what do you do if the funky neighbour already lives in your voluntary HOA. There is no way they would sign your hypothetical document to convert because their yard already indicates what they think of your CCR's, so you are still at a deadlock.

I've heard the scare tactics when our BOD tried to say the neighborhood will fall apart without the HOA. Some view that it already fell apart to some degree due to the developer failing to enforce the CCR's. Someone didn't like kids in the subdivision yet they bought AFTER most with kids had, some don't like the style of someones fence but neglect to look at their vinyl shed or whatever other examples I could list. I'm not worried about the funky neighbour moving in, if they did, I might just have brush in hand to help them paint their garage door pink. Viva la freedom. The biggest threat to home values here is the HOA imo as more homes go up for sale and new buyers move in without having an opportunity to know the neighborhood politics. If I buy next to the home with the pink garage at least I knew about IT before buying. :)

RogerB - My god. Accept the answers are a majority not in favor of what you propose. You state, "there will be funds to insure the covenants are enforced.....". If funds can't enforce the covenants that exist, than more funds will be necessary to enforce. More money, more funds, more letters, more money, more funds, more letters, more liens. Then add more inflation on top of more funds, more letters, more funds, more liens. Even in an HOA, the Board, and the community are at the mercy of eachother to comply. Let it will be. There will always be neighbors that do not want to keep up with the Jones', that is the fabric of life. Why make attach a mandatory cost to force compliance?

Roger:
Based on your text...'But many HOAs without these (amenities) are volunary so funds can not be generated to force compliance to Covenant restrictions. Those HOAs can only say "PLEASE comply"; and owners know this.'

IMO, there is no way legal or otherwise that you will persuade a resident who bought in as voluntary to go mandatory. You can list 'advantages'(are they???) on paper, but it will be another story to collect the money.
And as far as getting a percentage to change the covenant docs.to allow mandatory, they agreed to voluntary when buying--this is the original binding covenant.

Let's brainstorm for a minute. Isn't the real question...how does the Board/Prop.Mgr. of a 'voluntary'-fee community get 'those other' residents to comply with the CC&Rs? The answer cannot be to 'generate funds to force compliance' by having enough $ to go to court. To go mandatory DOES NOT ENSURE there will be funds available to go to court. No community will ever win by going to court--the end doesn't justify the means. There must be other solutions to get residents to comply w/CC&Rs.

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No. The Covenants already are in place and can be amended in accordance with their specifications. All owners agreed to these Covenants when they purchased their property. I do think it may require an owner's approval for the manditory assessment; however, this would need to be determined by an experienced HOA attorney.

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Like I said, more money. Now an HOA attorney needs to get involved, hence the expenses begin.

Where are you in all this other than inquiry. Are you spearheading it, looking to be the MC? Can't imagine why else you'd be involved. If so, I see a conflict of interest.

I should have added that if a majority of residents participate in the 'voluntary' scheme they can still enforce the CCR's against the non-participants since all costs would be recoverable from the violator (if they were truly in the wrong). Sure the 'voluntary' folks are essentially advancing the funds to pursue enforcment but this may help to avoid unnecessary legal action. They'll only go after the violations they believe they can win, frivilous actions will be less likely.

PaulM,

Yes it is interesting. It is what I also believe a potential trend. Hence why I am very much against it. While I have enjoyed my time in an HOA, and learned an enormous amount about what it really takes to make it all work, I would not choose to live in one again. I saw my HOA built from the ground up and am involved as one of the founders of the community. However, in hindsight I think it's foolhardy to place my #1 investment into the hands of the collective power of those not familiar with being a fiduciary, not budgeting now for the future, not enforcing the cc&r's, not taking a couple hours out of one day to read the by-laws and cc&r's, and not participating in the association.

Unlike you and me, and many if not all of us on HOATalk, the average owner is unfamiliar with the impact of a conversion like Roger has brought to our attention. You know what bothers me the most is the mandatory aspect when selling the home and the effect it may have on re-sale value. That imposition upon me by others would not happen voluntarily, as I vowed, it would go down with an intense legal fight.

I'd say the responses so far offer RogerB some insight to conversion. However, I've yet to see a valid argument for the conversion, even from RogerB, a detailed way that costs will go down rather than up, and how an owner will be forced to sell the property differently than when purchased. Yes, the cc&r's were always there in Roger's case, but not the mandatory fees.

RogerB - You've proven our point. It is not something extra in an established HOA, no longer under developer control, such as Paul's or mine. However, it IS something in the one being converted because by your own admission there is no existing assessment for it. You're comparing apples to oranges, don't you see that?

RogerB - You're comparing apples (non-HOA) to oranges (mandatory) and saying that apples should be oranges at the expense of owners. You've failed in your attempt to provide a valid outline with a methodology of enforcement for a conversion from a voluntary to a mandatory HOA. All you have done is state why, why, why, and not how it's going to occur. The non-HOA community should not reinvent the wheel, rather seek methods within the existing regime to encourage owners to uphold their end of the purchase within the community. Knocking on an owners door is usually the best, however working with the municipality can be extremely beneficial.

Roger, if all costs of enforcment are recoverable against violators then there is no need to change to mandatory dues over volunatary. It all comes down to what the majority want ie. if they want the CCR's enforced.

ie. 100 homes, 51 will pay dues (100X51=5100.00), 49 won't. The 51 pay the dues, use the funds for enforcement (fine/legal fees against violator cost 5000.00), and at the end the violator pays all the costs (5000.00) so the 51 still have 5100.00 in the bank.

Maybe they need to build up a reserve from the voluntary dues instead of trying to convert. It seems you are going to incur legal fees either way, if you force the mandatory dues someone will fight it in court, if you stick with voluntary someone will fight the enforcement of CCR's in court hoping to bluff the voluntary hoa into blinking.

IF the MAJORITY of the voluntary want enforcement it can still be achieved it seems to me.

DJ1, if it was only $5,000 you senario might work. However, based on my experiences as an expert witness I would budget at a minimum $50,000. Now what say you? Would you volunteer to collect from 51 owners a donation of $1000 or more for each case? Looks more difficult to me than trying to convert from voluntary to manditory.

JoeW states "unless of course the ability to amend is part of the original covenants." Sorry, Joe. In this case the Covenants state it takes approval of a simple majority of all homeowners.

DJ1 - In Arizona, at least, your thesis wouldn't work. Your assumption is based upon all violators willingly paying their fine(s)in order to replenish the funds. In Arizona, boards can issue all the fines they want to, and unless they go to court, get a judgment, AND file a lien they cannot force an owner to pay any fine. If you are issuing a daily fine, you must get a judgment for each fine and file a lien for each fine. If they file a lien, they cannot foreclose on that lien. (They can only foreclose on unpaid assessments and there is a dollar and/or time factor involved before they can do that. And fines can not be reclassified as or called an assessment.) Consequently boards must wait until the property is sold to recover the lien(s). Which means the HOA's legal and filing fees are tied up until the property is sold.
In essence Arizona HOA residents don't ever have to pay a fine UNLESS the above is followed. Also, only liens can be collected at escrow. HOAs try using title companies as collection agencies for unpaid, un-liened fines, but a smart owner could protest such transfers and the title company could not recover those fines. A title company's function is to assure a clear title. If there is no lien, there is no cloud to the title. Anyone could come along and say "This guy owes me $5,000 in fines." So what? Harold

Harold,
"Consequently boards must wait until the property is sold to recover the lien(s). Which means the HOA's legal and filing fees are tied up until the property is sold. "

Yes the money is essentially 'advanced' by the voluntary dues paying members BUT all the money is recovered, with interest is it not? (even if it is years down the road).

If the violations are significant to enough residents then they will contribute (voluntary or otherwise) just as a HOA should with the cost effectiveness of any action they may decide to take.