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.
