Homeowners Associations – A Demographic Nightmare?

In New Jersey – the densest populated state in the USA – living arrangements are so cramped that “common interest” developments are everywhere. Few new developments are built that do not have an “HOA” – a homeowners association. And for good reason. New Jerseyans have their own opinions about what a “Community” should look like – and be

like. Everybody wants a plalatial spread with a large, private lawn bounded by verdant landscaping, hidden from the road by regal stands of full-grown, leafy trees…..They want an impressive house, painted and decorated the way they always dreamed it would be…..an edifice that truly reflects their vision of themselves. Wakey, wakey…eggs and bakey…

If you buy a home in a Homeowners Association “Planned” Community, consult in your HOA Rule Book to find the parameters of your homeowning experience. It is the Alpha and Omega of your world. Violate its terms and conditions and your ass will be fined relentlessly until your penalties ripen into a full-blown Lien against your Title. Then you won’t even be able to sell the damn house – because a Lien is a “impediment” against your legal ability market a “free and clear title” to a buyer. You’re “hog tied”.

In this life, most of us get the house that we can afford. And – if its in an HOA – what you get comes with Rules……scads of Rules and limitations. Invest in any recent, sizeable “community development” and there’s probably going to be an Homeowners Association calling the shots about what you can do and what you can’t. In Jersey, an HOA is – literally – a “Government” unto itself recognized by law to administer the nuts and bolts “business” of your community. They control the horizontal. They control the vertical. The color of your exterior, the shutters you can attach to your windows, the type and color of your roofing shingles – and much, much more.

How is this Legal? New Jersey statutes.

There are three (3) types of “Common Interest” Developments recognized by law in New Jersey. Homeowners Associations, Condominiums and Cooperatives. Each is governed by a dedicated statute.

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New Jersey’s Condomiunium Act (NJSA 46:8B-1, et. seq.) covers condominiums. In “Condominium” ownership, title to each specific part of a property intended for use by a specific owner “vests” in that particular owner – together with a “proportionate” interest in the remainder of the property. Think of an apartment building-type (high-rise) “Condominium”; an “owner” (we’ll call him Joe) buys an two bedroom (or 3 or 4, etc.) “Unit”. Joe also gets a “proportionate” interest in the rest of the property. What does this mean? Joe owns his 2/3/4 bedroom “Unit” AND the hallways, basement, garages, etc.

There is no so-called “Common Elements” owned by a “Condominium Association”. Ownership and maintenance of those spaces are owned by ALL the Condo “Unit” owners (like Joe) together and at the same time. Their Condominium monthly maintenance fees include the costs of maintaining each of their “proportionate” interest in the building that extends outside of their “Unit” as well as certain Unit costs as well.

The Condominium entity is created by virtue of a Master Deed by which an Unit Owner becomes a “member” or owner of the Condominium entirety.

A “Condomiunium Association” can be formed by all the Unit Owners – and elect Officers, etc. – to streamline management and maintenance of the entirety BUT the “Condominium Association” does not “own” anything. It is merely a management convenience to get things repaired or the pool maintained, etc. An artifice to manage the joint.

Legal ownership of the entire physical entity of the Condominium itself is “vested” in each “Unit” owner together and at the same time.

Long story short: “Condominium” ownership does not involve Common Elements ownership by a separate “entity” called a “Condominium Association”. All parts of the condominium are owned by each and every unit owner at the same time. If there is any so-called “Association” it is a political group – a convenience only – with no “ownership” prerogatives in anything.

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“Cooperatives” are formed pursuant to New Jersey’s Corporations statute (NJSA 14A:1-1, et. seq.) and New Jersey’s Cooperative Recording Act (NJSA 46:8D-1, et. seq.). In a Cooperative or “Co-Op” situation, the “Cooperative” (for example, “ABC Corporation”) owns the real property on which the cooperative sits and the building. Any “personal” property (furniture, decorations, amenities, etc.) belongs to the cooperative.

Individuals (“Owners” of residential units therein) purchase shares of stock in the “ABC Cooperative” Corporation that owns all the real property and other assets (if any). Those shares of stock carry with them the right to occupy a dwelling inside the cooperative building pursuant to a “Proprietary Lease”.

The New Jersey Cooperative Recording Act (NJSA 46:8D-1. et. seq.) provides that each Co-Op stock share purchaser acquires an undivided percentage interest in the cooperative’s property.

Long story short: In a cooperative, legal title to the lands, building, dwelling space and improvements remains in the “hands” of the “Cooperative Corporation”. An “Owner” doesn’t own a residential “Unit” per se – only the shares of stock in a corporation that entitles him to live there.

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By far the bulk of recent New Jersey housing developments are now governed by Homeowners Associations. Most of the legal authority for this governing institution comes from the New Jersey Planned Real Estate Development Full Disclosure Act (“PREDFDA” – NJSA 45:22A-21, et. seq.) and New Jersey Non-Profit Corporations Act (NJSA 15A:1-1, et. seq.). In this construct, residential lots, or “defined spaces of land” under an owner’s exclusive control are separate, subdivided parcels of real estate – ie. a parcel of real estate that a house or home is usually built on.

Any recreational, open space or other facilities in the development situated outside the “defined” parcel of property under an “owner’s” exclusive control (ie. the land footprint whereupon the owner’s house is to be built) are owned by a Homeowners Association. Title to those aformentioned “recreational, open space or other facilities” is actually vested in a “Not-For-Profit” Corporation HOA formed by the Community’s developer.

A Homeowners Association is created (pursuant to the satutes above-referenced) by virtue of a “Declaration of Covenants” in which ALL “owner’s” residential (“ie. defined” parcel) lots in the development are subject to its management and by which all residential “owners” are automatically designated “members” in it.

Long story short: In a Homeowners Association governed community, the HOA actually “owns” title to all “recreational, open space or other facilities” that lie outside the “defined lots” or parcels individual owners have purchased to build houses on. These “individual” defined parcel lots – and eventually the houses built thereon – are subject to the management of the HOA pursuant to statutory authority and the “Founding Covenants” of the Developed (“Planned”) Community. These “Covenants” and “Restrictions” run with the Deed to each individual lot…..ie. each house’s Deed sets forth all the aforementioned “Planned Community” duties and responsibilities and are filed in the County for everone to see.

So…YES. In an HOA they CAN tell you what color to paint your house, what roof to buy, when to put out your garbage cans, how wide your driveway can be, refuse your application to construct a garbage shed in your backyard, and prohibit you from inflating 40 ft. Frosty the Snowman Balloons for Christmas decorations………

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In a “Planned Community” pursuant to law, a Homeowners Association (“HOA”) is set up as a “Not-For-Profit” Corporation empowered to maintain the commmon elements of the Community (Club Houses, Amenities, Parking areas, Association Offices, Grassy-knoll park areas, etc.) and to protect property values. To accomplish these objectives, the HOA collects monthly “assessments” (HOA Fees) from the homeowners to finance their budget.

Homeowners Associations legally have the power to fine homeowners for violating Community Rules and Regulations. If the homeowner becomes delinquent, the HOA can slap a Lien against the errant property. Such Liens can accumulate until the HOA actually moves to foreclose Title and take over ownership of the home. Like any Township or Borough in New Jersey, the Homeowners Association has power to enforce its financial levies before the Courts. It’s powers are sometimes referred to as “Quasi-Governmental”.

WHO IS THE HOMEOWNERS ASSOCIATION?

It is a legal entity represented by a group of resident owners (7 or 9 in number) constituting a Board of Trustees. The Planned Community Developer executes this function until “completed build-out” – then purchaser-owners “Run” for election to this Board. Each resident property owner casts one vote for a resident candidate. Board Trustees are like a City or Town Council. Instead of a Mayor, the HOA Board of Trustees elects a “President”, who guides and serves as master of ceremonies in all proceedings. He or she is “Titular ” head of the BOT.

IMPORTANT: Since the Board of Trustees are just average citizens, they can opt to get help. Many Homeowners Associations contract with professional Community Management Companies – “Property Managers” – to handle all the tedious and droll day-to-day details of maintenance, rules enforcement, landscaping, personnel and staffing. Depending on how much “help” a Board of Trustees needs or wants, the costs of these professional Property Managers will determine what your monthly Homeowners Association “Fee” will be. If your HOA fees are high – your Board of Trustees opted for the Cadillac plan. If your HOA fees are low, your Board of Trustees opted for minimal assisitance OR none whatsoever. Low HOA fees, although nice when you pay them each month, have consequences – more on that later.

Community Rules and Regulations are created by the Board Of Trustees (usually with input from “Committees” of Owners). For a new Rule or Regulation to become effective (legal) the Board must vote on them during an official (announced) BOT Meeting. Notice of these BOT Meetings (usually held once a month) must be given to all homeowners and all homeowners have the right to attend and speak. Once the new Rule or Regulation is approved by BOT vote (in “Open Session” after debate by all interested homeowners) it must be served on all owners formally, whereupon it becomes an obligation they must abide by.

How does one know that a particular community is a “Planned Community” subject to Homeowners Association management?

All “Planned” HOA Communities must file with the Clerk of their County a Master Deed, setting forth an officially-sealed land survey, a formal description of the property, dimensions of all Common Elements the HOA Manages and exact Metes and Bounds descriptions of all residential lots contained within Community boundries,. These Deed parameters constitute public record of owners voting rights under the law.

The Clerk of the County wherein the Planned Community is located must also have recorded for “Public Record”: Articles of Incorporation of the Homeowners Association, Community Bylaws and Master Deed.

HOA Boards of Trustees must maintain and make available to all residents:

– Financial records with receipts for all expenditures;

– Records of all sanctions and fines against homeowners;

– Master Deed copies and current compiliations of all community rules and regulations;

– List of current property owners;

– Current Budget and proposed budgets;

– Most recent budget Audits, Certified by a Professionally Accredited Financial and/or Accounting Firm;

– Tax Returns (of the Not-For-Profit HOA) for (at least) the past three years.

Planned Communities taking in in excess of $100,000. in annual gross receipts (HOA Fees total from all owners) must be audited by a CPA each year; smaller communities taking in less than $100,000 must be audited by a CPA every three years.

Homeowners Rights vest in each owner of a residential unit based on the allocation of their ownership interests in the Master Deed (usually one building lot = one vote). Homeowners Membership Meetings must be held by law annually – if not more frequently as set forth in the Community Bylaws. Owners can attend all HOA Open Meetings (not “Executive Session” Meetings of Officers) and must be allowed a “reasonable” time to speak. Minutes of each Meeting must be recorded. Owners can also view Community financial documents, receipts, budgets, audits and Meeting Minutes documents (upon reasonable notice).

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Once we parse through all the foregoing dry and tedious legalese, what do we conclude?

HOMEOWNERS ASSOCIATIONS HAVE POWER…

Here you are, spending $400K, $500K, maybe $600K or more – and hanging yourself with a Mortgage, to boot – and you’re going to have to put up with some Community “Trustee” telling you how you can live.

If you want to be Jeremiah Johnson and live in a cabin up in the Rockies all by your lonesome – or stack each and every derelict car you’ve owned but no longer drive on your front lawn – a “Planned Community” with a Homeowners Association is most definately NOT for you!

There are beaucoup Rules. Let’s look at a few from an actual community in Burlington County, New Jersey. (The following are actual, legally binding Rules enforceable in a NJ Court of law):

– Driveways, patios, porches and room additions may not extend beyond the original footprint of the house;

– No freestanding structure, such as a trailer, tent, shack, garage or barn, storage shed, screen house, green house or other outbuilding – whether manufactured or constructed – may be used or installed on any residential lot at any time;

– No unsightly weeds, overgrown shrubs, underbrush or other unsightly vegetation will be permitted to grow or remain on any residential lot and no refuse pile or unsightly objects are allowed to be placed, remain or accumulate on any residential lot;

– The HOA decides what is “unsightly” in interpreting these Rules;

– ALL modifications and /or improvements and /or repairs to the exterior of the house AND lot must receive prior approval from the Architectural Control Committee;

– Complete OR partial perimeter fences of any height or material, including living material – bushes and/or vegetation configured and /or planted so as to effectively constitute a “fence” or barrier of any kind – are NOT permitted;

– No signs of ANY kind may be displayed to the public view on any residential lot, except those permitted and/or approved from time to time by the HOA;

– Nothing can be disposed of in any storm drain;

The feeding of waterfoul and /or wild and/or feral animals on any residential lot, waterway or Common Element is prohibited;

– Outdoor animal enclosures, runs, houses and pens are not permitted under any circumstances. Pets may not be left unattended outside regardless of said animal being attached to a leash / tender or attached to a porch, deck or patio;

– Motor vehicles may not be parked on lawn areas under any circumstances;

– No gas-powered motor vehicles, including but not limited to Recreational Vehicles, dirt bikes, snowmobiles, motorcycles, may be parked on or driven on common elements of this Community;

– Prior to the sale of any house in this Community, the exterior of said house must be inspected and approved by the Architechtural Control Committee to verify its adherence to the Rules, Regulations, Covenants, Bylaws and standards of said Community. Residents must further provide thirty (30) days notice to the Board or Trustees of their intention to list their home for sale in order to allow the Homeowners Association time within which to evaluate the condition and compliance of said property with the aforesaid Rules and standards;

– All types of wooden, wire and/or plastic fencing used as landscape accents, of any height and color, are not permitted under any circumstances;

– All Architechtural Committee Permits must be displayed in a front, ground level window of the house being worked on from the initiation of each project to the completion of same;

– Residents are not allowed to alter in any manner any Common Properties in this Community;

– Recreational vehicles must be parked at the designed site parking area in this Community. No Recreational vehicles whatsoever will be allowed on the residential property of the owner of same fo any time period and for any reason whatsoever.

– Each residence will be allowed one barbeque grill fuled by one 20lb propane tank, said object being placed on the far end of each patio of the subject residence; no fire pits, chimeneas or other cooking and /or heating source will be permitted outside the residence under any circumstances;

– No boats will be stored on the sides or back of any residence nor will any boat outboard or other nautical power source be stored at or near said residence;

– Clothes lines are absolutely not permitted in this community;

– Patio furniture must be placed on the patior of each residence in a tasteful fashion;

– A flagpole may be attached to the side of the residence garage and fly only the Stars and Stripes of the United States of America. No other flags of any other nationality or national origin may be flown. Accent and/or seasonal flags are not permitted;

– Hot tubs are not permitted under any circumstances;

– Only two (2) floral planters are permitted at the front of each house;

– The Homeowners Association will approve each year exactly how much firewood for your fireplace you may stockpile and exactly where and in what manner you may stack it on your property. Under no circumstances will more than one cord of wood be allowed at any given time. Permit applications must be submitted for each firewood purchase and approved before said wood is delivered to each residence.

These “Rules” are but a taste. There are many others. The minutiae addressed in some of them is breathtaking. Each is enforceable under pain of fines – which fines can become Liens against your Title. All are enforceable in a Court of Law. Of course if you want to fight this kind of control – and, if you have the money – get a Lawyer! In New Jersey you can litigate anything! If you lose, however, Homeowners Association Rules provide that you pay the Communty’s legal fees and costs.

It’s kind’a like Dirty Harry staring at you over the barrel of his 44 Magnum……”do ya’ feel lucky, Punk? ”

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A WEAK LINK IN THE CHAIN?

Homeowners Associations, indeed, have got you “hog tied”. But the final part of the story is where the rubber meets the road. Who administers all these Rules and Fines? The Board of Trustees. Who is the Board of Trustees? Residents, just like you, who are “elected” by the Community.

It has been said that they are the “weak link in the chain”. Why? Because they’re Volunteers.

BANKING ON VOLUNTEERS THESE DAYS IS PROBLEMATIC….

A recent paper from the University of Maryland School of Public Policy (October, 2018) entitled: “WHERE ARE AMERICA’S VOLUNTEERS – A Look At America’s Widespread Decline In Volunteering In Cities And States” bemoaned the lack of people dedicating their personal time to Community activities that didn’t include a pay check. They continue:

“…..Throughout the country, volunteers work with congregations, charities and non-profit organizatons to provide needed services of all types for people and communities”. This paper concludes: “…the United States has experienced a significant decline in the percentage of Americans who volunteer annually and give of their services”.

The so-called “Greatest Generation” of World War II veterans and their spouses were the high water mark of Community volunteerism. Theirs was the age of Masons, The Moose, Knights of Columbus, township committees, bake sales – they gave their time freely. But they’re dying off. All the Committees and Boards that counted on their availability and dedication are going begging.

The University of Maryland abstracted data on volunteer rates for intervals of 2004-2006, 2007-2009, 2010-2012 and 2013-2015 in all fifty states. Declines of between 12.5% and 25.5% (latest) were documented. They concluded that “profound societal changes” in ages groups and socio-economic status are afoot. Their political scientists characterized America of today as wallowing in a “period of great uncivil disagreement”.

Each year the Bureau of Labor Statistics issues their report on volunteer rates in the United states. Their reports consistently records a downturn each year. Why? They attribute it to “more people are overworked with less time on their hands”. There’s an undeniable shift away from community involvement, perhaps “due to the emergence of online communities”, young people moving more often and economic pressures.

Finally, Drs. Nathan Dietz and Robert Grimm of the University of Maryland in their paper, “A Less Charitable Nation: The Decline of Volunteering and Giving in the United States” (Feb. 28, 2019) conclude that factors like lower home ownership rates, higher percentage of homes in multi-unit rental structures, higher average commuting times, lower percentage of residents with college degrees, high unemployment rates, higher poverty rates and lower median income all drive down the spare time people have (and possible desire) to volunteer for a Board or Committee in the Community.

While Drs. Dietz and Grimm address all forms of volunteerism – from Volunteer Fire Departments to religious instruction to Non-Profit Organization management – the decline in participation is alarming, especially given how many communities are literally managed by volunteers and set up by Statute to require an endless supply of them.

Condominium Associations, Cooperatives and Homeowners Associations all rely on volunteer resident involvement to manage key elements of community life and business.

MEET YOUR HOMEOWNERS ASSOCIATION BOARD OF TRUSTEES….

Unless you live in a Planned Community where all the residents are college professors, scientists, Judges, upper-tier investment banker types, well-heeled stock brokers, etc., you are not going to have a “Superman” brain pool of talent to draw from for your Board of Trustees.

Reality is, you’re likely to be thrown in with quintessential “Jersey” types – some flush people, some broke people, folks struggling to make ends meet, working two jobs and barely paying their child support, retired mail carriers, a teacher or civil servant, a cop paying alimony….Average Joes and Janes just trying to keep their lives together. Kind but troubled souls juggling car payments, grocery bills, car insurance, medical and prescription expenses….The stuff that keeps us all up at night.

What’s a recipe for disaster? Populating the Board of Trustees of a large Homeowners Association with people who have “other things on their mind” and are working multiple jobs just to scrape by. Add to that the day-to-day distractions of child parenting and career reversals….the current US economy…..the Pandemic.

If that’s your “Bench” to select from – good luck.

Worse yet, try to staff a Board of Trustees in a large “Senior” (over 55) community HOA where everybody is older and many are in desperate financial straights limping along on Social Security…borrowing from Peter to pay Paul. Places named “Holidayland” where residents are health challenged, medicated, oftimes ill-tempered and mostly marginally educated.

Many of these “Old Timer” Communities now look like “Skid Row”. Years back, their Homeowners Associations / Boards of Trustees opted to defer or forego a professional Management Company that could’ve handled their myriad “Planned Community” responsibilities and headaches….Why? The oldies’ goal was to skip paying money on HOA monthly fees so everybody could squeek by on their Social Security checks. Bad idea.

This “We Can Do It Ourselves” ethos in “Senior” communities always results in minimal, skinflint services and sketchy maintenance. Sure, old duffers save money on their HOA monthly fees – but they struggle everyday with getting anybody that still isn’t drooling from dementia to complete the basic Board of Trustee tasks required by New Jersey laws. The destiny of this Community is a slow, inexorable decline into “Social Security Ghetto” status……a grouping of “Living Caskets” where people live out the remainder of their days and expire in squalor. By the time whatever relatives show up to take over what’s left of the “house” it needs a bulldozer. It’s a urine-soaked, decrepit hovel.

Like a said, BIG mistake. But again – you pays ‘yer money and you takes ‘yer chances.

For three years in the late 90s I was a Trustee of a large (250+ homes) high-end HOA Community in Basking Ridge, NJ, where I lived at the time. The Homeowners Association Board of Trustees was assisted by a top-rated and extremely effective professional management company. Everything ran like clockwork and Trustees basically concerned themselves with broad “Policy” decisions, budget matters and oversight. The HOA fees weren’t cheap – but the place ran like a Fortune 500 corporation. I actually looked forward to the meetings – it felt good being “in the know” and giving back to my neighborhood.

Recently I was a Trustee (for four months) in a Burlington County community HOA (2,250 homes) that subscribes to the “Less is More” philosophy of outside property managment help. Their HOA fees are low – and sacrosanct. Their ethos is “we can handle this all by ourselves and keep costs down….”

The stark difference between these two BOT Trustee experiences opened my eyes.

Lesson learned? You get what you pay for.

People lacking hard business experience who have barely a passing familiarity with law and not-for-profit financing and fiduciary management responsibilities can’t effectively run an HOA. A Community of hundreds (sometimes thousands) of houses requires a steady and experienced hand.

A professional management company is the only way to go – BUT that means raising HOA monthly fees, ie. grabbing that electrified “Third Rail” of Homeowners Association- type home ownership.

Why is raising HOA fees so taboo?

People have no control over their real estate taxes or their monthly mortgage payments but HOA fees are the one expense they can dilute or axe altogether.

In high-cost states like New Jersey, residents will do anything they can to stanch their money hemorrhage. Here we’re always bleeding cash. HOA fees are the the first to be walked-back or killed, if possible, in any planned community. They haunt every Board of Trustees like the spawn of Satan.

The NJ Statutes setting up these “Common Interest” Planned Communities anticipated – actually, BANKED ON – an America where there would always be a competent “bench” of people to select from when came time to flesh-out Homeowners Association Boards of Trustees. These days this “core expectation” is wearing thin. Circa 2022 Reality is anything but encouraging.

Bear in mind: HOA Board Trustees don’t get paid and you gotta’ pick from people who live there….

Result?

Most HOA Boards – although well-intentioned – are frighteningly ineffective and barely professional. Typically, there are one or two Trustees who do all the work because they know the other Trustees are out of their depth. It’s no way to run a Railroad (metaphorically speaking). Such “volunteerism” rapidly turns into an unpaid part-time job – and those few Trustees busting their ass soon come to resent the whole business but can’t leave because there’s nobody else they can get to replace them.

Boards of Trustees seem pretty sparse in the qualifications and talent department, too, truth be told. Perhaps there are exceptional HOAs “Trustee(d)” by exceptional people in New Jersey that get little or no professional management assitance and run like tops….but I’ve never seen or heard of any. All I know is what I’ve experienced and researched.

Once you see behind the curtain you realize what a crap-shoot it all is.

BOTTOM LINE?

Unless the “Planned Community” you’re looking to buy into has a Professional Management Company orchestrating every jot and tittle of that Communty’s business – complete with the higher monthly HOA fees their service entails – FORGET IT.

If Community monthly HOA fees are low – there’s a reason. Your Board of Trustees can be the nicest, most well-intentioned bunch on the planet – BUT they’re NOT professional property managers. Managing Communties ain’t easy. And the “let’s go it alone” method of Homeowners Association management by resident “Trustees” themselves is a train wreck..

Caveat Emptor.

Copyright, Jon Croft, 2022