Rules of the house

Should neighborhood- management organizations be more tightly regulated?


Article Courtesy of The Charleston Post and Courier

By Katy Stech
Published February 23, 2009

A clampdown could be coming for suburbia's emerging ruling class: the neighborhood board.

State legislators are considering a bill that would put the Department of Consumer Affairs in charge of moderating the sometimes fiery disputes that flare up between homeowners associations and their members.

It's reached the point that one Midlands lawmaker has proposed legislation that, if passed, would put in place what some say is one of the most rigorous set of HOA regulations in the country. Supporters say the bill would give residents more say and rein in rogue boards by standardizing how they operate.

Reformers say changes are long overdue because of the growing but largely unchecked powers that associations have over property owners.

"These people exercise a lot of control over how you use your property," said Brandolyn Pinkston, Consumer Affair's administrator.

But some community managers who work with homeowners associations are opposed, saying the bill is expensive, violates homeowner privacy rights and would create too much work for board members. Instead, they're drafting their own milder proposal that would apply to new associations and existing ones that vote to adopt it voluntarily.

"Legislation that responsibly gives protection to homeowners and elevates professionalism (among community managers), we generally support," said Frank Rathbun, spokesman for the Community Associations Institute, a national group that focuses on neighborhood governance. "What we don't support are ones that increase costs for community owners and don't provide consumer protections. "

Rapid growth

Homeowner associations are a modern creation. The number of community governing boards blossomed during recent decades through an emerging suburbia and an increase in developer-planned communities.

The Community Associations Institute estimates that in 1970, only one in 96 U.S. residents lived in a community that was governed by some sort of neighborhood association. Last year, the ratio was one in five.

Regulation of HOAs has lagged their rapid growth. In the Palmetto State, which has about 7,000 associations, the organizations are governed by the South Carolina Nonprofit Corporation Act, which lays out broad operating guidelines.

Over the years, heated disputes between some associations and their members have called attention to the fact that each group has diverse, and sometimes defunct, governing rules, prompting calls for some sort of regulation. A 2007 Zogby poll showed that roughly 1 in 10 residents was unhappy with their association.

Sen. Darrell Jackson, D-Richland, said he has heard a chorus of complaints from constituents about power-hungry association board members and unfair treatment. In response, he has proposed a bill that sets operating guidelines for the groups and would hold them accountable to Consumer Affairs.

"They answer to no one," Jackson said. "They do basically whatever they would like to do with little input from the people they represent."

Whether his bill will be enacted into law remains unclear, but as proposed it would require associations to register each year with Consumer Affairs, keep audit-ready accounting records and provide the agency with copies of important documents, such as their bylaws.

Also, his legislation would prevent associations from raising annual dues by more than 20 percent without a special vote.

Some of his provisions were included to ensure financial transparency and spell out members' rights. For example, one part would give homeowners access to bids their associations have received for work. Another would require that members be allowed to speak at HOA meetings.

Some associations already have these guidelines in place, but Pinkston of Consumer Affairs said an updated, codified set of regulations would encourage compliance and eliminate ambiguities.

"These associations effectively run the entire neighborhood, and you don't want them to be subjective in their administration, " Pinkson said. "If it's clear and transparent, then there should be no problem."

For boards that stray from the rules, her agency would be able to impose fines of up to $5,000 per violation.

She said the law could save homeowners thousands of dollars in legal costs because it would give department officials the power to mediate disputes. For that service, the department would charge a small fee to deter frivolous complaints.

In order to pay for the changes, Jackson proposed a $10 annual charge to residents who live under a homeowners association, a figure that staffers who are working on the bill now acknowledge is high. Revenue projections later showed that a $10 fee would generate roughly $6 million each year, far more than the estimated $356,168 that would be needed annually to administer the law.

Most of the money raised would be put toward employing four mediators and an attorney.

Costly, onerous

But neighborhood managers such as Peter Kristian, who works for a 4,200-home association on Hilton Head Island and who until Dec. 31 was president of the Community Associations Institute, have complained that no other state has put forth such onerous and expensive measures.

Jackson's bill, for example, would require board members to send thousand of pages of documents to the state agency each year.

Mike Parades, district manager for Charleston-based Sentry Management, said that "doesn't do anything for anybody except create a massive paper storage area in Columbia that they probably won't do anything with."

Jackson's bill would also require homeowners associations to release and update a list of names and mailing addresses for all of their residents, which Parades says is unnecessary and troubling.

"That's a huge privacy issue. And why? There's no need for it," he said. "Why do they want to have thousands and thousands of documents on file with them?"

Kristian complained that some provisions are duplicative. He noted, for example, that associations are already required to register their groups and some of their key documents with the Secretary of State's office.

Instead, community manager advocates across the state have banded together to draft their own legislation, similar to the provisions that currently govern condominiums. Those rules spell out the responsibilities for HOA board members, homeowners, developers and owners, including such details as how the common areas should be maintained.

Their draft bill, which has yet to be officially introduced, addresses what community managers say are more pressing problems, such as making developers conduct realistic maintenance- cost studies for the neighborhoods they build. It also would call for developers to pay HOA dues for as long as they own property in a community, just like their home buyers.

The legislation would require that community managers be licensed through the state. It would set professional and ethics standards, create a system for complaints and punishments and would require them to take continuing education classes.

Individual communities could adopt provisions of the law, which could prove helpful for older neighborhoods that have incomplete, outdated or even absurd bylaws, Kristian said.

He said the bill being proposed by Jackson, by contrast, would alter existing contracts while imposing sweeping and heavy-handed new rules.

"There's where we get into some difficulty and a philosophical disagreement, " he said. "The vast majority of communities have the right documents and are effectively run, and we need to leave them alone."