How Do We Go From Neighbors To Litigants?

An Overview of the Litigious Nature of Community Associations and Their Members

Overview

Why is it when you mention Homeowners’ Associations (HOA’s) people get angry? There is almost a collective hatred among homeowners regarding the existence of HOAs. It is hard to reconcile when the owners knew of the HOA’s existence prior to moving into their home, but understandable given the litigious nature of the industry. Edmonson (2024) noted a Rocket Mortgage study that discovered 37% of homeowners in the study do not like living in an HOA community and 31% believe their HOA has too much power(1). Statistically, one in three neighbors are not happy with their HOA.

How do HOA’s go from a group of neighbors volunteering to support the community to an Orwellian dystopia of abuse of power, rampant favoritism and criminal fraud, willing to sue their neighbors to further their own gains? Conversely, how does homeowner anger at their HOA turn into litigation? The answers are as complicated as the diversity of HOA’s, neighborhoods, and families.

Role of HOA’s

There are many types of HOA’s around the world, but they share similar purposes and functions. Broadly, HOAs are established to improve the lives of their owners and the neighborhood within them. HOA’s exist for three primary reasons: to increase the value of the neighborhood, to ensure the safety and availability of amenities, and to provide a forum for community communication and engagement. They provide valuable services like maintaining common areas and processing modification requests.

HOA’s are set up based on local, state and federal laws, regulations and requirements. They are organized and follow processes to elect leaders (Board of Directors), hire managers and contract service providers. They are all internally funded; homeowners pay dues to fund activities performed by and for the HOA. They act on behalf of the collective homeowners to better the neighborhood following specific guidelines, rules and laws.

Role of Homeowners

Homeowners agree to abide by the rules of the HOA when they purchase the property. They agree to follow the processes currently in place to pay their dues, request modifications, vote for and run for positions on the Board of Directors, request a resale package, and communicate an issue with an amenity or within the common areas. They agree to follow the HOA’s Covenants, Conditions and Restrictions (CC&Rs). They also agree to the processes in place for affecting change including changing processes, adjusting fees, and modifying rules including CC&Rs and the rules that govern Board of Directors elections.

When the Relationship Breaks Down

There is a contractual relationship between HOA’s and homeowners. It is solidified at closing when the owners receive information about the HOA, the CC&Rs that govern the property, and the property’s current status regarding those rules according to the HOA. This resale package is one part of a lengthy legal process to purchase a home governed by an HOA.

Choosing a property to purchase is based on a multitude of factors. For many homeowners, the existence of an HOA is either an inconvenience or a slight benefit. At the extreme, there are owners who will never purchase a home in an area governed by an HOA. Some people seek out a home within a HOA. Some people reluctantly purchase a home governed by an HOA. Regardless of their feelings on the existence of an HOA, most owners do not digest all the information they receive at closing, including the resale package. Many homeowners are unaware of the consequences for non-compliance with HOA CC&R’s.

HOA’s currently operate in a paper-centric, point-in-time environment that limits real-time communication. They are usually limited in their use of technology to complete tasks and provide transparency to their homeowners. They are comprised of neighbors who are elected to volunteer. Their motivations for serving on the HOA vary from civic duty to opportunity be a ruler. There are multiple reasons why communications breakdown and why that breakdown often leads to litigation.

HOA’s Sue Homeowners

Businesses sue each other and their customers often. HOA’s are no different. There are many reasons why HOA’s sue their homeowners. Saad (2021) points out a major reason is when homeowners fail to pay dues(2). Financial considerations contribute to HOA’s deciding to sue a homeowner. Many HOA’s can assess fines on owners for failure to follow CC&R’s. HOA’s see litigation as a reasonable means to collect dues or fines. CC&R’s can outline the process to compliance to include when the HOA can or will sue the homeowner.

Homeowners Sue HOA’s

The relationship can go both ways. HOA’s may be sued by its homeowners. Dornish (2022) confirms the three primary reasons HOA’s are sued: make a claim of negligence by the Board of Directors, make a claim of favoritism by the Board of Directors and prevent some action by the Board of Directors(3). As noted earlier, there is a perception of misfeasance, malfeasance and nonfeasance on the part of the HOA. The reality is regardless of motivation behind the action or non-action, HOA decisions will not always be welcomed or accepted by homeowners. Homeowners who have exhausted all existing processes to right a wrong have the final option of suing their HOA.

Conclusion

At its core, homeownership is personal. At its core, an HOA is a business. It is challenging to make business personal and to treat personal things as a business. The conflict is real and understandable, but it does not have to happen. Well written CC&R’s that are easy to access are a start. Repeatable processes that are equally applied can lessen the conflict. Transparent, accurate and timely communication are key factors to building trust between homeowners and their HOA. Lawsuits are the result of a complete breakdown of the relationship between HOA’s and their homeowners. It is not a matter of whether an HOA will be involved in a lawsuit, but a matter of when. The reality is homeowners will always take things related to their property personally and for the HOA’s it is just business: nothing personal.

Terms & Acronyms

The tables below list the terms and acronyms used in this article. The terms used in this article are defined in the table below.

The table below is a list of common acronyms used in this article.

References

1.     Jessica Edmonson. HOAs: Beneficial Or A Bane? March 2024. https://www.rocketmortgage.com/learn/assessing-the-association. Retrieved 4/22/2024.

2.     Samuel J. Saad III. The Three Primary Reasons Why a Homeowners Association may Sue You. March 2021. https://www.saadlegal.com/blog/2021/03/the-3-primary-reasons-why-a-homeowners-association-may-sue-you/#:~:text=Common%20reasons%20homeowners'%20associations%20sue%20residents&text=The%20bylaws%20of%20many%20HOAs,to%20pay%20any%20assessed%20penalties. Retrieved 4/23/2023.

3.     Dornish Law Offices. Three Common Reasons Why HOAs are Sued. October 2022. https://www.dornish.net/blog/2022/10/3-of-the-common-reasons-why-hoas-are-sued/. Retrieved 4/23/2024.