Homeowners Associations May Get Additional Oversight

This week’s Courier Herald column:

A bill working its way through the Georgia General Assembly is causing a bit more of a stir than expected for an otherwise narrowly focused piece of legislation. House Bill 410 seeks to raise the cap homeowners associations can charge for a closing letter. Current law places the cap at $10. The original bill set the new cap at $150, with the current version having been revised upwards to $250 with an additional $50 if the letter is needed within 3 days.

You would think raising the cap by thirty times would have HOA management companies ecstatic but that’s not the case. Quite the opposite. This is one of those many times where you have to look at actual practice and why a bill is being proposed to understand the actual issues at hand.

The current law that allows for a $10 fee to produce a letter isn’t comprehensive. Thus, many professional management firms have been adding additional charges for other items required by mortgage companies and closing attorneys. These charges have been growing rapidly, and there is little an individual homeowner or home buyer can do about it.

Homeowners associations are one of the closest levels of “government” to those that live in developments with restrictive covenants. In suburban and urban Atlanta, that’s the vast majority of citizens. HOA’s rights, set out by covenants and attached to the deed of a property, are all encompassing.

Most give the right of foreclosure as a final act of enforcement. It’s hard not to consider any organization with the right of seizure of personal property a level of government.

The argument for HOA’s is backed by the concept of local control. Decisions of governance are usually best when made at the most local level practical. The argument is also made that the covenants are known prior to anyone purchasing property that is covered. The buyer is to assume responsibility for knowing what rules they are agreeing to abide by before signing closing papers.

These arguments generally hold for HOAs. “Local control”, however, is not without accountability and oversight. Local control is not established in the Constitution – either of them. The U.S. Constitution provides that rights not expressly granted to the federal government reside with the states or with the people. The state of Georgia’s constitution, consequently, ultimately grants rights conveyed to cities and counties, and to homeowners associations as well. Thus the clear oversight role.

One issue with HOA’s is the inability to change covenants over time. While officers are elected annually or as required by covenant, major changes to the overall governance as spelled out in the deed can take a super majority of homeowners to agree. Given the lax participation, this too often allows for small groups to dictate terms to a broad swath of neighbors, and a general inability to keep the covenants updated over time.

The battle over the limit and scope of this fee has pitted HOA management companies against Realtors. Realtors are known to battle against anything that increases transaction costs. The fact that they’re pushing to increase a stated cap fifteen to thirty times the current amount and the fierce opposition from HOA’s shows that the current $10 cap is meaningless in practice.

As for disclosure purposes, I maintain a real estate license and am a member of the Cobb Association of Realtors. This is but one of the many hats I wear, and all of my transactions completed in the last five years have been for myself or immediate family members. Professionally I have little stake in the outcome.

This membership has, however, allowed me to see email traffic advocating for the bill, in order to set a comprehensive cap to establish predictable closing costs and a maximum time allowed to produce a letter (ten days) or provide an additional fee to expedite the letter within three days.

HOA’s will argue that the costs will just be passed back to all homeowners via HOA dues for associations that have professional management companies, or may make it harder to generate volunteer candidates willing to take on roles knowing they are subject to additional state mandates. These concerns are not without merit.

At the end of the day, however, the scales tip to the side of a predictable cost and timeframe for something that is required to efficiently transfer property from one owner to the next. It’s the best way to maintain local control – with a proper amount of state oversight.


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