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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Advocate67Sally ForthbethebalanceCharlieBenevolus Recent comment authors
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Benevolus
Benevolus

A couple of questions:
– I know Realtors have a pretty significant lobbying presence, but who is providing the ” fierce opposition” for the HOA’s?

Also, the more libertarian minded would say that the free market should keep these fees in check via competition. So why isn’t that happening? I suspect it’s just because these fees are a small percentage of an overall transaction and therefore get kind of overlooked until the bill comes. But it’s a mandatory product and you can’t get it anywhere else, so there really is no competition.

bethebalance
bethebalance

I’d guess that the larger concern people have is that regulations don’t prevent covenants from allowing foreclosure because someone didn’t pay their HoA dues or similar things. That happens, right? Perhaps market forces will see this form of sandlot governance decrease over time. Makes sense in some places, esp. condos, but I tend to think local government code enforcement does enough governance for most.

Sally Forth
Sally Forth

Charlie, do you have some stats for that statement that the majority of citizens in urban and suburban Atlanta are in HOAs? I’d sure like to show them to a couple of neighborhoods near me. And BTB, the biggest problem in metro Atlanta neighborhoods is that local government does not enforce their own codes, instead allow neighborhoods to not even meet minimum code requirements, such as turning yards into dump sites, running construction businesses in the middle of residential zones, parking in the middle of grass lawns, etc. Cities and counties turn their heads while neighborhoods are trashed — code… Read more »

bethebalance
bethebalance

mileage on code enforcement certainly varies. I do like when neighborhood advocates and associations organize for better code enf. resources. A few counties stepped up w code lately. I guess I prefer that voluntary organization to even the possibility of sandlot HoA governance. But they are all over the place.

Advocate67
Advocate67

A Senate Committee yesterday slashed the fee caps passed by the House to a level that makes it uneconomic to recover the costs and liability risks of providing the closing information. So the threat of increased association dues to recover those costs are real — an “exit tax” on residents living in associations paid to sellers leaving associations. Also, while closing letter/disclosure information is one of the smallest fees (usually just one percent) at closing, it will now be the ONLY fee capped in statute. It’s ironic that the Realtors are pushing this bill when their fees, which are 60… Read more »

bethebalance
bethebalance

If you happen to be paid advocate on this issue, I think protocol suggests you disclose that. If not, you sure do care an awful lot about it- makes me wonder just what kind of awful home closing experience you’ve had.

Benevolus
Benevolus

I would think that if everyone needs a closing letter, and everyone pays the increased fees, it doesn’t seem like socialist cost shifting. Only the first few- who get the benefit of the capped fees without having paid an increased HOA fee- would gain a benefit.
Also, Realtors are a free market situation- you can pick any one you want and usually change if you need to, so there should be some free-market pressure there to keep fees in line.

Advocate67
Advocate67

The closing letter fee is for a sale transaction and the costs of that transaction should not be spread to all community residents. Imagine if someone lived in their community for ten years or more before moving how many closing letters/sales transactions he/she would help fund because of this legislation. Yet, he/she would only benefit once. And, Realtor services are not free market; try finding one who will sell your home for less than a 6 percent commission.