Homeowners associations: rivaling local governments

Brian Seals

Friday, Oct. 16, 1998 | 11:32 a.m.

Over the last 20 years homeowners associations have become big businesses with powers that rival, and in some cases exceed, that of government.

Those powers demand a more developed public policy to regulate those associations, says Evan McKenzie, professor of political science at the University of Illinois-Chicago.

McKenzie, author of a book on community associations titled "Privatopia," spoke last month at a forum at the University of Nevada-Las Vegas.

Associations have been used as a way to fund neighborhood amenities and uphold property values.

At the same time some associations have become like oppressive governments, bullying their members by imposing fines, filing liens over unpaid fees and dictating what residents can and can't do with their property.

Las Vegas is no stranger to anecdotes of homeowner association horror stories. Just last April, senior citizens Harry and Lillian Hopkins faced foreclosure on their home after the Desert Fairways Homeowners Association tried to sell their house to collect an unpaid annual assessment. The $56 assessment had swelled to $820 with penalties and friends chipped in to save the house from sale.

"I've been arguing since the mid-80s that we need to have a more developed policy or we'll have problems," said McKenzie, a former attorney who worked with common-interest communities in California.

The industry is largely unregulated and ran by untrained property managers, he said. Moreover, lawyers work behind the scenes making money be collecting unpaid dues and fines on behalf of associations.

He lauded Nevada legislation that became effective this year aimed at curbing abuses of homeowners associations and establishing an ombudsman's office to resolve disputes between residents and associations. The law, SB314, also requires associations managers to be licensed.

"I think the Nevada legislation is a step in the right direction," McKenzie said in a phone interview. "The Nevada legislature is one of the first to do something about it."

McKenzie says there is a lot at stake. Local governments across the country have welcomed associations as a way to gain more taxpayers while at the same time allowing associations to provide services traditionally provided by government, like street lighting. At the same time, residents who find themselves at odds with their associations usually end up in costly court battles for both sides.

McKenzie noted three possible problems that could result from those situations:

* An internal collapse if associations become under-funded due to costly legal battles and cannot pay for services they are supposed to provide.

* Bad press on the nit-picking of some associations could cause a failure in the housing market that caters to homeowners associations. People who read about a guy who can't put up an American flag, for example, will start shunning such communities.

* An emerging adverse relationship between government and associations because associations believe the private sector can provide services better.

McKenzie said the old "buyer beware argument" doesn't protect property owners. Encouraging them to take control of their association governance isn't always reasonable.

"If we get a 50 percent turnout in a general election we think that is great," McKenzie said. "We can't expect people to go to meetings every month and read 300- to 400-page covenants."