Some people love them, some people hate them, but almost everyone has an opinion about them. We’re talking about Homeowners Associations, and in Colorado, it’s estimated that 2.2 million of the state’s five million residents live under some kind of HOA arrangement.
But did you know that there is virtually no government oversight and only minimal regulatory control over these powerful community management companies?
Somewhat surprisingly, only three states – Nevada, Florida, and Virginia – have government regulation and oversight of HOA’s. In Colorado, it’s estimated that there are over 1,250 individual management companies, although the state admits it doesn't know exactly how many management companies are in business.
To better assess what’s happening in a highly unregulated environment, this year Colorado formed the “HOA Information Office and Resource Center”, which initially has a staff of three, a total budget of under $200,000 and no legislative power to investigate. At this point, it’s basically an information-gathering entity, purposed to try and determine where regulatory oversight might be warranted and what kinds of legislative solutions might improve the HOA experience.
Right now, things like status letter fees, transfer fees, association document fees and HOA fining authority are all virtually independent of government regulation.
As a real estate broker, I see incredible disparity in the way HOA’s function. Some small community-based HOA’s operate with a few part-time volunteers and a shoestring budget. Other “Mega Management Companies” run hundreds of HOA’s with layers of community managers, sometimes charging borderline-outrageous fees for status letters, association documents or transfer fees.
Because HOA’s can create a primary lien in Colorado, HOA’s actually have the power to foreclose for unpaid fines or association dues. Therefore, if the association chooses to “fine someone into foreclosure” for failing to paint, taking too long to paint or painting the wrong color, chaos can ensue - and right now the consumer has very few places to turn for help.
It's a complicated mess, and it's one reason many buyers avoid HOA's altogether.
FHA financing has been a hot topic of conversation over the past few years, as much more restrictive FHA lending guidelines have caused well over half of all condo developments in the metro area to lose their FHA approval. That means no FHA loans, which means about one-third of the market is essentially frozen out of these communities.
To address this, some condominium HOA’s in Colorado are attempting to regain their FHA approval by restricting the number of units that can be used as rentals. That sounds great, unless you are landlord and you bought your unit to rent it out.
There are also complex social dynamics which involve HOA’s, such as what authority (if any) an association has in regulating marijuana use in multi-unit buildings, or whether smoking of any kind can be prohibited.
All to say, HOA management has become increasingly complex and problematic, and state regulators are looking for a proper role to play.
Regulation is certainly not always the answer. But without clear guidelines, there are risks that many homeowners are simply unaware of when it comes to purchasing a home in an HOA community.