Consider this real-life scenario: Bob purchased shares of Coca Cola stock without first reviewing the company’s performance and future plans. He was looking forward to earning dividends along the way, and surely he could sell his shares and get out at anytime with extra money in his pocket.
Leading up to the annual meeting, Bob received a mailing from Coke, detailing plans for further expansion in to South America, and he was upset to discover that no dividends would be issued. Because of liability the company was addressing, the value of his stock actually dropped. There were other items as well, and he didn’t agree with any of them.
He immediately sent a series of messages to the Board of Directors, challenging them on various items, claiming they didn’t have the authority to take certain steps without stockholder approval, and threatening legal action.
The Board didn’t respond, as all of Bob’s challenges were invalidated by the regulations spelled out in the company’s governing documents – an educational experience for Bob that came at the cost of hiring an attorney. When Bob complained that he hadn’t known about these regulations, he learned it was up to him to discover such things. Ignorance of the law is no excuse.
Unfortunately, many prospective homeowners are like Bob, not taking time to research the community that they plan to purchase in to. They are shocked to discover the level of authority a homeowners association carries. Disagreements over budgets, assessments or compliance violations often result from misunderstanding the roles and rules that a person agrees to when moving in to a deed-restricted community.
Just like Coca Cola, homeowner associations (HOAs) are corporations and operate under the same set of laws. Many of the restrictions you would face as an employee or an investor in a company apply to HOAs. While a firm may have a clothing dress code, your association has a housing dress code. Your employer won’t allow you to set up a camper trailer in the parking lot, and the same trailer would not be permitted in HOA’s common area. The similarities go on.
With some exceptions, a person is able to contract away many of the rights granted by the U.S. Constitution. A homeowner may stand up in a community meeting, waiving a copy of the Declaration of Independence or Constitution, and demand the right to post any type of signage he wants in his yard. However, he is bound by the covenants he entered into when purchasing his home. These covenants are a contract between all homeowners in the community, and if they require signage to be posted only in the window of a home, the homeowners will need to come together as a group to alter the terms of the contract to permit signs elsewhere.
Such amendments are not easy to pass, and anyone buying in to a community should assume that the regulations will remain unaltered. This is not necessarily a negative situation: It prevents the implementation of truly horrific regulations that would create misery for the neighbors and drive down home values. The amendment process is intentionally cumbersome, encouraging thoughtful deliberation over a span of months or years. Slow change is preferable to a whirlwind that leaves your community in shambles. For items worth changing, working through the process, rather than railing against Board volunteers, is the path to success.