Power of the HOA
Through its board an HOA will provide some level of amenities (though differing greatly between HOAs), regulate activities within a development, levy assessments, and may (if authorized by CC&Rs or a state legislature) impose fines for noncompliance.
Depending on the governing documents, HOA boards may create committees, such as an “architectural control committee” (this is a very common one, and frequently this committee has the ultimate authority to approve or deny a building request), a pool committee, a neighborhood watch committee, etc.
Depending on the governing documents or state law, the HOA may have the authority to place liens on a property (for non-payment of assessments and/or noncompliance with CC&Rs, an example would be the costs to remove a noncompliant structure such as a mobile home on a lot restricted to “site built” housing) and to, ultimately, foreclose on it. Homeowners have the ability to defend against such actions, and are usually entitled to sue HOA’s for contractual or statutory violations, or for a legal determination as to the enforceability of a provision in the governing documents. However, because HOA’s are private associations, they are not considered “state actors” subject to constitutional constraints,[24] and therefore homeowners cannot sue for civil rights violations under 42 U.S.C. 1983.
The major power of the HOA is the ability to compel property owners to pay a share of common expenses for the overall maintenance of the HOA and the amenities, usually proportionate to the ownership interests (either by unit or based on square footage). These expenses generally arise from the operation and maintenance of common property, which vary dramatically depending on the type of association. An HOA may have, in addition to a regular assessment, a “special” assessment for unexpected expenses (such as for road maintenance).
The assessment may be paid monthly, quarterly, or annually; generally the more amenities provided the more frequent the assessment must be paid. Some associations operate little or no common property, and the expenses relate solely to enforcement of use restrictions or assumed services. Others are effectively private towns, with elaborate amenities including private roads, street lights, services, utilities, commonly owned buildings, pools, and even schools. Assessments paid to homeowner associations in the United States amount to billions of dollars a year, but are not classed as property taxes.[25]
When determining what the assessment should be, it is important to consider what funds are required. There should always be a minimum of two funds: an operating fund and a reserve fund. The operating fund is used to pay for the operating expenses of the association. A reserve fund is used to pay for the infrequent and expensive common area assets maintenance, repair and replacement costs. The reserve fund is crucial for reducing the chances of a special assessment (mentioned in the risks below). Obtaining a reserve study is recommended to help determine and set the reserve contribution rate which is included in the regular monthly assessment.