The Home Owner Association (HOA) is a private organization that is particularly used in newly built housing developments. Their main purpose is to manage the community facilities and public areas in these settlements. They also issue rules aimed at promoting harmonious coexistence among homeowners and preserving property values. Such regulations can also relate, for example, to whether laundry can be dried outdoors.
The HOA is generally a recognized non-profit and therefore tax-exempt corporation that is comparable to the German cooperative. Homeowners in the development in question must be members of the HOA. It is only possible for the buyer to purchase a house in the settlement if he also becomes a member of the HOA. Membership is associated with the obligation to pay fees to cover the costs associated with carrying out the functions of the HOA. In addition, membership gives you the right to elect the board. In particular, this person makes decisions regarding the commissioning of external service providers, the issuance and implementation of regulations, etc.
HOAs regularly perform the following tasks, although the structure can vary significantly between individual HOAs:
The maintenance and management of the common areas. This includes the design and maintenance of the landscape, streets, sidewalks, swimming pools and leisure facilities. In addition, security services are sometimes outsourced. The issuance and enforcement of the so-called “Covenants, Conditions and Restrictions” (CC&R). These regulations may relate to architectural guidelines, noise restrictions, pet ownership and vehicle parking. The HOA is responsible for ensuring that all homeowners comply with these rules and has the authority to impose fines or other penalties for violations. Financial management and accounting: To cover its expenses (e.g. maintenance, insurance, administration, investments and repairs), the HOA collects fees from homeowners. The board carries out financial management. In addition, he is obliged to provide an account of the relevant processes through appropriate accounting. Dispute resolution: The HOA’s job is also to mediate disputes between homeowners. Conflicts can arise in the form of noise, non-compliance with property boundaries, etc. Organizing Community Events: The HOA organizes events and social gatherings to encourage homeowners to get to know each other and create a sense of community. Strategic Planning: The HOA attempts to manage the development of the HOA using the resources at its disposal to ensure the sustainability of the community. This strategic planning will take into account changing general conditions such as demographic developments and can, for example, relate to future modernizations or renovations of public areas and the design of the reserve fund.
This freedom of decision-making for the HOA or its board can of course also lead to certain problems:
The occurrence of budget deficits. Budget deficits can arise from unforeseeable expenses (such as repairs or rising prices), mismanagement (such as underestimating future risks or other planning incompetence), or fraud. Homeowners’ late payments: The HOA is often faced with the problem that homeowners do not or cannot meet the payment obligations imposed on them. The HOA is therefore often forced to initiate debt collection proceedings. Inadequate Insurance Coverage: If there is insufficient coverage, the HOA can face significant claims in the event of a natural disaster, accident or litigation. Occurrence of legal disputes: Further problems can arise in the form of legal disputes with homeowners or with external service providers.
From a regulatory economics perspective, the HOA brings action and liability more closely together. This means, on the one hand, that the decisions are more oriented towards the interests of the homeowners and, on the other hand, that the consequences of these decisions are borne more directly by the homeowners. This creates strong incentives to use existing resources economically. The requirement to join the HOA when purchasing a house in the area results in a certain homogenization of the composition of homeowners, which is likely to be reflected in their similar needs. Of course, it should not be neglected that – as just shown – such a community can also be confronted with problems that can inevitably affect the individual homeowner, even though he or she has voted against the implementation of the measure in question.
There are strict limits to the transfer to Germany – at least given the current legal situation. Although there is a comparable institution in the form of the homeowners’ association (Law on Home Ownership and Permanent Residence Rights), this generally only applies to apartment buildings or residential complexes. In addition, the role of municipalities is very pronounced in Germany, and they exercise considerable influence on the design of public or community areas and manage them, particularly through their statutes.
Friedrich Schiller University Jena