Home Owners Assoc. bankrupts itself over size limit of election poster in a yard

Washington Post story here, it’s absolutely worth a read.

Apparently this HOA had a rep of playing hardball with residents. In a previous dispute to force residence to install “window dividers” (for some uniform appearance’s sake, I suppose), a board member compared the residents who objected to Saddam Hussein, with the HOA of course taking the role of the USA in bringing them to justice.

Sam and Maria Farran committed the unpardonable sin of putting an Obama campaign sign in their yard that was FOUR INCHES larger than the bullshit HOA rules allowed.

The Farrans (very cleverly IMO) cut their sign in half. So now they had two signs, “OBA” and “MA”. The board wasn’t amused, and passed a resolution giving themselves the power to fine residents up to $900 per rule infraction. The board was also holding private meetings with no announcement to residents of the fact, and in essence making its decisions in secret, including one to deny a request by the Farrans to make some alterations to their roof and deck. The Farrans interpreted this as retaliation over the sign incident.

The biggest mistake the HOA made was not considering the fact that one of the Farrans is a lawyer, has clue about what their rights are, and the couple were willing and able to battle it out in court. So the Farrans sued the HOA, claiming they had no right to levy fines to punish residents for non-compliance, and that they were abusing their powers in the way they rejected requests by residents for improvements.

Long story short, the Farrans demolished the HOA in court. The HOA, having decided to go to the mat over this, raised the monthly fees from $300 a month to more than $3000 a month over the next four years, in order to finance their legal battle. They lost anyway, on the particulars of both claims the Farran’s made, and were on the hook not only for their own legal fees, but for the Farran’s legal costs as well. With a $400,000 bill hanging over their heads, the association declared bankruptcy and has been trying to sell some of its property.

Yeah, individual property rights! Yeah open meetings! Yippee Eiyo Kyeah, mother fuckers!

In fairness, the Obama sign did ruin the value of the homes there.

(I’m skipping the part about the Obama sign leading to lawsuits. And the lawsuits led to legal fees. And the legal fees led to outrageous HOA fees. And that led to HOA bankruptcy. Which led to people having to be mental to move into that neighborhood. But those details aren’t important right now.)

For want of a nail, the kingdom was lost.

I’m pretty sure the HOA got nailed just fine.

Yes, but what actually happens to everyone who owns a home in that neighborhood now? I don’t know what happens when an HOA goes bankrupt, but typically everyone is still on the hook for association fees (including the Farrans, since they still live in the HOA.) How much of a win is it for any person living there (including the Farrans) if they’re paying $3,000+ a month in HOA fees and the community’s central green space has to be auctioned off to another developer? (Certainly destroying property values.) I don’t see how anyone, including the Farrans, has avoided getting screwed in this scenario. A HOA isn’t an amorphous separate body, everyone who lives under a HOA is going to be in bad shape if a HOA goes bankrupt.

Meh, there are PLENTY of companies that manage HOA’s. A single month of $3000 fees would make a normal community right as rain.

Just to clarify, it wasn’t $3000 a month:

“And as the case ground on, the HOA increased dues from $650 a year to about $3,500,” says the article.

Nasty situation all around. To me this stands out: The couple did what the association asked, cutting the sign in two, and still got grief for it. Yeah, it was kind of obnoxious, but it was within the letter of the law, and that *should *satisfy an officious bunch.

You are correct about the fees. Sorry about the error. I was thinking about my condo association fees, which include building maintenance, so I just couldn’t imagine a $300 fee as being anything less than monthly.

Sometimes you have to destroy the village to save it.

When we bought our house, we made sure it was NOT in a HOA group.
We are very thankful about that - there are already enough county laws to stop most problems (no businesses from home with foot traffic, no RV parking without a private lot, a limit to number of times you can sublet house per year so it is not a vacation rental party house, etc.) I might add that the county does a good job of keeping those rules intact.

However, since then we have heard nothing but horror stories from others who did move to neighborhoods with HOA’s. I don’t think I have ever heard anyone who lives in an area with a HOA say they were happy about it.

Sorry the neighbors had to cough up the extra funds, but my guess is they might be equally relieved to hear of the death of the HOA and might think it was worth the cost in the long run.

Our HOA is fairly decent in general - I haven’t heard too many bad stories anyway. We’re in one of the larger HOA-managed areas in Northern Virginia.

I have very mixed feelings about this story. The HOA management bankrupted itself over something really stupid, and the people involved are not personally on the hook for those bad decisions. I wonder if there are policies that can cover an HOA’s risks in the case of bad management decisions like this.

As a result of the lawsuits, the entire neighborhood loses out on their common area and it really does impact the place’s livability.

The couple mentioned has made themselves pariahs as well. They were in the right, but it’s a pyrrhic victory indeed.

What exactly is a HOA and what do they do? I have zero knowledge of these down under…

It is a kind of neighborhood association. Very often when a new housing development is built, the developer creates an association for various reasons, usually related to keeping the up the property values and a … common style, for lack of a better term, to the neighborhood. In order to buy a house in that neighborhood, you also have to buy into the association and live by its rules. There may be rules that you can’t paint a house purple, for example, or that you can’t build a fence because they want an openness to the land. Or that if you do build a fence, it must be a certain style that is a close match to other fences in the neighborhood. There are almost no limits to the rules that an HOA might create to enforce some kind of uniformity to the neighborhood. The association might also own the common space between all the private lots, even owning the roads in some cases, and they might own and maintain biking and walking paths, and parks, that are public spaces within the neighborhood.

The pricier and more exclusive ones are called “gated communities”, and they hire security, and visitors to the community have to get through a security checkpoint to even get into the neighborhood.

Some people love them. Others have only a fuzzy idea what they are, and are in for a rude shock when they learn some group of people in the area has a veto over their plans for their own property.

According to the story in the OP link, nearly one in five homes in the US is subject to some level of control by an HOA.

I foresee a Part II where residents sue the board for making a $400,000 mountain out of a 4" mole hill & lowering property values because of having excessive fees & less open space.

Sisu Home Owners Association - a mini feudal private government who may (or may just think they) have the right to approve/demand any exterior modifications to your house. Also signs contracts for common area landscaping/mowing, snowplowing (if private roads), etc. Frequently outsources day-to-day operations to a ‘professional’ management company, who may make things better (or worse) depending upon their (in)competency.

Can’tja tell I just loooovvves mine. :rolleyes:

At its simplest, it is a contractual relationship between homeowners in a neighborhood. Typically it is only “pseudo-voluntary”, what I mean is, there are special legal attachments that can be associated with property called “covenants.”

In practice what tends to happen is this. A real estate developer buys a large piece of land, that they envision turning into a “community”, neighborhood, whatever you want to call it. These communities take many different forms, some are geared towards ultra high-income individuals and will be gated with armed security and key card entrance, exclusive resort style facilities shared by all community members and etc. Some are just your standard middle class neighborhoods that were basically built by the same developer/home builder as part of a planned development.

When the developer puts their business plan into motion, something they will do is have all of the lots in the development attached with one of those covenants I mentioned above. Those covenants are basically a type of restriction on what an owner can do with their property, specifically as regards a HOA, the covenant basically says “this property is attached to xxx Home Owner’s Association, anyone buying this property must continue their relationship with xxx Home Owner’s Association and may not sever the lot from the HOA.” That’s where it is “pseudo-voluntary”, basically if you buy property with a covenant on it that associates it with a HOA, you’re now a member of that HOA. If you do not wish to be part of a HOA, your only option is to buy property elsewhere. Once you’ve bought, there is not typically any way to sever your property from the HOA*.

Typically the covenant will say stuff like “HOA will have control over x, x, and x. Changes to the HOA bylaws must be enacted by a vote of property owners etc etc etc.” HOAs do not operate outside the realm of the law, as is sometimes felt by some people, but they can generally regulate a neighborhood far more than a municipal or county government could. For example they can put restrictions on the decorations you put on your house, signage you have in your yard etc, in ways that a government entity would probably not be able to do because of First Amendment concerns. (It isn’t generally a first amendment issue with a HOA, because it’s a voluntary contractual agreement between homeowners, and specific regulations are allowed in the HOA bylaws, and there is usually a voting procedure listed in the bylaws for changing regulations or adding new ones.)

So why have a HOA? I’m in real estate myself (but not in the segment of the industry that deals with residential developments where HOAs are commonly found), and from my contacts in the industry I can say that at least around here (I live in Virginia, where this happened) HOAs are extremely common with any new neighborhood development. This is because HOAs can offer the following benefits:

  1. Regulation on upkeep of the neighborhood. In many areas, you can literally park a rusted car in your front lawn and leave it for 20 years and the county/municipal governments will not say a word. You can paint your house neon green etc. Many people feel that if a neighborhood has controls on the appearance of the property, it keeps property values consistent, and minimizes the ability of one “odd ball” from lowering property values in the neighborhood.

  2. Privately contracted street maintenance / upkeep. Many HOA communities take care of road paving and snow plowing themselves. This is beneficial in many areas because often times local government has a prioritization scheme in place and many residential side streets will not get plowed until late in the process.

  3. Community resources. In many cities, there isn’t really an easy mechanism in place for a single neighborhood to get say, a park or a pool etc that it might want. In a HOA, that stuff can be created on the communal land areas and maintained for the enjoyment of the residents. If you just live in a regular neighborhood in a municipality or county, you basically have to go to the town council / county commission and lobby for a park or a pool opened in your neighborhood. Maybe it will happen, maybe it won’t. And then anytime the parks and recreation department is low on funding, there is a risk your park or pool gets closed down.

That’s some of the benefits, and people have tended to “buy into” these benefits because they perceive HOA neighborhoods to execute on a lot of those promises. However, HOAs have many downsides as well. Like condo boards (organizations of condominium residents that manage the condo building) they are infamous for being ran by little Napoleon types. Most people who live in a HOA want nothing to do with HOA business, they’re fine paying their HOA fee and reaping the benefits, but they don’t want to run the HOA. HOAs are run by an elected board typically, but most homeowners do not go to the HOA board meetings to elect board members and don’t even go for the community wide votes. So only the most interested residents are involved in running the HOA, this often ends up being Napoleon complex type people that like to promulgate petty rules. That’s basically what happened in this situation.

But that’s not how all HOAs are ran. I know of some HOAs where literally the only thing the HOA does is collect money for the road maintenance/plowing fund. That’s it. They don’t promulgate rules, they don’t go around to see if property is kept in a certain level of cleanliness or etc. There are many different kinds of HOAs, some of the ones that are particularly minimal in their function, there may be homeowners living there that do not even know they live under a HOA.

*There are some weird scenarios I’ve read about where, through legal disputes, people have gotten their homes separated from the attached HOA. But it can end up with really sub-optimal results, one example I heard of, the HOA was responsible for water and trash service, so when the homeowner was able to get their property severed, they also lost their water and trash service. Since this was a housing development kind of out by itself in a rural area, there was no local public water utility or trash service as you’ll find in most more urbanized areas, so the homeowner basically had to find a way to resolve those problems on their own.

Also, a key point about a HOA. Typically under the contractual agreement, they have the right to charge you for things. Typically just a maintenance fee, but they can promulgate regulations that are enforceable by fines. If you fail to pay your maintenance fee or fines, they can actually attach a lien on your home. So they actually have a great deal of compulsion power through that.

I don’t know what happens when a HOA goes bankrupt though. I’d have to read about it, but the reason I wondered about the results is I was wondering if technically the homeowners in the HOA are ultimately liable for any debts incurred by the HOA. If so, bankrupting the HOA could mean the residents would have liability attached to them. Or maybe the HOA is a type of limited liability entity, and the only thing creditors could take would be property “held in common” by the HOA.

Yeah, there’s a reason my retired father keeps getting sucked into his neighborhood HOA. It’s because of Little Napoleons who get a nanogram of power and think that No Law applies to them while they have Absolute Power over every resident.

An Open Meeting law with criminal penalties would be in order in the above state.

OK cool I get it, in Australia we typically leave this stuff up to local councils although there are some similar things here with Body Corporate. These are typically involved in high density housing [flats, apartments etc] or private/gated communities [mainly golf courses] and of course retirement villages all with large communal areas.

There are often caveats set when a new development occurs but after it is completely sold it generally all falls apart.

According to the OP story in Virginia, this is not quite the case, though of course this will vary from state to state. Apparently, the original covenant that these people agreed to did not include the power for the HOA to levy fines to enforce its rulings; the HOA voted itself the power to do so as part of the process that led to the lawsuit. And the lawsuit actually established the legal precedent (for Virginia) that an HOA doesn’t have the power to do so unless those are the terms of the covenant as originally established.

I like a quote from one of the residents to the suit about the nature of HOAs. “You are always one board election away from a tyranny. They wield enormous power.”

Why does it have to be auctioned off to another developer? can’t the Farrans just put a lien on the central green space to enforce their judgment against it, giving them priority in the bankruptcy?