Condo Issues.com: Why Won't They Serve?

Condo Issues.com: Why Won't They Serve?: Homeowners won’t volunteer for boards of directors of community associations—another nail in the community association coffin? Click the title link to read the essay.

When Community Associations Lose "Critical Mass"

The Consequences to a Community Association of the Loss of Human Energy

By Tyler P. Berding, JD, Ph.D.

(Editor's Note: The following article comes from our historical file. It was first published in 1997. The message is equally applicable today--community associations which ignore proper management, fail to encourage owner involvement, and do not adequately fund for future repairs will deteriorate over time. This and various articles which followed became the basis for "The Uncertain Future of Community Associations" series of essays.)

            "Critical Mass" is a physics concept.  Basically, it is defined as the smallest hunk of matter that will sustain a nuclear reaction.  If the mass of the material is too small, it cannot generate heat or light.  When the mass is adequate, it can support a chain reaction that will continue to produce energy.  While it may be a bit of a stretch, we can also apply the critical mass concept to social phenomena.  A group must have enough people to produce the creative energy necessary to accomplish the goals of the group.  If the group is too small, it will not be sufficiently energized, and will fail to accomplish its purpose.  When this happens, members become disillusioned, and quit the group.

            The "critical mass" concept has parallels in economics.  A business project without sufficient funding or creative energy to sustain it will eventually wither and die unless it gets a periodic influx of new economic and intellectual capital.  Both for profit and non-profit companies and organizations must, therefore, maintain a certain economic "critical mass" to sustain their economic health.  In a manufacturing concern, if sales of its products fall below the level needed to pay the overhead, the organization loses capital until it fails.  If a charity fails to attract sufficient donations to fund its operational costs, it will also fail.  This economic model does not apply, by the way, to those organizations that are funded by outside sources.   Government agencies, for example, are basically on permanent "life support" and have no obligation to sustain their capital, and therefore can operate at a very inefficient level and still survive. 

  Meeting the energy requirements necessary to sustain the life of an organization depends on many factors, including marketing, production, and various forms of human energy.  If any of these factors fall below a certain level, determined by the needs of that particular organization, the enterprise will eventually fail.  The failure may be rapid or gradual, depending on how quickly "energy" is lost, but failure is inevitable unless the means of producing energy is restored.

            Now, apply this concept to community associations.  Factors like funding and human energy affect the long-term stability of those organizations.  Community associations also have certain other unique components that contribute to its "energy mass."  The physical condition of the property, the number of absentee owners, and the business acumen of its boards of directors all impact the association's ability to continue to generate revenue and to continue to attract and utilize good human resources.  A community association is a unique blend of social and physical phenomenon, and they each contribute to its "energy."  A loss of vitality in one of the factors can have long-term detrimental effects on the whole organization.

The Contractual Community

Why Community Associations Are Not "Governments" 
 By Tyler P. Berding, JD., Ph.D.

Editor's note: This article was originally published several years ago. In light of the continuing debate (see post below on a similar topic) over the legal nature of a community association, it is being reprinted here.

Articles and blogs devoted to the analysis and, occasionally, criticism of community associations often discuss the concept as if it were just another subdivision of local government. It is a common mis-perception because so much discussion about this unique housing type is devoted to questions of governance. We have boards of directors, which in some respects appear to be like city councils. There are property managers who carry out many of the same functions as city staff. The property so governed has many of the same physical accouterments as a town or city--streets, utilities, parking, recreation facilities, etc.

There are controls which are seemingly analogous to municipal government, where ordinances such as zoning place restrictions on individual property rights in order to give effect to the paramount needs of the city or county--as determined by the elected policy-makers. But while these two governance systems may appear similar, their respective legal bases are really quite different. Understanding this difference may help to understand why the occasional characterization of community associations as "mini-governments" or "quasi­-governmental agencies" is particularly inapt and can lead to false assumptions about community associations.

The sovereignty of our political government is subject to the limitations imposed upon its authority by various constitutional provisions, but its continued existence, short of war or violent revolution, is assured. A community association is not a sovereign entity, even though in many cases and in many of its duties, it appears as one. Its continued existence is wholly dependent upon the collective will of the owners of the property, and it has no assurance whatever of perpetual life.

Excerpts From an Ongoing Debate

Do owners believe CCRs are contracts?
And why that doesn’t matter! 
By Tyler P. Berding, JD., Ph.D.

Editor’s Note: Evan McKenzie is an Associate Professor of Political Science at the University of Illinois at Chicago. He is also a lawyer and has written extensively on the phenomenon of private government as applied to housing. He has written two books entitled “Privatopia” and “Return to Privatopia” and he regularly posts on his blog, “The Privatopia Papers.” The following blog post by Evan and the responses below, contain both philosophical and practical points of view on the nature and future of community associations.  

Evan McKenzie’s Post:

I have been thinking about an issue raised in a post by Fred Pilot recently, and responded to by Tyler Berding in a comment. I will do both of them the injustice of oversimplifying their arguments so I can rush to make my own, and I invite them (and others) to reply and continue the conversation.

Fred argues that the American public generally does not consider CID declarations and other governing documents to be contracts. Fred has long held that Americans do not accept the basic concept of residential private governance. He believes that the general home-buying public rejects the notion that there is any real legitimacy in the decisions made by condo associations and HOAs. If I understand his position correctly, he is saying that Americans do not consider CID documents and decisions to be legitimate either in a public or a private sense. They are not viewed as the actions of de facto quasi-local governments, and they are not viewed as obligations people are bound to by private contract. They fall between two stools, as the saying goes.

Tyler responds that they are contracts, period, because that is what courts universally say they are. This is in large part beyond dispute: like it or not, condo associations, HOAs, and housing cooperatives are recognized by federal and state law, and CC&Rs and other CID governing documents are fully enforceable, subject to a few exceptions, in every court in the nation. What, then, is the point of claiming that people reject them as illegitimate? Isn’t that akin to saying that you reject the law, which you have to obey regardless of how you feel about it?

This is an important conversation, and I have been thinking about it for many years. At the outset, it has to be pointed out that it is logically possible for both positions to be true. Perhaps the American public believes that homeowner and condo associations have no legitimacy, but they obey their rules for the most part simply because they know those rules are enforceable. However, I think the truth is more complicated than this...

The Perils of Hidden Damage: Part II

How do you fix it, What Happens if you can’t?

By Tyler P. Berding JD., Ph.D.

          Every community association will face a major reconstruction project several times in the life of the development. This may occur because of clearly anticipated problems, such as re-roofing or re-painting, but it can also occur because of completely unanticipated (and unreserved-for) problems such as dry rot repair, soil subsidence, or leaks in windows and siding.

          California’s Davis-Stirling Act only requires that a community association reserve include those components that visual inspections of accessible areas reveal have a useful life of 30 years or less, and makes no allowance whatsoever for reconstruction due to hidden and unknown deterioration. There can be two decidedly different outcomes to any attempt to repair previously unknown damage. The first is a predictable project that succeeds in repairing the damage within the association’s means. That is the subject of Part I. Part II, however, considers the situation where invisible damage is so unexpected and expensive to repair that it overwhelms the association’s resources.

Part II

What if the Cost of Repair exceeds all Expectations?

            That can happen and when it does it creates a dilemma for the board of directors. The problem that was the original reason for a major repair may not be the end of the story, depending upon how much was known about the extent of that damage before the job began. Its one thing to discover some dry rot in one isolated area during a routine repair, but quite another if that dry rot is part of systemic deterioration of the building.

If your major repair project is begun with an insufficient understanding of the extent of hidden damage, your entire funding scheme may be overwhelmed and owner equity could go with it. It is critical in an older building, therefore, to determine the scope of work and the cost of repair as accurately as possible before the project begins. But what happens when all else fails and the damage exceeds all reasonable expectations and funding?

The Perils of Hidden Damage: Part I

How do you fix it, What Happens if you can’t?

By Tyler P. Berding JD., Ph.D.

       
      Every community association will face a major reconstruction project several times in the life of the development. This may occur because of clearly anticipated problems, such as re-roofing or re-painting, but it can also occur because of completely unanticipated (and unreserved-for) problems such as dry rot repair, soil subsidence, or leaks in windows and siding.

California’s Davis-Stirling Act only requires that a community association reserve include those components that visual inspections of accessible areas reveal have a useful life of 30 years or less, and makes no allowance whatsoever for reconstruction due to hidden and unknown deterioration. There can be two decidedly different outcomes to any attempt to repair previously unknown damage. The first is a predictable project that succeeds in repairing the damage within the association’s means. That is the subject of Part I. Part II, however, considers the situation where invisible damage is so unexpected and expensive to repair that it overwhelms the association’s resources.

Part I

 How to Extract a Successful outcome from an Unexpected Repair

            Even during planned or expected repairs, surprises can occur when building components that are not “visible or accessible” are exposed during construction. Normal painting projects can reveal rotted areas due to long-term intrusion of water. A minor deck or siding repair can expose framing components that have allowed water to enter slowly for years without any way to get it out except evaporation.  Problems with deteriorating concrete walkways or driveways due to the invasion of roots, or soil subsidence due to unconsolidated fill may develop so slowly that they escape notice. Or there can be a catastrophic event—a spontaneous failure that occurs when someone leans on a rotted balcony railing, for example. Three people in Antioch, California were severely injured recently when such a railing collapsed.

            None of these building components would likely be included in the usual reserve account and unless detected by some other means, would not appear in the maintenance budget, yet the association in a typical condominium and in many planned developments, is nevertheless responsible for necessary repairs. Unexpected repairs for which there was no reserve funding. So now you have a collapsed balcony or maybe a lot of rotted framing-- what do you do? Follow these steps and you will improve your chances of successfully solving the problem.

Report: State spurred gated developments

     "Developers have a financial incentive to set association fees on the low side — they want to sell lots to builders and homeowners. High association fees might scare off potential buyers. Also, developers may believe the fees do not need to be high in the beginning because maintenance costs in a new community should be fairly low... It could leave a new association in the hole as it gets started, and struggling to raise artificially low association fees. Usually association fees are set by a vote of all community homeowners. Residents planning to stay in the community for a limited time do not see the need to pay more."

 This rare report from a public agency makes clear what many of us have written about for years: that community associations are often created more for the benefit of municipalities (tax dollars) and developers than for the eventual owners. There is an incentive to underfund the operation and reserves of the new association to keep assessments low and facilitate sales.

Thanks to Evan McKenzie and Fred Pilot for this post.

Report: State spurred gated developments PoconoRecord.com