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I'm Sensing a Metaphor

By
Services for Real Estate Pros with Kasteel Property Management - Property Manager DRE# 5495981-PB00

I own a small condo in a small community that had gone through some big changes over the last few years.  These changes turned my community from being one of the nicest places to live into a crime filled area with plummeting property values.

To fully understand this tragedy you'll need a little background.  Years ago a group of men got together to fulfill their dream of developing a condominium project.  This being a dream of theirs, they were extra careful in their planning.  They mapped out where each building would sit, picnic areas, parks, roads and so on until they had a layout that they were all happy with.  To be recognized by the state the developers had to right up and deliver the Conditions, Covenants and Restrictions (CC&R's) of their new community to the county recorder.  All the developers knew that the CC&R's were their best hope for this new project to last as a productive and healthy community for many years.  The CC&R's had to be carefully and thoughtfully prepared because they would be the governing rules and rights for all the homeowners.  If the CC&R's are too restrictive it would not be appealing to prospective buyers and the developers would have a hard time getting people to move there.  On the other hand, the CC&R's still needed to incorporate rights and rules that would keep the community running in an orderly fashion.  It was a delicate balance but after many days of work and many more rewrites the final document was signed by all the developers and recorded.

To fast forward a bit, the buildings were built and all the units were sold.  The community was beautiful and ready to run on its own.  The developers organized a Home Owners Association (HOA) that was made up of an HOA president and board members from the community that were elected by the rest of the community.  Things were great for many years.  The HOA took care of the roads, maintenance of common areas, provided security to keep an eye on things, held regular elections for the office of President and Board Members, collected dues and they enforced and upheld the CC&R's.

I'm not exactly sure when it all started going bad or what caused it but I'll try and explain it the best I can.  Compared to surrounding communities, our community had the nicest common grounds and facilities.  So, from time to time we had problems with people from neighboring communities coming in and using and abusing our stuff.  These problems were brought up at several HOA meetings, different ideas where always brought to the floor but nothing was really done about it.  We just kind of relied on security to "keep an eye out".  Well security did the best they could but the problem persisted and at one HOA meeting it was decided to raise the dues on the homeowners to hire more security.  This made us all feel better but still didn't solve the problem.  In fact the problem continued to worsen.

Once the HOA President and Board Members saw how easy it was to raise dues and spend money they started to think of other things they could fix with money.  One board member thought that community participation had been low and wanted to get everyone united and participating in community projects and activities.  So, he sought out the professional services of a company called Candy Corn to help him.  Of course to pay for this the dues for homeowners were raised a little bit more but it seemed like such a small increase nobody worried about it.

Another board member decided that it would be nice if golf carts were provided to help people get around the grounds.  It was a type of public transportation for all the residents and sounded like it good idea because it might be helpful for some of the home owners.  Of course to pay for the golf carts, maintenance and storage the homeowner's dues had to be raised.

Then someone on the HOA board heard about the bad luck old Mr. Johnson has had.  Mr. Johnson is about to retire and has no money or means to support himself.  Well the HOA board and the HOA President got together and decided they want to help him out and make sure nobody else could ever have the same problem again.  They partnered up with an investment company and decided to start a retirement savings plan for every homeowner.  Of course to pay for this the homeowners dues were increased some more but it was worth it because our HOA was helping everyone out and we all felt good about the change.

On another occasion a board member heard about a group of the homeowners that had a preschool where the Mom's would take turns hosting the classes at their homes.  Well this board member decided it was a great idea and that it would be even better if the HOA could provide that same service to all the homeowners and to make it even better he would expand it for all school age children.    They would just raise the dues some more to pay for it.  How great, we thought.  Now our children can get education right here and we don't have to worry about what's being taught because we can trust our HOA.

There were so many other things that the homeowners and HOA started coming up with to improve our community that I can't list all of them.  It was great, for a small increase in homeowner dues any problem could be taken care of by the HOA.  Well after implementing so many programs the HOA President and Board Members needed extra compensation for their time and needed to hire a staff to handle the demand.  The HOA was delighted to announce this because this meant they'd be creating jobs.  We all agreed that it was once again time to raise the dues for the betterment of the community. 

There were some people that started to complain that all these little increases added up to a huge increase in dues and started to cause financial stress on them and other homeowners.  Most of us didn't pay much attention because we could see the big picture.  Our giving to the HOA for the betterment of the community not only made us feel good but it was going to create a type of utopia for everyone to enjoy.

After awhile, I guess some homeowners were actually at risk of losing their homes to foreclosure because they were unable to pay for everything.  But that was ok because once again our HOA leaders stepped in to save them and set up a plan to protect those at risk and everyone else from the same fate.  They announced, "If we raise the dues a little bit more we can pay everyone's mortgage so none of our friends have to lose their home."

It seemed like there wasn't anything the HOA couldn't do for us.  All we had to do is spread the wealth around, through HOA dues, and everything would be taken care of, as long as we were okay with the periodic need to raise dues some more to fund the continual growth of the HOA staff and new facilities that were needed for them to work in.

As the years went on the regular elections became more heated as the homeowners were not seeing the results they wanted from all the HOA programs.  Despite increased security people outside our community were still using our grounds.  The investment/retirement plan turned out to be more of a Ponzi scheme leaving the last ones in with no return on their money.  Homeowners started to notice test scores were dropping for the students of the HOA schooling system, the golf carts were rarely even used yet they were costing a fortune to maintain, banks stopped providing financing in the community because they'd have to deal with the HOA rather than the individual homeowner and to continue getting support money from the HOA the company Candy Corn was found to be making up votes in favor of their continued funding from board members that didn't even exist.  Most homeowners couldn't even remember anymore what Candy Corn was supposed to be doing for them.

 New Presidential Candidates and Board Members would make promises to solve the problems by building walls around the community, enacting HOA funded school programs to help bring test scores up, upgrade the golf carts to a modern rail system, start providing HOA mortgage financing in place of the banks, get a team of investigators to look into Candy Corn to see if there has been any fraud.  It seemed like the only ideas that could get enacted where those that required more growth and spending by the HOA.  These ideas all sounded great and we continued to become more dependent on the HOA to provide us with what we want.

More and more people started to have a hard time affording the expensive dues so, true to form, the HOA came up with a new brilliant plan.  They took out a large loan so they could hand out money to the homeowners to help ease financial hardships.  Well, I have to admit that even I had started to feel some animosity towards the HOA but once I received a check in the mail I felt a renewed since of support for all they have done for us.   Of course the dues now had to be increased to pay for the interest on the loan but we all got a check in the mail and were feeling good.

There was no end to what the HOA could do for us.  At one point it was even suggested we get an HOA group healthcare plan.  It sounded good to me then I wouldn't have to pay for my own healthcare - right?

We continued on that path for a few more years until we all realized the HOAs' spending was not sustainable and its growth had turned it from being for the homeowners to controlling the homeowners through all the regulation.  At this point it was too late.  I don't know why we couldn't see the train wreck that was coming.  In fact, now that I look back at it it's strange that we continued to fund the company Candy Corn - while spending even more money to investigate them.  We also continued to fund the investment/retirement program for years after we all knew it was a failing Ponzi scheme.  Come to think of it, what was with all the money we kept putting into those stupid golf carts that were rarely even used.   Plus, all the expensive security could have been replaced by putting a fence up and making our community gated.

I guess at the time it just didn't seem like the nice thing to do if we took away all those services.  We should have thought through it a little more though because eventually the HOA filled bankruptcy; liens were placed on all the homes.  Most of the homeowner's properties were seized to pay off debts.  Property values dropped, homes were left abandoned.  Weeds and overgrowth took over what used to a nice community and crime started to move in.  Within a very short time it became a horrible place to live.

All because we wanted the HOA to provide us with whatever we wanted we ended up losing everything.  I wished we'd stayed on track with the path the early founders laid out in the CC&R's.  We should have only let the HOA provide the things that were absolutely necessary.  Roads, parking lots, maintenance of common grounds, security and most importantly to defend and uphold the CC&R's.  Luckily, our stupidity ends with us and the destruction of only our small community.  I'm sure glad our children won't have to live there and be tied to the mess that we created.

(If you caught on to the metaphor, it ended right before the last two sentences).

 Jeff Stinson

www.kasteelproperty.com

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Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA
LandlordWhisperer

I got the metaphor * Condo documents that prohibit rental of units or a % of occupied to investor units are the KISS of DEATH to many HOAs....reviewing documents AND financials are IMPERATIVE for purchasers and I also believe that purchasers should review board minutes for the last few years.

I have not taken units to manage in self-managed HOAs for 10 years because the lack of professional management causes the dues to increase unnecessarily.....Providing the BASICS is what the HOA/GOVERNMENT should do....just what is in the documents/constitution

Jan 20, 2010 06:24 AM