[This is a guest blog post from Chuck Fowler, who has helped create and manage several of Colorado Springs’ most prestigious covenant-protected communities, such as Flying Horse, Pine Creek, Cedar Heights, and Parkside at Mountain Shadows.

We’ve found, over the years, that when our clients are in the process of looking for land to build on, sometimes we hear questions about buying a lot in a covenant-controlled community or a neighborhood with a Homeowner’s Association. To answer some of those questions, we asked Chuck to share some insight on how HOAs and Covenants work, how they can be beneficial for a home owner, and whether buying into a community with an HOA is right for you. We hope you find his answers helpful.]

Q: First things first: what is a Home Owners Association, exactly, and how is it structured?

A: Homeowner’s Associations (“HOAs”) are, essentially, a “private” government—an organization that has the legal authority to tax. In the HOA world, we call this tax either “dues” or an “assessment” (“dues” is the term used most commonly, but “assessment” is actually the correct term). Just like a public government where people in a community elect representatives to govern themselves, HOAs do the same thing: instead of a City Council, they elect a Board of Directors. Similar to a public government, that board then collects “taxes” and saves the money in a public fund to be allocated for the common good of the citizens.

The purpose of the private government is to manage the common interest of the property owners who live within the boundaries of that community. (Note: one big difference between an HOA and a true government is that an HOA is usually run by unpaid volunteers.)

Structurally, the HOA itself is an organization that is incorporated under the state rules of a nonprofit, and, in Colorado, they’re also subject to CCIOA (the “Colorado Common Interest Ownership Act,” pronounced “Kiowa“), which are the parts of the state law that regulates Homeowner’s Associations.

Q: How does an HOA get the authority to enforce its restrictions and charge an assessment? Does it own part of my property?

A: When the community is first created and the land is developed, a “declaration of covenants and restrictions” is recorded. If it’s been written properly, that declaration creates an “Assessment Lien” with a covenant condition contained within it, which is important because that is what gives it the legal authority to tax.

If you purchase a home or land in this kind of community and take title to it, you’re obligated to pay the assessment. It creates a continuous lien on your property. This lien gives the HOA the authority to charge the assessment, and, to foreclose at some point, on that lien on your property if you don’t pay what is due.

Even if you don’t have an HOA, I think it’s good to know that there is NO such thing as truly private property. That’s a big misconception. There is no property that exists that is completely unencumbered. With all private property, somebody, somewhere, has a claim to something on your land, in some way. Whether it’s a taxing authority, like a City or County, or a Water District, or an HOA, or Easements, or Utilities. There is no truly “free and clear” title: somebody out there has some kind of claim to your property, whether that’s an HOA or not.

Q: Something commonly discussed in home building is an Architectural Control Committee. Can you explain what that is?

A: An Architectural Control Committee (ACC) is a standing committee within the HOA, of people appointed by the HOA Board, who sit in judgment of modifications that owners want to make to their homes. The ACC serves at the pleasure of the HOA board. Typically, an ACC has three or more people, and their review criteria are based on requirements in the covenants, which include things like: uniformity of look, colors, building materials, etc.

The best HOAs have design guidelines that they’ve developed, and those design guidelines cover everything that the ACC has authority over, and typically (99% of the time) this pertains to matters specific only to the exterior of the home. ACC restrictions almost never affect the inside of the home, with the exception of window coverings.

Q: Here’s another acronym for you: CC&Rs. What are CC&Rs?

A: “CC&Rs” stands for “Covenants, Conditions & Restrictions,” and these are established in the constitution by the government in addition to the articles of incorporation.

The Covenants are the parts of the constitution that set up the organization in the first place. They define its purpose, its scope of authority, its obligations as an organization, what the obligations of the owners/members are, and each party’s obligations regarding insurance and who’s responsible for what, etc. So there’s a bound set of documents called “the covenants,” and within the covenants, we find the conditions and restrictions.

The Conditions, these state that you agree to abide by the covenants, and will say something like “I agree to take title to my property under the obligations and authorities laid out in the constitution.”

The Restrictions are just that: restrictions on what you can and can’t do with your property. An example would be something like roofing: a community may have restrictions on what roofing materials your home can have. These restrictions are mandatory, and if you take title to a property within this private government, you are agreeing to live by these restrictions. They’re mandatory.

Q: What are some reasons a home owner might want to live in a community with an HOA, versus one that has no HOA?

A: It all comes down to what kind of person you are, and how you feel about your property. Are you a real gung-ho property-rights kind of person, where nobody can tell you what to do with your own property? Or are you more of a live-and-let-live-type person who really doesn’t care much? It’s all about what you’re most comfortable with.

There’s a risk factor to your property’s value when your home is in a neighborhood without an HOA. In contrast, I would say the odds favor the house that’s in a neighborhood with an HOA as far as maintaining or increasing the property’s value. And if you want proof of that, just look at any covenant-controlled community of single-family homes in Colorado Springs, and then go drive through the Holland Park neighborhood. And I’m not disparaging Holland Park; I’m just pointing out that if it is a covenant-controlled community, the covenants are certainly not being enforced, but I really don’t think it is a covenant-controlled community.

If you don’t want to live in a neighborhood where it’s up to each individual owner what color he can paint his house, and whether he’s going to park his RV and boat out front, and has carte blanche to do whatever he wants on his property, a covenant-controlled neighborhood might be for you. I’m not saying a neighborhood without covenants is bad—I’m simply saying that people who share those values should live together in the same communities. If you are that property-rights kind of guy yourself, that’s probably where you should live.

The risk factor for living in an area with an HOA is if you do have an RV and a boat, and you want to paint your house pink, but there are restrictions on what you can do with your property. Some people may think it’s too much for them to handle.

Ultimately the question is: what are you willing to give up in order to gain something else? There are two different kinds of people: again, one isn’t better than the other, it’s just that you need to be in a community with like-minded people.

Q: How can I know what to expect from an HOA before I buy my house or lot?

A: When you make an offer on the house (or lot), and if you’re under contract using the Colorado State-approved “Contract to Buy and Sell Real Estate,” in Section 7, there’s a pre-printed area called “CIC” — the “Common Interest Community” section. Here, by contract, the seller is obligated to provide documents that will give the buyer a look into the condition of the HOA. Technically, this is how you would find out what to expect.

However, you as a buyer need to actually read those documents, and even if you read them, sometimes being able to understand them is a different story. If you have no experience with an HOA, it’s not going to mean much to you what they’re talking about.

I remember when I first considered moving to Parkside, and I first read the declaration for the neighborhood. I had never read a set of covenants before and I thought “Wow, I don’t want to do this! I’m giving up a lot of power to this organization and I’m not sure I’m comfortable with that.” But eventually, after I talked to some other people, I became comfortable with it. But I think most people don’t really have a clue about covenants, and most Realtors don’t understand them either, and they don’t want to put themselves in a position where their client will either buy or not buy based on what they’re telling them about the HOA.

Because it can be quite hard to understand exactly how this all works, I’ve actually created a business creating “HOA Reports,” where I give a buyer a written report on the HOA. I do several things for my clients when I create these:

  • I get a copy of the sales contract.
  • I usually go look at the property itself.
  • I go interview the President of the HOA Board.
  • If the HOA is using a management company, sometimes I’ll go interview the manager as well.

I then take all this information and condense it into a report that shows not just the facts like “there is an HOA, and here’s what the restrictions are,” but also my thoughts on the state of the HOA. For examples: it may be that they have good documentation, but they run over budget every year, or their documentation is inaccurate, etc. (If you’re interested in an HOA Report, contact me for more information and I’ll be happy to explain more).

Q: In addition to having restrictions, most HOAs provide services. What are some typical services an HOA would provide?

A: In Colorado Springs, there is no city or county-provided trash pickup, so most HOAs work something out with one of the trash companies here in town to have trash collection on just one day of the week so you don’t have all the wear and tear on the streets with multiple trash service providers coming in with their trucks each day, plus all the commotion and noise that causes. So trash collection is probably the biggest service most HOAs provide.

Following that, it’s all about the common area that the declaration requires the HOA to maintain, if you have a common area (fencing around the perimeter, sidewalks, tennis courts, parks, etc) landscape services are pretty common.

Q: Aside from rules about real estate, do HOAs have other kinds of restrictions to be aware of?

A: It’s important to remember that all HOAs are different, because their members’ needs are different. Having said that, most of them do have some sort of “Pet Restriction,” where you can only have two domesticated pets (either a cat or a dog, or two cats, or two dogs, etc).

A lot of them also have rules about parking. There can be restrictions on parking on the street overnight, or they may get finicky about you parking your pickup truck in the driveway instead of in the garage, or forgetting to keep the garage doors closed when not in use. They want to ensure that people are using their garages for their cars, and not turning them into a wood shop (which can cause issues for parking and also create a nuisance with the noise).

Q: How are my HOA dues calculated, and what do they go towards?

A: The answer to that is ultimately derived from the HOA’s budget, which is recalculated every year. The budget is determined by things like the cost of services (trash, landscaping, etc), maintenance and insurance for the common areas (above-ground sprinkler clocks, pools, tennis courts, parks with playgrounds, basketball courts, fitness centers, etc) and more.

One of the major differences between a municipal government (such as a city) and the HOA’s private government model is that unlike a city, an HOA can’t borrow money to pay for these things. While a city can just sell bonds to raise funds for a project, an HOA has to raise funds by charging the assessment and saving it. If there’s not enough money in the budget, nothing happens. So a portion of your monthly payment goes into a “replacement reserve,” which is a savings account where money is set aside for replacing those things that wear out. If the HOA wants to start adding services or common area, there will need to be an increase in the assessment to pay for it, and that’s considered on an annual basis as well.

Q: What are some common myths or misunderstandings about HOAs?

A: There are two major misconceptions I think people have about HOAs:

  1. That all HOAs are the same. People will think: “Well, my friends down the street are only paying $50/month for their HOA dues, so why do we need to pay $150/month?” …well, that’s probably because you have a pool and a tennis court and your friends don’t, so your HOA has more expenses, which is why your dues are higher.
  2. That HOA boards are run by bad people who are power-hungry. Most people eye their HOA board very suspiciously and think that it must be run by evil people. That is, unless they’re actually involved in running it, and unless they know something about it. If people actually take the time to go to HOA meetings, and be a part of it—which I always encourage people to do, by the way—they’ll know what the facts are.

Q: What is the difference between a good and a bad HOA?

A: A good HOA understands its purpose, which is to do two things, essentially: 1) maintain property values of the people who’ve invested in that community, 2) figure out how to facilitate a community that people actually want to live in.

It’s one thing to provide the services that the HOA is obligated to do, i.e. to make it look like a beautiful community. That’s the easy part. But it’s another thing altogether to make sure that the community is, culturally, a place where people want to live.

It could be that you love your home, and you love where your neighborhood is located within the city, but living there is just awful, for whatever reason: barking dogs, pets running around loose all the time, neighbors who tinker with their cars and rev the engine really loud, etc. There’s a certain amount of respect required when you live in a community of people, and an HOA can really help facilitate that. But they’ve got to be careful about how they go about it. As I said, people are already suspicious of their HOA, so immediately, they’ve got an uphill climb to try to create a livable environment. A good HOA will enforce their covenants—that’s critical. But should they take a sledge-hammer approach? Are they mean or angry when they enforce them? Or are they willing to work with people? I always counsel the leaders of HOA along the lines of the golden rule and ask: “How do you want people to treat you?”

One of the big signs of a bad HOA is if you have trouble requesting their documentation. They’re required to keep meeting minutes and financial documents, so if you find an HOA that doesn’t have these things, or if they have them but won’t give them to you, you’ve got a problem. Or sometimes, if you ask for the declaration, which is typically 70 pages long, they might send you just the first three pages of it, and if you call them to ask why, they might say “Oh, sorry, our scanner isn’t working right,” and they’ll send a few more pages, but still not the entire document. These are signs of a bad HOA: they jerk you around, or play games with you.

So the biggest signs of a bad HOA are any of the following: they have no documents (when there should be); they have the documents you want but they don’t come easily; you get the documents, but they’re unintelligible; or they’re willing to give you the documents but insist on charging an exorbitant fee to do so. These are all red flags, so be careful. There are good HOAs out there—you just need to do a little bit of research to find them.

I hope you’ve found this information helpful in demystifying HOAs and Covenant-Controlled communities. I think they can be a great asset in protecting your investment, and they can really create a community you want to live in and be a part of. I wish you the best of luck in finding a neighborhood that’s right for you.

About Chuck Fowler

Chuck Fowler has spent his career managing, working with, and consulting for Homeowner's Associations. He has helped create some of the finest HOAs and planned communities in Colorado Springs, including Flying Horse, Cedar Heights, Pine Creek, Cheyenne Mountain Ranch, Parkside at Mountain Shadows, as well as Stapleton in Denver, and others. Chuck is available for consulting opportunities for your HOA or planned community. Contact him by calling (719) 499-3554, emailing chuck@cfowler.com or visiting www.hoareports.com.