Homeowners association
From Wikinvestor
A homeowners' association (abbrev. HOA) is a legal entity created by a real estate developer for the purpose of developing, managing and selling a development of homes. It allows the developer to exit financial and legal responsibility of the community, typically by transferring ownership of the association to the homeowners after selling off a predetermined number of lots. It allows the municipality to increase its tax base, but reduce the amount of services it would ordinarily have to provide to non-homeowners association developments. This article covers this type of HOA.
Most homeowners' associations are non-profit corporations, and are subject to state statutes that govern non-profit corporations and homeowners' associations. State oversight of homeowners associations is inconsistent from state to state. Some states have a strong body of homeowner association law such as Florida and California, and some states have virtually no homeowner association law such as Massachusetts.
The fastest growing form of housing in the United States today is common-interest developments (CIDs), a category that includes planned-unit developments of single-family homes, condominiums, and cooperative apartments. Since 1964, homeowners' associations have become increasingly common in the US. The Community Associations Institute trade association estimated that HOAs governed 23 million American homes and 57 million residents in 2006.
An alternative to CIDs is the multiple-tenant income property, or MTIP, known in the United Kingdom as housing estates. CIDs and MTIPs have fundamentally different forms of governance. In a CID, dues are paid to a nonprofit association, whose members vote on how to spend the money. In an MTIP, ground rents are paid to a landowner, who decides how to spend it. In both cases, certain guidelines are set out by the covenant or the lease contract; but in the latter scenario, the landowner has a stronger incentive to maximum the value of all the governed property in the long term (because he is the residual claimant of it all) and to keep the residents happy, since his income is dependent on their continued patronage. These factors are cited as arguments in favor of MTIPs.
