Homeownership
Community Association Rules—Reasonable or Not?
What you need to know about the rules and restrictions of community associations so that you can better serve your buyer clients.
BY ROBYN A. FRIEDMAN
Community Living
Responsibility to Inform Buyers
Restrictions: Reasonable or Not?
The Role of the Real Estate Professional
All Sheryl Weinstein wanted to do was paint her house. She was ecstatic when she found out that the homeowners’ association in her gated community in Boynton Beach, Fla., planned to paint all the homes in the community. Then she found out that she couldn't pick the color.
"They said you had to have the same color you had before," says Weinstein, who moved into the community about two years ago. "I don't hate the color of the house, so I'm not opposed to it. I'm just surprised that I didn't get a choice."
Weinstein is one of the estimated 50 million Americans who live in developments governed by community associations. "Community association" is an umbrella term that encompasses homeowners’ associations, condominium associations, property owner associations, cooperative associations, and similar non-profit corporations established to set policy for homeowners with the ultimate goal of preserving property values.
There are about 249,000 community associations in the United States today, up from 205,000 five years ago, according to Community Associations Institute (CAI), an Alexandria, Va.-based organization whose membership includes homeowners, associations, management firms, and others involved in the community association industry. CAI estimates that 6,000 to 8,000 new community associations are formed each year and that more than 80 percent of houses built in the past five to eight years are part of an association-governed community.
That means a lot of people are, or will be, subject to the rules and regulations that apply when they move into a home located in a community association.
Community Living
"Rules are cast in a very negative way, and I don't think that's fair," says Pia Trigiani, an attorney with Troutman Sanders LLP in Tysons Corner, Va. Trigiani also is the author of "Reinventing the Rules: A Step-by-Step Guide for Being Reasonable, ” a book about the rules and regulations that govern community associations.
"The rules create order, just like laws do," Trigiani says.
But problems arise when homeowners move into communities without being aware of, or familiar with, the rules and regulations that will govern their use and occupancy of the premises. "Some people are shocked by the rules and the amount of control that the homeowners association has over their property," says Judy Zeigler, CRB, CRS, a real estate salesperson with Prudential California Realty in Palm Desert, Calif.
Zeigler often works with clients who want to change their landscaping or erect a fence around their yard and are surprised they can't do it in certain communities in her market area. She has become intimately familiar with the intricacies of the rules and regulations in the communities she sells in and tries to guide her clients so that they choose the community that best fits their needs.
Jaime Raskulinecz has seen more than her share of clueless homeowners who are unaware of the rules and restrictions governing the association they moved into. "Real estate practitioners and purchasers' attorneys don't always make sure that the buyer gets a copy of the rules and regulations," says Raskulinecz, CPM, chief executive officer of Rainbow Property Management LLC in Verona, N.J., and a licensed real estate broker. "We see that so frequently that it's frightening."
Raskulinecz has seen people with pets move into a community that doesn't allow them; residents leaving commercial vehicles in their driveway—also a no-no in many communities; and has been put in the uncomfortable position of having to enforce rules against new homeowners who weren't properly informed of their existence.
"Everybody pleads ignorance," she says. "The closing attorney is gone, and the real estate practitioner who did the deal is gone, and we get screamed at when we enforce the rules and regulations."
Responsibility to Inform Buyers
Part of the problem is that no one informs these buyers about the implications of moving into a community association and provides them with the governing documents, Raskulinecz says. Or, if they do receive the documents, buyers don't read them. And for that, she blames both real estate professionals and closing attorneys, whom she says are "too blasé."
But whose responsibility is it to inform buyers about rules and restrictions? That's a tricky question, as every state has different disclosure laws governing real estate transactions. "There's probably a legal obligation to not misrepresent what the restrictions say," says J. David Ramsey, president of CAI and an attorney with Hersh, Ramsey & Berman in Morristown, N.J.
For example, a real estate professional can't tell a client it's okay to have a pet when he or she knows that pets are prohibited. But practitioners are sometimes misled, Ramsey says. "They'll be in a community and see some pets around," he says. "And they'll come to the not-so-unreasonable conclusion that the association allows pets."
So do real estate professionals have a duty to look into the rules and regulations of a community before they sell homes there? Again, that depends. "If real estate professionals have knowledge of an intended use, and they have knowledge that that use may not be permitted under the covenants and restrictions, then they need to disclose that," says Michael Thiel, associate counsel for the NATIONAL ASSOCIATION OF REALTORS®.
Thiel says that buyers' representatives might have a higher duty to their clients. "You can find some cases that suggest a duty of inquiry into these issues depending on the facts," he says. "But I don't know of any states that actually impose a duty as a statutory responsibility."
Under the NAR's Code of Ethics, real estate professionals are required to disclose known material factors that would affect the salability or desirability of a property. But a practitioner is only required to disclose what he or she knows, Thiel says.
Thiel believes that real estate professionals who hold themselves out to be experts in a particular community might be held to a higher standard than those who are generalists. "If you say you are an expert in a particular development, you probably know whether there are any significant restrictions on the use of property in that development," he says. "On the other hand, if you say you sell real estate in Chicago, that doesn't mean you know a lot about any particular community association or its restrictions."
Thiel recommends that, at a minimum, real estate professionals selling a home in an association make their clients aware of the existence of restrictions and help them obtain copies of the bylaws.
Even if there is no legal obligation for real estate professionals to counsel their clients on the existence of rules and regulations, some practitioners do so in the normal course of their business.
"I sit down with a client and find out what they're looking for and what restrictions affect them," says Michael Kass, CRS, ABR, an associate broker with Prudential Michael Smith REALTORS® in Seattle who sells a lot of condominiums in the Bellevue area. "We have an interview for about an hour, and then I ask questions of the listing agent."
But Kass doesn't stop with the listing agent. Once his clients get serious about a condominium, he calls the management company for the association to get the lowdown on any restrictions that may affect his buyers.
Restrictions: Reasonable or Not?
The following are typical restrictions found in community associations:
· Pets. Associations can limit pets, based on type, number, size, and/or weight. Most rules provide that pets can't become a nuisance by barking or running free. And, of course, owners must pick up after their pets.
· Flags. Flags are a hot issue. Some associations limit the size or height of a flagpole while allowing the display of the flag itself. Lately, however, there have been several cases where homeowners are seeking the unfettered right to fly a flag as they see fit, no matter what the height of the flagpole. These cases have received extensive media attention because of the recent surge of patriotism in the United States since the terrorist attacks of Sept. 11, 2001.
· Exterior alterations. Community associations can limit the right of homeowners to alter the exterior of their homes; these associations require homeowners seeking changes to obtain approval of an architectural control committee or similar group. The obvious goal of these restrictions is to maintain property values. While some associations have liberal rules on what a homeowner can do to his or her home—they may allow, for example, additions onto a home—others are quite restrictive and prohibit even the planting of flowers outside.
What determines if a rule or regulation is reasonable? "An unreasonable rule is kind of like pornography," says Trigiani. "You know it when you see it."
Trigiani says a court will review a contested restriction to see if it violates any laws, whether it has been applied uniformly and consistently, and whether it relates to the stated reason for its existence. An example of an unreasonable rule, according to Trigiani: A prohibition on flushing toilets between midnight and 5 a.m.
Although there are plenty of anecdotes of unreasonable community association restrictions, they are unreasonable in the eye of the beholders since most have not been tested in court.
Douglas Ferguson, a salesperson with RE/MAX of Boise in Idaho, says he knows of a community where you can't have your garage door open for more than 15 minutes at a time and other communities that limit how many guests you can have at any one time. "If you want to have a dinner party, you're out of luck," he says.
The Role of the Real Estate Professional
So what's a real estate professional to do when dealing with a community association that has restrictions? Here's some advice from the experts:
· Know your client. Determine whether your client is the kind of person who can live in a community with restrictions; some people can't. If your client is willing to accept restrictions, find out if he or she has any particular needs. For example, does he plan to have a home office? Does he have a pet? If so, make sure any community in which he has an interest allows such uses.
· Know your community. If you are farming a particular community or represent a lot of buyers purchasing homes in a particular one, obtain a copy of the governing documents and familiarize yourself with what the association allows and doesn't allow. That way, you can better represent your client.
· Advise your client to check into the financial stability of any association in which they have an interest. Make sure, for example, that the association has adequate reserves to replace common elements and that the association is not involved in any major litigation that could ultimately cost homeowners money.
· Make sure that your client gets a copy of the governing documents of the association. Some states require the seller to provide the buyer with a copy of governing documents or a disclosure statement. Other states have contracts requiring the buyer to obtain copies on his own. The contract may or may not have a contingency allowing the buyer to cancel the deal if he isn't satisfied with the restrictions. Either way, be sure that the buyer obtains the documents—and reviews them—and have the buyer sign off confirming such receipt in order to protect yourself.
· Educate yourself about community associations such as condominiums, planned unit developments, cooperatives, etc. Learn the difference between them and their operations so you are better prepared to represent your clients.
The best advice Trigiani has for both homebuyers and real estate professionals? "Read the governing documents even though they're boring and miserable to get through," she says. "And talk to other people in the community to get a sense of it. It's important to go the extra mile."
Weinstein of Boynton Beach, Fla., says that she lived in a gated community previously, so she knew there were rules involved when she moved into a similar association.
Still, she said she was surprised about not having any say in the paint color of her home. “Most restrictions don't bother me, and I'm not saying I can't live with this one,” she says. “Am I going to move because of it? Absolutely not. I was just a little annoyed that I don't get a choice. But I'll live with it.”
