government.[18]
At their own expense, a homeowner-member may sue a board of directors for perceived breach of duty. Association insurance provides not only for a board member's legal expense, but any judgment attained against them.[citation needed] Homeowners must pay out of pocket for any case they bring to court and risk being personally liable for any judgment and/or association's legal fees as well as their own.[citation needed]
Corporation and homeowner association laws provide a limited role for HOA homeowners.[19] Unless either statutory law or the corporation's governing documents reserve a particular issue or action for approval by the members, corporation laws provide that the activities and affairs of a corporation shall be conducted and all corporate powers shall be exercised by or under the direction of the board of directors. Many boards are operated outside of their state's non-profit corporation laws. Knowledge of corporate laws and state statutes is essential to a properly run HOA. Once notified by a homeowner, attorney or other government official that an HOA organization is not meeting the state's statutes, the boards have the responsibility to correct their governance. Failure to do so in certain states, such as Texas, can result in the levy of misdemeanor charges against the board and open the board (and HOA) to potential lawsuits to enforce state laws of governance. In some instances, a known failure to rectify the board's governance to meet the state's statutes can open the board's members to personal liability as most insurance policies indemnifying the board members against legal action do not cover willful misconduct.
Homeowner associations establish a new community as a municipal corporation without ensuring that the residents governed will have a voice in the decision-making process.[20] Voting in a homeowner association is based on property ownership,[21] Only property owners are eligible to vote in elections, which contrasts with the one person, one vote system prized by modern democracies. Renters are prohibited from directly voting the unit, although they can lobby the owners,[original research?] since the association has contractual agreements solely with owners.[citation needed] Additionally, voting representation is equal to the proportion of ownership, not to the number of people.[22] The majority of property owners may be absentee landlords, whose values or incentives may not be aligned with the tenants'. Homeowners have challenged political speech restrictions in associations that federal or state constitutional guarantees as rights, claiming that certain private associations are de facto municipal governments and should therefore be subject to the same legal restrictions.
Board misconductThe New Jersey Department of Community Affairs reported[26] these observations of Association Board conduct:
"It is obvious from the complaints [to DCA] that that [home]owners did not realize the extent association rules could govern their lives."
"Curiously, with rare exceptions, when the State has notified boards of minimal association legal obligation to owners, they dispute compliance. In a disturbing number of instances, those owners with board positions use their influence to punish other owners with whom they disagree. The complete absence of even minimally required standards, training or even orientations for those sitting on boards and the lack of independent oversight is readily apparent in the way boards exercise control"
Overwhelmingly ... the frustrations posed by the duplicative complainants or by the complainants’ misunderstandings are dwarfed by the pictures they reveal of the undemocratic life faced by owners in many associations. Letters routinely express a frustration and outrage easily explainable by the inability to secure the attention of boards or property managers, to acknowledge no less address their complaints. Perhaps most alarming is the revelation that boards, or board presidents desirous of acting contrary to law, their governing documents or to fundamental democratic principles, are unstoppable without extreme owner effort and often costly litigation.
Certain states are pushing for more checks and balances in homeowners' associations. The North Carolina Planned Community Act,[27] for example, requires a due process hearing to be held before any homeowner may be fined for a covenant violation. It also limits the amount of the fine and sets other restrictions.
California has severely limited the prerogatives of boards by requiring hearings before fines can be levied and then limiting the size of such fines even if the owner-members do not appear. In California, any rule change made by the board is subject to a majority affirmation by the membership if as few as five percent of the membership demand a vote. This part of the civil code[28] also ensures that any dissenting individual who seeks a director position must be fully represented to the membership and that all meetings be opened and agenda items publicized in advance. In a state such as Massachusetts, there are no laws to prohibit unilateral changes to the documents by the association board.
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