The premise of the thread is wrong. You should be asking what kind of economic model a HOA is, and what its limitations are. Some have already replied to this, pointing out that HOAs are cooperatives and not capitalist by nature. As such, they are prone to all the drawbacks of cooperatives as an economic model for the production of cities.
Whether or not it is libertarian is relevant only to the extent that state law coerces it. I don’t believe it does, however it does monopolize most other forms of urban land.
Property Ownership: Either Absolute Ownership or Nothing
There is something compelling about Merlin’s argument that you “must be on someone else’s property for him to impose his will on you.” “Either,” according to Maiku, it’s “absolute ownership or nothing.”
If someone can impose conditions on your own property, then you really don’t own the property at all. This could be considered as Caley McKibbin aptly said “the same as the seller still owning the house.”
However, a bank that grants a mortgage may place conditions on the mortgager to preserve the value of the collateral. For example, a property owner may not bulldoze his own house.
If the bank has a superior claim to the property, because the bank can “evict” the mortgager upon default, then the bank should be considered the real property owner, and the mortgager considered as having mere possession of the said property.
If the mortgager has provided a deposit of 20%, on a 30 year mortgage, then every year the mortgager “buys” from the bank 1/30th of the claim remaining, on top of the 20% he already “owns.”
The contract is completed when the mortgage is paid in full. No more restricted by previous conditions, since all of these have been removed, the property owner comes into absolute ownership and may do as he wishes on his own property.
HOA Contracts As Leases
For a property within a Homeowners’ Association (HOA), no matter how many payments are made, the claim by the HOA on the property can never be extinguished, unlike a mortgage.
There is no way for the property owner to “buy” the claim from the HOA, or bring the contract to a completion. [1] [2]
If the HOA has a superior claim on the property, because the HOA can “evict” a property owner, then the HOA should be considered the real property owner, and the property owner should be considered as having mere posession of the said property.
If the HOA is the real property owner, and the claim is perpetual, with conditions that can never be removed, no matter how many payments are made, then this arrangement is functionally equivalent to a lease.
For a lease, the landlord rents to the tenant a property. No matter how many payments a tenant makes, the landlord will never remove his claim on the property, as he has a perpetual claim on the property.
The landlord has a superior claim on the property, since the landlord can evict the tenant upon contract default. The landlord is the real property owner. The tenant merely possesses the property, as long as he abides by the contract.
Now if the HOA should be properly called a landlord, and the “property owner” a tenant, then the HOA can place whatever condition on the property it wants, within the contract, for a perpetual period of time.
Contract Enforcement on Leases
This brings about the problem of contract enforcement. If we accept Merlin’s view, then mere promises on a contract can never be enforced, but property rights as security can be enforced. [3]
For example, let’s say a landlord rents a property to a tenant for a 10 year lease, with monthly payments made in advance. But then when one year elapses, the tenant defaults, and is evicted.
If promises on a lease contract can be enforced, then the tenant still owes 9 years of lease payments to the landlord.
If promises on a lease contract cannot be enforced, then the tenant owes nothing, and the landlord has a vacant property he can lease to someone else.
Let’s assume the latter is true. If the landlord wishes to bind the tenant to a 10 year lease, then he may demand from the would be tenant a security deposit in advance, perhaps equivalent to one month for every one year of lease (or 10 months worth).
This security deposit is a pledge by the tenant to the landlord for future performance on the contract. If the tenant breaks the lease, the landlord keeps the security deposit, and the tenant does not owe anything more.
Lease Payments in Perpetuity
For a property within a HOA, the “buyer” is paying up front in advance the entire lease for an infinite period of time. However, why would anybody sign a lease for a commitment in perpetuity? [4]
If you think about it, signing a lease that lasts beyond your potential lifetime, while paying up front for it in advance, is really a bad deal for a tenant, and a good deal for the landlord. [5]
This is somewhat of a mystery why anybody would do that. Here I suspect this is an attempt to create a quasi-asset, such that lease contracts can be bought and sold on the open market.
If a lease contract is sold, the “buyer” is assuming the lease obligation, and the “seller” is compensated for the remaining value on the lease.
Contract Modification for HOA Fees
Normally, lease payments are fixed throughout the duration of the lease, since contracts cannot be unilaterally modified. In other words, lease payments cannot be raised, until the lease expires.
For a HOA, the same is true, but since everything is paid up in front, for a perpetual period of time, then there should be no additional charges beyond that. However, the HOA charges fees for maintenance and services.
Not only that, the HOA may periodically raise the HOA fees should costs increase or the reserve fund is too low. Furthermore, the HOA may charge special assessments from time to time for unexpected expenses.
How can these HOA fees and special assessments be consistent with an unmodifiable contract? Remember, the HOA lease is for a perpetual period of time, and thus can never expire. [6]
If the HOA fees were treated like utility charges, then maybe those charges can be passed on from the HOA to the “property owners.” The problem with this approach, is that unlike utilities, HOA fees are mandatory and can never be avoided.
For example, if a cable company raises its rates, the tenant can always unsubscribe from the service, but if a HOA raises its fees, and the “property owners” refuses to pay, then it means eviction.
If someone were to be evicted, then it should be for a contract violation on not paying the amount due. But can this be justified if the amount due is not fixed within a lease contract?
Maybe a possible solution would be how a HOA a structured. If a HOA is structured as a mutual, where the landlords and tenants are one and the same, then any expenses incurred by the HOA would, if left unpaid, would ultimately be a liability against the assets. [7]
If tenants cannot be charged the amount, then the landlord is responsible for the expense. But since in a HOA the tenants are also the landlords, the HOA fees are assessed on the “property owner”, not as tenants, but as landlords.
Conclusion
In general, the HOA concept should be considered more consistent with a landlord-tenant relationship, than a property transfer rule, and to do otherwise would make it more complicated than it has to be.
PS: I can only add, that after you die your heirs get back what you paid for your lifetime rent for the HOA. Thus, what you pay is a deposit, which you can claim whenever you cancel the agreement.
I don’t, but your answer is the most detailed thus far, so I’ve verified it as an answer.
In a sense, today’s world can be looked at as a nested hierarchy. Since only government has complete control over property, only government are the “true” owners of said property. Owners of non-HOA homes are in a sense simply buying infinite leases from the government, and if within an HOA, we are simply nesting one more layer on top of this.
Take away the government, and the potential for nesting property still remains. There will also likely always be bad apples in the bunch that offer obscene clauses, and people that accept them. So long as there remains a diverse mix of HOAs and the ability to avoid them, it shouldn’t be too bad. Nothing prevents one HOA from buying up everything, but it would be pretty expensive to do so.
I have a better understanding of the situation now; thanks guys.