Blog: Unfeasible Contracts in an Ancap Society
I’m reading David Hathaway’s book Immigration: Individual vs National Borders, and he made an interesting point.
Not every private contract is enforceable. Example: cartels fail because each party benefits if they violate the agreement to refrain from lowering their prices. He argues that in a fully privatized society, contracts to exclude foreigners would fail for similar reasons. Many participants of the agreement would benefit by doing business with foreigners, and it may very well be unfeasible to enforce the original agreement.
He also claims that HOAs (referred to by some as covenant communities) are not market creations.
“These oft-despised sources of collectivist controversy are primarily the result of modern era government requirements that mandate the existence of neighborhood restrictions and HOAs to enforce them in order to for new housing developments to quality for FHA/VA loan financing (the source of most home financing in the U.S.).”
I’m not sure what to make of this tbh. Perhaps some libertarians rely too heavily on the HOA model as an alternative to the state.
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About The Author
Andrew Kern
Andrew Kern is the author of The Myth of the Social Contract: Refuting Common Arguments for Government Authority, and he has written on libertarianism, anarchism, and private alternatives to state authority. He founded The Principled Libertarian website in 2017, with the goal of spreading the ideas of liberty and helping to define what it means to be free. His work has been published by Antiwar.com, the Ludwig von Mises Institute, the Foundation for Economic Education, Being Libertarian, among others.
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Based on the following HOAs are not necessarilly a function of govt requirements excepting in maintaining common areas in certain developments. “What does an FHA borrower need to know about HOA or Homeowner Association agreements? This is an issue that can definitely affect your home loan and it’s best to go into the home buying process ready to deal with the potential advantages or problems an individual HOA agreement may bring.
FHA home loans are available for nearly every type of home that can be classified and taxed as real property or real estate. That includes property that is governed by HOA agreements.
Borrowers who want FHA condo loans, or who buy homes in neighborhoods that have homeowner associations may be required to sign agreements for maintenance of common areas, agreements not to radically alter the exterior aesthetics of the home, or other covenants.
FHA loan rules have very few restrictions on HOAs except in one very important area. A borrower cannot have an FHA home loan approved for any property that features restrictions on how the borrower may sell or transfer the home purchased with an FHA mortgage.
One such agreement that is found in some HOA paperwork is known as the Right of First Refusal, which requires the borrower to submit any sale to the HOA for approval. FHA loan rules do not permit this and the clause must either be nullified for the FHA borrower or struck from the requirements altogether.
State law, lender standards, and other requirements could affect how such a transaction proceeds.
Since FHA loan rules are mostly silent on other provisions of such agreements, borrowers should ask the loan officer what other issues might negatively affect the loan application for a home that requires the borrower to sign legally binding agreements with the HOA.
Some of the most important things a borrower should know about homeowner association agreements? You must read the documentation very carefully as outdoor smoking, renting or subletting your home, or even putting out a For Sale sign on the front lawn may be restricted or forbidden under the terms of your legally binding agreement.
Borrowers who are late or miss HOA payments (yes, there may be payments or dues required) may find the terms of the HOA agreement add high fees or penalties, or even force the homeowner into foreclosure depending on the terms of the documents you sign.
Do not be taken by surprise with such rules; it’s easy to skim an HOA and sign without fully understanding the nature of the agreement you have entered into. It may be well worth the time and expense to have a lawyer with real estate law expertise review the agreements you are required to sign to insure you aren’t being roped into an unfair arrangement.
How unfair? One that prevents you from putting up holiday decorations, renting out unused living units in your home to others, or even having pets. And yes, there are horror stories about many of of those types of HOA restrictions in some housing markets.
As an FHA borrower you won’t have any recourse if you sign a legally binding HOA contract or covenants that don’t violate the FHA loan rules but have other restrictive clauses that impede your enjoyment of your new home.
As always, state law, federal law, lender requirements, and other rules may apply in these cases-ask your loan officer if you aren’t sure how HOA issues can affect your transaction.