As I understand it, it can be either case. Not sure how they can screw you around if you own it, probably some obscure law, but it's obvious enough if you're renting from them.
They can screw you around pretty easily and legally, even if you are an owner. They levy fines for noncompliance, and if you don't pay the fines and comply, they can put liens on your property -- even if you own the property outright. It's all part of the contract you enter into upon purchasing the property. Membership in the HOA is compulsory in many cases, and your purchase of the property comes with the obligation to join the HOA and be subject to its Covenants, Conditions & Restrictions (CC&Rs).
So why in the hell would you sign that sort of deal in the first place? Well, if you don't have to, you shouldn't. But in some cities, such as SF, it's extremely hard to buy a condo that doesn't come with an HOA.
HOAs are as prevalent as they are because in most cases they are highly beneficial, both legally and financially, to building or subdivision developers. So more and more developers are using them.
