Home Owners Association

Collated by CPCN

March 25, 2014

Distilled Wisdom of Ages Collated Together and unabshedly stolen from many sources

Source: From the long experience of the people running their own Association democratically for ages.
1
Contents
1 CCRs and other HOA Documents 4
A Legal Description of the Common Interest Development . . . . . . . . . . . . . . . . . . . . . . . . . . 4
B Key provisions of the governing instruments include: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
C Enforcement of CCRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
D Availability of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
E Distribution Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
F Amendments of governing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2 Homeowners Associations and Insurance 6
A Commercial General Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
B Automobile Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
C Directors and Ocers Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
D Employee Dishonesty Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
E Comprehensive Equipment Coverage Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
F Workers Compensation Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
G Umbrella Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
H Personal Insurance Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
I Periodic Coverage Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3 Disputes and Homeowners Associations 8
A Administrative Hearing System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
B Dispute Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
C Hearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
D Findings and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4 HOAs and Real Estate Developers 9
A Common Interest Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
B Developers Role in the HOA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
C Liability of Developer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5 Homeowners Associations and Discrimination 10
A Central & State Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
B Protection of Children and Senior Citizens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
C Protection of Disabled Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6 HOA: Homeowner Rights & Duties 11
A What is a Homeowners Association? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
B Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
C Other Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
D Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
E Dealing with the HOA Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
F Taking It to Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2
7 HOA Boards: Rights and Duties 12
A Manner of Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
B Boards Powers and Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
C Liability of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8 HOA: Repairs and Maintenance 13
A HOA Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
B Architectural Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
C Maintenance Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
D Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
E Questions for the Attorneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9 Homeowners Association Meetings 14
A First Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
B Annual Member Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
C Governing Body Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
D Calling a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
E Attendance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
F Notice Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
G Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
H Meeting Minutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
I Action without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10 Finance Basics of Homeowners Associations 16
A Initial Finances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
B HOA Financials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
C HOAs Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11 HOA Assessments and Fees 17
A Regular Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
B Special Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
C Collection of Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
D Enforcement of Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
E Restrictions on Transfer Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12 Nuisance 19
A Stopping a Nuisance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
B Environmental Laws vs. Nuisance Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
C Determining Unreasonable Use of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
13 Resources 20
3
HOME OWNERS ASSOCIATION
Homeowner associations (HOA) are formed to preserve the aesthetics and integrity of a neighborhood,
address residents needs and, should anything happen, address major issues. With day-to-day duties that
include everything from managing the services to replacing power equipment, running a HOA requires a
substantial amount of nancial resources, which traditionally comes in the form of monthly, quarterly or
annual fees. It is an undeniable fact that community associations benet their respective communities by
reinforcing the rules and regulations that are mutually agreed by the members of association.
M
ost knowledge about Home
Owners Association has been
captured here. This con-
tain the distilled wisdom of many
years of Home Owners experience of
creating a democratic apparatus to
manage their common interest devl-
opment and running the same essen-
tially to
1. Preserve
2. Protect
3. Maintain &
4. Enhance the value of the Assets
1 CCRs and other
HOA Documents
The declaration of covenants, condi-
tions and restrictions (CCRs) is the
basic governing document of a com-
mon interest development, which is
a real estate development that com-
bines individual ownership interests,
like ownership of a condominium or
a house, with common ownership of
shared areas or facilities, like a club-
house, pool, or open area. State laws
require that it include specied infor-
mation, such as the restrictions on
the use of any portion of the devel-
opment. Other governing documents
include articles of incorporation or
agreement and bylaws. The provi-
sions of the CCRs are enforced by the
board of directors of the homeown-
ers association (HOA). The govern-
ing documents must be made avail-
able for review, and some of them
must be distributed to the homeown-
ers. The governing documents can be
amended. CCRs
The declaration of covenants,
conditions and restrictions (called the
declaration or the CCRs) is a doc-
ument which sets out legally required
information about a common interest
development. This is one of the doc-
uments that must be led with the
states real estate department in or-
der to sell units in the development.
Some state laws require basic infor-
mation, such as:
A Legal Description of the
Common Interest De-
velopment
A statement that the common inter-
est development is a condominium
project, planned development, stock
cooperative, community apartment
project, or combination of the forego-
ing The name of the homeowners as-
sociation (HOA) The restrictions on
the use or enjoyment of any portion
of the common interest development
that are intended to be enforceable
restrictions Other state laws and reg-
ulations may state that the declara-
tion is one of the governing instru-
ments for a common interest devel-
opment, and they set out the required
subject matter of those instruments.
The regulations include requirements
that must be complied with in order
to get state approval for the develop-
ment.
Most of the provisions satisfy-
ing regulatory requirements typically
appear in the declaration, with the re-
mainder in the associations bylaws.
B Key provisions of the
governing instruments
include:
1. Creation of an organization (as-
sociation) of subdivision inter-
est owners
2. A description of the common in-
terests of the common interest
development owners or lessees
3. Transfer of title and/or control
of common interests to the own-
ers in common or to the associ-
ation
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4. Procedures for making and col-
lecting assessments to pay the
expenses of the HOA
5. Policies for obtaining liens upon
privately owned separate inter-
ests if assessments arent paid
on time, and for foreclosure of
these liens for nonpayment
6. Policies and procedures relating
to the disciplining of members
for failure to comply with pro-
visions of the governing instru-
ments
7. Creation of a governing body
for the HOA
8. Procedures for the election
and removal of governing body
members and ocers of the
HOA
9. Enumeration of the powers and
duties of the governing body
and ocers
10. Preparation of the budgets
and nancial statements of the
HOA for distribution to its
members
11. Regular and special meetings of
the HOA members and board
(and notice requirements for
the meetings)
12. Amendment procedures for the
governing instruments
13. Architectural and/or design
control
14. Special provisions authorizing
the governing body to represent
the HOA in litigation or arbi-
tration
15. Other Documents
Common interest developments are
required to have other governing doc-
uments in addition to the CCRs.
Homeowners associations that are
non-prot corporations must have the
following documents:
1. Articles of incorporation, which
set out the name and address
of the HOA, the name and ad-
dress of the initial agent for ser-
vice of process, the name and
address of the managing agent,
and a statement identifying the
corporation as an association
formed to manage a common
interest development
2. While there is no legal require-
ment that an HOA which is
an unincorporated association
have either articles of associ-
ation or bylaws, these docu-
ments should be prepared and
signed since they constitute the
agreement among the members
and determine the nature of
the association.Corporate by-
laws, which are used for regu-
lation of the internal aairs of
the association, including such
matters as assessments, mainte-
nance and repair, use of units
and common areas and facili-
ties, meetings of the board of
directors and the members, and
rules of conduct of the residents
While there is no legal re-
quirement that an HOA which is an
unincorporated association have ei-
ther articles of association or bylaws,
these documents should be prepared
and signed since they constitute the
agreement among the members and
determine the nature of the associa-
tion.
C Enforcement of CCRs
Covenants and restrictions are part of
the declaration and enforceable as eq-
uitable servitudes (restrictions on the
use of land) and as covenants running
with the land (agreements that con-
cern the land). Generally, covenants
and restrictions concern the architec-
tural standards and controls and the
uses of individual units. They are for
the benet of and bind all owners of
separate interests.
Usually, the HOAs board of
directors or designated committee has
the initial responsibility for address-
ing violations of the covenants and re-
strictions. A homeowner will le a
complaint or request approval of pro-
posed changes. The association must
provide a fair procedure to hear and
decide the matter. If the dispute isnt
resolved, the parties typically have to
go through a more formal alternative
dispute resolution process. If that
fails, they can resort to a civil law-
suit to decide the matter.
D Availability of Docu-
ments
Most of the time, a new homeowner
becomes a member of the HOA and
is given a copy of the CCRs when
the homeowner purchases the prop-
erty. Also, upon written request by
the homeowner, HOAs are required
to provide the homeowner with the
following documents:
1. A copy of the governing docu-
ments
2. A copy of the most recent nan-
cial statement of the HOA
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3. A written statement specifying
the amount of the HOAs cur-
rent regular and special assess-
ments and fees, and any amount
due by the homeowner
4. A copy of notices indicating
any unresolved violations of the
CCRs by the homeowner
E Distribution Require-
ments
The HOA may be required to dis-
tribute certain documents to home-
owners, including:
1. A budget for the upcoming year
that contains the associations
revenue and expenses, avail-
able reserves and planned re-
pairs and replacements
2. A summary of the HOAs prop-
erty, general liability, earth-
quake, delity and ood insur-
ance policies Amendment Pro-
cedures
F Amendments of govern-
ing Documents
The governing documents, including
the declaration, the articles of incor-
poration or association and the by-
laws, can be amended. State laws
set out the requirements for amend-
ing these documents. The docu-
ments themselves also set out the
procedures required for changing the
rules. Usually, amendments are pro-
posed and are voted on by the HOA.
Amendments may require the ap-
proval of a majority vote of the board
of directors, of the association, and of
members who arent developers. This
process can require a lot of time, ef-
fort and expense.
If the declaration requires the
approval of more than a simple ma-
jority of the homeowners, the HOA or
a homeowner can petition the county
court to order a reduction in the per-
centage of armative votes needed
for an amendment.
If you have any questions
about CCRs or other documents of
a common interest development, con-
tact a Residential Real Estate Lawyer
in your area.
2 Homeowners Asso-
ciations and Insur-
ance
A homeowners associations (HOA) is
an organization of homeowners living
in a real estate development, the ma-
jor purpose of which is to enforce deed
restrictions and maintain common ar-
eas of the development. The de-
velopment might be a condominium,
a planned unit development (PUD)
with separate home sites or a planned
residential development. Comprehen-
sive Insurance Program
Every association needs a
comprehensive insurance program to
protect itself from casualty losses,
personal injury and property damage
claims, as well as miscellaneous areas
of liability exposure, such as ocers
and directors liability for the HOAs
board of directors. An adequate in-
surance program should consider how
the units are situated or connected. A
condominium building will have dif-
ferent needs than a subdivision with
a clubhouse and a pool.
Even though a condominium
is required to obtain a blanket re
and casualty insurance policy cover-
ing all units, as well as all common ar-
eas, a planned unit development has
the option of either obtaining such a
policy or insuring only the common
areas. A developer usually prefers to
have the PUD association insure only
the common areas, since that elimi-
nates the cost of re insurance on in-
dividual units.
An HOA needs to have insur-
ance but what is right for one com-
munity may not be right for another.
Coverage needs to be appropriate for
the association involved. The follow-
ing coverages should be considered
when determining what is right for
your HOA:
1. Property insurance
2. Commercial general liability in-
surance
3. Automobile insurance
4. Directors and ocers liability
insurance
5. Employee dishonesty insurance
6. Comprehensive equipment cov-
erage insurance
7. Workers compensation insur-
ance
8. Umbrella liability insurance
9. Property Insurance
Property insurance covers
buildings, structures and personal
property owned by the association.
This type of insurance typically in-
cludes common property, parkland,
woods, open spaces, recreational fa-
cilities, buildings and sometimes por-
tions of residential areas.
6
Property insurance provides
protection for loss of or damage to
community association property. A
HOA needs to determine the areas
to be insured and should have a pro-
fessional appraisal done to determine
the value of the property. Replace-
ment cost plus coverage, which as-
sures full value replacement, without
regard to a coverage dollar limit and
the actual cash value of the property
is also a wise choice.
An open perils policy is
preferable to a named perils policy
because the coverage provided un-
der the open perils policy is much
broader. Under the named perils cov-
erage, it is up to the association to
prove the cause of loss is covered by
the policy. With open perils policies,
all causes of loss are covered, unless
specically excluded or limited, and
the burden of proving that a cause
of loss is not covered or limited rests
with the insurer.
A Commercial General
Liability Insurance
Homeowners Associations must have
commercial general liability insur-
ance, which is designed to protect the
HOA from a wide variety of liability
exposures.
Unlike property damage,
which can frequently be measured
in dollar amounts, liability claims
have no limits, other than those im-
posed by the courts. Commercial
general liability insurance covers four
types of claims:
1. Bodily injury that results in ac-
tual physical damage or loss,
such as slip and fall accidents
2. Property damage or loss result-
ing from the operation, mainte-
nance or use of common areas
3. Personal injury, such as false ar-
rest, libel, slander, defamation
of character and invasion of pri-
vacy
4. Advertising injury, such as in-
fringement of copyright
With commercial general liability in-
surance, the insurer typically pays
damages, legal defense fees and case
settlement charges.
Comprehensive general liabil-
ity insurance extends liability cover-
age to any location where association
business is taking place. For exam-
ple, this type of policy will extend
liability coverage to an o-property
location if thats where a meeting or
HOA-sponsored picnic is being held.
B Automobile Insurance
Automobile insurance is needed
whenever a HOA has employees who
drive cars, trucks or maintenance
vehicles on association property or
while they are carrying out asso-
ciation business. Hired car liability
protects the association against liabil-
ity from the operation of automobiles
that it hires, rents, leases, or borrows.
Non-owned automobile coverage pro-
tects against liability for operation of
autos that the association does not
own or hire. Also, any vehicle owned
by the association should be insured.
C Directors and Ocers
Liability Insurance
Directors and ocers liability insur-
ance (DO) is necessary when mis-
management of funds or policies re-
sults due to negligence by the HOAs
board. Typical claims include wrong-
ful termination, sexual harassment,
discrimination and mismanagement
of funds. It should also protect em-
ployees and any committee members
or volunteers.
D Employee Dishonesty
Insurance
Employee dishonesty insurance, also
known as a delity bond, indemni-
es the community association for the
loss of money, securities or any prop-
erty because of acts of fraud, dishon-
esty, forgery, theft, larceny, embez-
zlement, wrongful abstraction, willful
misapplication, misappropriation or
any criminal act on the part of direc-
tors, ocers, committee members, as-
sociation employees, board members
and volunteers. Coverage can protect
the association against criminal acts
by an independent managing agent.
E Comprehensive Equip-
ment Coverage Insur-
ance
Comprehensive equipment (boiler
and machinery) insurance is a form
of property insurance that protects
against nancial loss from property
damage, business interruption and
spoilage that is the result of sudden
and accidental mechanical break-
down. It lls the gaps left by prop-
erty insurance policies. Coverage can
be written for a specic item such
as an air conditioner, or it can be
written to cover a number of items
on a blanket basis.
7
F Workers Compensa-
tion Insurance
Workers compensation insurance
provides coverage required by state
law for injuries to association em-
ployees and volunteers that occur on
the job. Workers compensation laws
incorporate four types of benets:
disability (loss of income), medical
benets, survivor (death) benets
and rehabilitation benets.
G Umbrella Liability In-
surance
Umbrella liability insurance closes the
gap between underlying limits of cov-
erage and possible claims in excess of
that coverage. Umbrella liability in-
surance is tailored to each HOA and
the risks covered are generally negoti-
ated. No standard umbrella policy
exists, so a HOA need to work closely
with an insurance agent to get a pol-
icy that ts their needs.
H Personal Insurance
Protection
Residents will still need to provide
their own personal insurance protec-
tion. Many community associations
carry master policy coverage on ba-
sic structures and common property;
however, association insurance usu-
ally does not cover personal posses-
sions. Personal insurance protec-
tion provides coverage for personal
property, unit improvements, better-
ments, additions and alterations, ad-
ditional living expenses and personal
liability. If youre a property owner,
check with your HOA and nd out
whether HOA insurance will cover
any of these items. Coverage can
vary-some HOA policies may cover
the original unit improvements, or
may cover upgrades, like hardwood
ooring or new carpet if you pay for
the additional premiums allocated to
your improvements. Some policies
will cover damage to a unit owners
property if the loss was due to a fail-
ure of a common element, like a leaky
roof.
I Periodic Coverage Re-
view
An association must keep its owners
informed of the current status of its
liability insurance coverage. In ad-
dition, it is a good practice for the
associations governing body to re-
view the projects insurance coverage
at periodic intervals.
3 Disputes and
Homeowners As-
sociations
Homeowners associations (HOA) are
groups of homeowners living in a real
estate development that enforce re-
strictions and maintain common ar-
eas. Condominium and town home
developments and newer single-family
subdivisions have HOAs. The board
of directors governs the HOA. The
board is elected by the owners.
A Administrative Hear-
ing System
Disagreements between owners and
directors or owners can lead to costly
lawsuits. An administrative hearing
system is set up to avoid lawsuits.
Your HOA hearing system
must conform to local laws and meet
the needs of your development. By-
laws should clearly state that the ad-
ministrative remedy must be pursued
before its heard in court.
B Dispute Procedures
Dispute procedures say the person
who is being complained about is
served with a written statement of the
charges along with a notice about his
right to request a hearing. The notice
of the right to a hearing should state
that:
A hearing must be requested
within 15 days or else the right is
waived The person has a right to an
attorney
C Hearing
The parties are entitled to get names
and addresses of witnesses, and in-
spect and make a copy of any state-
ments, writings and investigative re-
ports important to the hearing.
The associations president
then appoints typically three mem-
bers to hear the complaint. This
is a tribunal and its members cant
be directors, related to either party,
neighbors of the parties, witnesses to
the complaint or persons investigat-
ing the complaint.
The tribunal elects a chair-
man and appoints a recorder who
presents evidence and records the
proceedings. Also on hand is a legally
trained hearing ocer who rules on
the admissibility of evidence and ad-
vises on matters of law. The hearing
should not occur sooner than ten days
after receipt of notice.
8
Each party can call and ex-
amine witnesses, question credibility
and dispute evidence. The hearing is
somewhat informal and open to all as-
sociation members.
D Findings and Recom-
mendations
After the hearing, the tribunal pre-
pares a report of facts and recommen-
dations for the boards consideration.
The board may use all the tribunals
recommendations or reduce the pro-
posed punishment and adopt the rest
of the recommendations. They arent
allowed to apply harsher actions than
recommended by the tribunal.
4 HOAs and Real Es-
tate Developers
Every planned residential develop-
ment or other kind of common in-
terest development consisting of com-
mon areas and individual ownership
interests, such as a condominium de-
velopment, will need management,
and a homeowners association usu-
ally lls this role. The associa-
tion can be a non-prot corpora-
tion or an unincorporated association
which is set up to manage the de-
velopment. These managing entities
are called homeowners associations
(HOAs). The developer, who is the
person or business that buys the land
and builds the residential units or has
the units built, has a role in form-
ing the HOA and selecting its initial
board of directors. Although the de-
veloper can vote in the election of
directors, the developers control is
somewhat limited by election rules.
Also, developers may be held liable
on certain kinds of claims concerning
the project, such as construction de-
fects.
A Common Interest De-
velopments
Common interest developments are
created under state laws. In forming
a residential common interest devel-
opment, a develop will need to le
several documents with government
authorities:
1. A declaration, which is a docu-
ment containing a legal descrip-
tion of the development and any
restrictions on ownership
2. A condominium plan, if any ex-
ists
3. A nal map or parcel map if
state law requires the recording
of such a map for the common
interest development
4. Typically, before selling any
units in the project, the devel-
oper must notify the state real
estate agency of his intention
to sell units and must obtain
a public report on the devel-
opment from the state real es-
tate commissioner. The com-
missioner wont issue a pub-
lic report until he nds that
the governing documents con-
tain reasonable arrangements
concerning the management,
use and control of the develop-
ment. Among other things, the
reasonable arrangement regula-
tions impose requirements re-
lating to the form and powers
of HOAs.
B Developers Role in the
HOA
The life of a HOA begins with the
rst meeting of owners. Usually, this
meeting must be held within a cer-
tain amount of time after the sale of
the rst unit. The rst board of di-
rectors for the HOA must be elected
at this meeting. Because the devel-
oper is a property owner, the devel-
oper can vote for directors. However,
so long as a majority of the voting
power of the association resides in the
developer, or so long as there are two
outstanding classes of membership in
the association, a certain percentage
of directors must be elected by the
votes of non-developer owners.
After the election of the
board of directors, operational con-
trol of the development is transferred
from the developer to the board.
C Liability of Developer
Developers of common interest devel-
opments are sometimes sued by un-
happy homeowners. These lawsuits
fall into one of three categories:
1. Construction defect claims.
These are claims relate to the
actual design and construc-
tion of the project. Successful
claims for construction defects
are generally based on breach
of implied warranty or negli-
gence. On a breach of implied
warranty claim, the homeowner
alleges that in selling the home
or unit, the developer guar-
anteed that it was t for a
particular purpose, and that
it wasnt, in fact, t for that
purpose. In a negligence claim,
9
the homeowner alleges that the
developer had a duty to deter-
mine the structural condition
of a home and prevent defects,
that the developer violated that
duty and that the homeowner
was harmed as a result.
2. Marketing misrepresentations.
These are claims involving how
the developer markets individ-
ual units to the public. The
homeowner alleges that the de-
veloper made certain represen-
tations during the development
phase of the project, that the
homeowner had expectations
based on those representations
and that the representations
werent true.
3. Breach of duciary duties.
These are claims which involve
the manner in which the de-
veloper manages and operates
the HOA before turning control
over to the homeowners. The
homeowner alleges that the de-
veloper had a duciary duty to
serve the HOAs best interest
and that the developer violated
that duty by acting in his own
interest instead.
5 Homeowners Asso-
ciations and Dis-
crimination
Homeowners associations (HOAs)
are legal entities created to maintain
common areas in various types of real
estate developments, such as condo-
miniums and subdivisions. Depend-
ing on the type of development, mem-
bership in the HOA usually is au-
tomatic upon becoming a property
owner in the development. HOAs
have the authority to enforce the re-
strictions found in the homeowners
property deeds. An HOA gets its
power and authority from a variety of
legal documents, including the HOAs
governing documents and federal and
state laws. The HOA governing doc-
uments consist of the declaration of
covenants, conditions and restrictions
(CCRs), the articles of incorporation,
the bylaws, and the rules and regula-
tions adopted by the HOAs board.
Homeowners associations
have the power to enforce the CCRs
and to manage the common ameni-
ties of developments but they cant
do so in a discriminatory way. Fair
housing laws protect residents against
discrimination in housing.
A Central & State Laws
Homeowners associations often re-
serve the right to approve or reject
new residents. Such approval or rejec-
tion cant be based on race, color, re-
ligion, sex, handicap, familial status
or national origin because this would
violate the Fair Housing Act.
The Fair Housing makes it
against the law to deny persons with
disabilities reasonable accommoda-
tions or the right to make reasonable
modications to a dwelling when the
accommodations or modications are
needed for them to fully enjoy their
homes.
The actions, policies and gov-
erning documents of homeowners
associations must comply with the
Disabilities laws. Homeowners as-
sociations must comply with anti-
discrimination laws that apply to dis-
abled persons, or run the risk of fac-
ing lawsuits and legal expenses.
The laws appliy to public ac-
commodations, which may include
facilities that are part of a common
interest development if they are open
to the public, such as when an HOA
leases a facility to the public in ex-
change for money. If a facility located
within a common interest is open only
to association members, not to the
public, then such facility probably
isnt a public accommodation under
the Disabilities laws.
B Protection of Children
and Senior Citizens
Generally, a homeowners association
may divide a project into adults-only
and family areas when the division is
approximately equal. When accom-
modations are designed to meet the
physical and social needs of senior cit-
izens, housing may be established and
preserved unless prohibitions against
discrimination on the basis of familial
status apply. Law prohibits discrim-
ination against families with children
under 18.
An HOA may not prohibit
the temporary display of a caution-
ary sign pertaining to children play-
ing or prevent resident children from
playing on a residential road with a
posted speed limit of 25 KM per hour
or less when the road is under the au-
thority of the HOA.
C Protection of Disabled
Persons
The Fair Housing prohibits discrimi-
nation against persons with disabili-
ties. A homeowners association may
not use disability as a factor in mak-
ing decisions on the approval of a new
10
occupant. Refusing or discouraging a
sale because of disability is a violation
of the Fair Housing Act.
Homeowners associations are
required by the Fair Housing to al-
low reasonable modications to hous-
ing, such as the installation of a
ramp, paid for by an occupant with
disabilities so that a occupant with
a disability may use and enjoy the
premises. They are also required to
make reasonable accommodations in
rules, such as those governing park-
ing, to enable an occupant with dis-
abilities to use and enjoy the dwelling.
If a common area or facility
is deemed a public accommodation,
the law requires HOAs to take cer-
tain actions with respect to architec-
tural barriers that exist on the as-
sociations premises and with respect
to the associations governing docu-
ments. An HOA may be in violation
of the ADA if it fails to remove archi-
tectural barriers in existing facilities
where such removal is readily achiev-
able by the association. However,
the ADA also allows for some barri-
ers to remain if the cost of removal
is overly burdensome to the associ-
ation. Architectural barriers could
include the non-existence of ramps
for wheelchairs, inaccessible restroom
and/or shower facilities, or any other
structure which prohibits or prevents
a disabled person from accessing the
public accommodation.
A homeowners association
can be deemed out of compliance with
the law either through its rules and
policies, or through its possible archi-
tectural barriers.
6 HOA: Homeowner
Rights & Duties
If you own a house in a planned res-
idential development, youre a home-
owner. All of the homeowners in the
development typically belong to the
homeowners association (HOA) for
that development. Membership is au-
tomatic with the purchase of a home
in the development. As a homeowner
and a member of a HOA, you have
rights and responsibilities.
A What is a Homeown-
ers Association?
A homeowners association is a non-
prot corporation or unincorporated
association set up to manage the com-
mon property of a residential real es-
tate development. Its goal is to keep
property values and the quality of life
in your condo building or subdivision
as high as possible.
HOAs that are corporations
are run like any other corporation,
with a board of directors (elected
by the members), meetings, minutes,
strict record-keeping and annual bud-
gets. HOAs that are unincorporated
associations are run in a similar man-
ner, as indicated in the articles or by-
laws of the association.
HOAs are created under and
are regulated by state laws. Some
states require that a developer of a
common interest real estate develop-
ment le information about the pro-
posed plan with the states real estate
department and get approval before
lots are sold. State laws also require
that the rst meeting of the HOA oc-
cur within a certain time after the
rst unit is sold. At this meeting,
the homeowners are required to elect
their rst board of directors for the
HOA.
B Elections
Homeowners have the right to elect a
board of directors to lead the HOA.
They each have as many votes as the
number of properties they own in the
development. At the beginning of the
sale process, the developer typically
has more votes than do the individual
homeowners. However, the balance of
votes changes as more properties are
sold to individual homeowners.
Because the rst board of di-
rectors is elected at the rst meet-
ing of the HOA, the names of candi-
dates should be circulated before the
rst election. If a property owner has
more than one vote and is going to
use more than one vote per candidate
(which is called cumulative voting),
the owner must say so before the elec-
tion begins.
Board members serve for the
length of time indicated in the HOAs
bylaws. The other homeowners can
remove individual board members
in limited circumstances of violation
their duciary duties.
C Other Rights
In addition to the right and responsi-
bility of belonging to the HOA, you,
as a homeowner, have the right to:
1. Use common property, such as
a common clubhouse and recre-
ational facilities
2. Access any disciplinary process
set up by the HOA
11
3. Enforce any covenants or agree-
ments that aect your property
directly
4. Challenge any rule changes
made by the HOA
D Responsibilities
As a homeowner, you have a respon-
sibility to comply with the provisions
of the declaration of covenants, condi-
tions and restrictions (CCRs), which
is a document that you signed when
you purchased the property. The
CCRs set out restrictions on what
you can do with your property, such
as what colors you can paint your
house and how high your fence can
be.
E Dealing with the HOA
Board
If you want to do something youre
not sure is acceptable under the
CCRs, rules, or you want to stop your
neighbor from doing something an-
noying, youll want to start by read-
ing the CCRs in detail. There may
also be by-laws to look through to
see if your particular situation is ad-
dressed.
If the association board is not
following the rules, you should talk to
an individual board member and then
follow the conversation up with a let-
ter detailing the exact issue. Maybe
the board members dont know that
they are doing something wrong.
If you want to do something
outside of the rules, you will proba-
bly have to ask the board for a vari-
ance and go through a formal hear-
ing process. Getting other homeown-
ers to support your position can be
very helpful in doing this.
If the association board wont
allow you a variance, you can try to
change-called amending-the CCRs
or bylaws. The documents them-
selves should detail the procedures re-
quired for changing these documents.
However, the process can be expen-
sive, and usually requires the agree-
ment of most HOA members.
If all else fails, youve always
got the option of trying to vote in new
board members at the next HOA elec-
tion.
F Taking It to Court
If you have a legal claim against your
neighbor or HOA, you have the right
to sue them in court. However, suing
your neighbor or HOA should always
be a last resort, for the obvious rea-
son that its tough to litigate against
someone who lives so close and you
have to see everyday, not to mention
the possible expense of a lawsuit and
the time involved.
7 HOA Boards:
Rights and Duties
A homeowners association (HOA) is
a nonprot corporation or unincor-
porated association the purpose of
which is to manage a common in-
terest real estate development. The
HOA is comprised of owners of prop-
erty in the development. The HOA
elects members of a governing board
to direct its activities. The board of
directors has certain powers and du-
ties. Directors also have individual
duties, and they may incur liability if
they breach those duties. Organiza-
tion
Homeowners associations
consist of all of the property owners
in a real estate development which
has common and individual interests.
Typically, all property owners in the
development are required to be mem-
bers in the HOA. So, for example,
all property owners in a planned res-
idential development are members of
its HOA.
HOAs are created under and
regulated by state law. State laws
usually require the rst meeting of
the HOA to be held within a certain
amount of time after the rst unit in a
development is sold. For instance, the
rst meeting of the HOA may have
to occur within six months after the
closing of the sale of the rst unit in
the development. All property own-
ers, including the developer, are in-
vited to the meeting.
The rst governing board of
the HOA should be elected at the rst
meeting, and all positions should be
lled. Since these elections will oc-
cur at the rst meeting, information
about the candidates should be circu-
lated before the meeting.
A Manner of Voting
State law may require a secret writ-
ten ballot for board elections. State
law may also require or permit vot-
ing to be cumulative, which means
that each property owner may cast as
many votes as he has for one or more
but fewer than all of the members on
the slate. An owner must give oth-
ers notice that he intends to cumulate
votes before the election takes place.
Unless the entire board is re-
moved by vote of the owners, indi-
vidual board members cannot be re-
moved from oce prior to the expi-
12
ration of their terms if the votes cast
against removal are sucient to elect
them.
The governing documents
should require that so long as the
majority of power resides in the de-
veloper, a certain percentage of board
members should be elected by the
non-developer owners.
After the rst meeting, the
board should meet, elect its ocers
and decide on how it will operate.
B Boards Powers and
Duties
The governing body (or board of di-
rectors) of the HOA is responsible for
the management of all aspects of the
association. It may delegate the man-
agement of its activities to other per-
sons or businesses, such as a property
management service, but it must re-
tain ultimate control. The boards
powers and duties normally include
such things as:
1. Enforcing provisions of the dec-
laration, articles and bylaws for
the ownership and management
of the development
2. Paying taxes and assessments
that are, or could become, a lien
on the common area
3. Contracting for insurance on
behalf of the association
4. Contracting for goods or ser-
vices for the common areas or
for the association
5. Delegating its powers to any
committees, ocers or employ-
ees of the association autho-
rized by the governing docu-
ments
6. Preparing budgets and nancial
statements for the association
7. Formulating rules of operation
for the common areas and facil-
ities
8. Conducting disciplinary pro-
ceedings against members of
the association for violations of
the rules
C Liability of Directors
Members of the board of directors of
an HOA that is a nonprot corpo-
ration must perform their duties in
good faith, in a manner that is in the
best interest of the corporation, and
with the care that a reasonably care-
ful person would use under the cir-
cumstances. A director is entitled to
rely on the advice of other ocers,
professional people, or HOA commit-
tees.
A director of an unincorpo-
rated association is not personally li-
able for the debts and obligations of
the HOA unless the director:
1. Personally assumes responsibil-
ity for the debt
2. Executes the contract without
disclosing that he or she is act-
ing on behalf of the HOA or
3. Executes the contract without
the authority to do so
4. The directors have a duciary
duty to the members of the
HOA and are liable for the
breach of those duties. That
means that they may not make
decisions that benet their own
interests rather than those of
the members.
Corporate directors cannot
be held personally liable for the in-
juries caused by the registered entity.
Directors may be held liable if their
own conduct causes injury. In some
HOA disputes, volunteer directors or
ocers of HOAs may not be held per-
sonally liable in excess of minimum
insurance limits set by law .
8 HOA: Repairs and
Maintenance
Homeowners associations (HOAs)
are legal entities created to maintain
common areas of various forms of real
estate developments, such as condo-
miniums or other residential develop-
ments. They are made up of people
who own homes in the same develop-
ment. HOAs have the authority to
enforce deed restrictions. Many con-
dominium and town home develop-
ments as well as newer single-family
subdivisions have HOAs. HOAs are
usually created when the develop-
ment is built. They are established
to ensure that the covenants, condi-
tions and restrictions (CCRs), which
are limitations on how property can
be used, are adhered to in order to
maintain the quality and value of the
properties in the development.
Membership in the homeown-
ers association is mandatory for all
property owners within the devel-
opment and members are usually
charged mandatory fees. Homeown-
ers associations have the authority to
enact and enforce maintenance and
design standards in addition to those
established by city ordinances.
The homeowners association
is responsible for managing and main-
13
taining the improvements in common
areas, which are the areas that are
used by all owners, as well as making
and enforcing assessments of owners
for maintenance and improvement ex-
penses.
A HOA Responsibilities
It is common for a homeowners as-
sociation to handle all or some of the
following:
1. Establish and collect mainte-
nance fees needed to run neigh-
borhood operations
2. Maintain community landscap-
ing
3. Maintain recreational facilities
4. Provide space for events or
neighborhood functions
5. Provide security
6. Arrange for street maintenance
7. Enforce deed restrictions in-
cluding exterior home mainte-
nance, commercial use of prop-
erties and control of trash Com-
mon Areas
Generally, the association is
responsible for repairing, replacing or
maintaining the common area. Com-
mon areas may include streets, road-
ways, sidewalks, parking areas, swim-
ming pools, tennis courts and play-
grounds as well as all trees, shrub-
bery, other plants, landscaping and
any items of personal property lo-
cated in those areas. This includes
repair and maintenance made neces-
sary due to the presence of wood-
destroying pests.
B Architectural Controls
Architectural controls are generally
part of the CCRs. The nature of the
architectural controls depends on the
type of development. If the develop-
ment consists of undeveloped lots, the
controls will govern the design of the
houses that can be built on the lots.
If the development consists of single-
family houses, the controls will gov-
ern the yards and fences as well as
changes in the houses. If the develop-
ment consists of townhouses or con-
dominiums, the controls will govern
the external appearance of the units
and certain internal conditions that
may aect neighboring units.
Initially, the developer has
control over architectural standards.
However, once the developer has sold
all of his or her interest in a de-
velopment, the developer loses that
control. Then the responsibility of
enforcing the architectural controls
falls to the homeowners association
or sometimes to an architectural con-
trol committee set up by the asso-
ciation and composed of association
members.
C Maintenance Fees
Homeowners associations can usu-
ally require members to pay fees for
common property maintenance and
expenses like insurance. Fees vary de-
pending on the community amenities,
such as a swimming pool, commu-
nity club house, park or golf course.
Fees can be raised each year but there
is usually a yearly cap stated in the
CCRs. In addition to maintenance
fees, homeowners associations can
collect special assessments for capi-
tal improvements, such as a new roof
for the community clubhouse. Typ-
ically two-thirds of the homeowners
must approve a special assessment.
D Reserves
Generally, an association is not per-
mitted to spend reserve funds for
any purpose other than the repair,
restoration, replacement or mainte-
nance of, or litigation involving the
repair, restoration, replacement, or
maintenance of, major components
that the association is obligated to re-
pair, restore, replace or maintain and
for which the reserve fund was estab-
lished.
E Questions for the Attor-
neys
How do I nd out whether my home-
owners association has sucient re-
serves for future repairs and mainte-
nance so special assessments wont be
needed? My condominium complex
is having major projects like roof-
ing and painting done, but my build-
ing seems to always be last on the
list, and it doesnt seem fair. Can I
do anything? I cant aord to have
repairs made to my homes exterior
right now; can my homeowners asso-
ciation force me have the work done
based on the terms in the CCRs?
9 Homeowners As-
sociation Meetings
Common interest developments,
which might be condominiums,
planned unit developments with sep-
arate home sites or planned resi-
dential developments consisting of
common areas and separate interests
14
are managed by an association, which
is structured as a nonprot corpora-
tion or unincorporated association.
These managing entities are com-
monly referred to as homeowners
associations. A homeowners asso-
ciation is responsible for managing
and maintaining the improvements
and common areas, administering the
rules and regulations governing use of
the various recreational facilities and
common areas, making and enforcing
assessments owed by owners for main-
tenance and improvement expenses
and meting out private quasi-judicial
decisions regarding violations of the
covenants, conditions and restrictions
of the development. The homeown-
ers association essentially serves as a
private government for its members.
A First Meeting
The life of a homeowners association
begins with the rst meeting of own-
ers. Generally, the rst meeting must
be held within a certain amount of
time, such as six months, after the
closing of the sale of a certain num-
ber of units. The rst election of a
governing body for the association is
conducted at the rst meeting of own-
ers, and all positions on the govern-
ing body are lled at that election.
Typically, after the rst general meet-
ing has been adjourned, an organiza-
tional meeting of the rst board of
directors is held to elect the ocers
of the board and to consider how the
association should be run.
B Annual Member Meet-
ings
Members meetings are usually held
once a year at a time and place set
forth in the association bylaws. These
meetings allow community members
to communicate with members of the
association. They provide the board
with time to get input from the mem-
bers and to obtain their comments
on board actions or proposals. Also,
elections of board members take place
at most annual meetings.
C Governing Body Meet-
ings
Regular meetings of the governing
body of the association are held ac-
cording to the association bylaws.
Ordinarily the meetings are held once
a month, but the bylaws may provide
for meetings as infrequently as every
six months if more frequent meetings
are not needed.
The board of directors sets
the time and place for regular board
meetings. The meeting place ordinar-
ily is within the development unless,
in the judgment of the board, a larger
meeting room is needed than exists
within the development, in which case
the room selected must be as close as
possible to the development. Often a
board will try to use space at a nearby
school, library, church, or local gov-
ernment building.
D Calling a Meeting
Usually, the board of directors (or
other governing body) must promptly
schedule a special meeting of the
members if the board votes to hold
such a meeting or receives a written
request signed by members represent-
ing a certain percentage of the total
voting power of the association. A
special meeting must also be called
as a prerequisite to ling a civil suit
against the developer for alleged dam-
age to the common areas or to speci-
ed separate interests in the develop-
ment.
E Attendance
Any member of the association may
attend regular and special meetings
of the governing body. A member
is permitted to speak at any board
of directors meeting, except when the
board meets in executive session. The
board is allowed to establish a reason-
able time limit and rules for members
to speak at or before meetings.
The governing documents es-
tablish a quorum for the transaction
of business at a meeting of mem-
bers, so its important to have that
minimum number of board members
present at meetings. Special quorum
requirements may apply in situations
such as when the board is seeking to
increase assessments or to impose a
special assessment. In the absence
of a quorum at a members meeting,
a majority of those present in per-
son or by proxy, which is a document
empowering a person to act for an-
other, may adjourn the meeting to
another time but may not transact
any other business. The quorum for
an adjourned meeting may be set at
a percentage less than what is set for
the regular meeting.
F Notice Requirements
Unless the time and place of meetings
is xed by the bylaws, members must
be given notice of the time and place
of a meeting, except for an emergency
meeting, a set number of days before
the meeting.
15
Notice is generally posted in
a prominent place or places within
the common areas, and by mail to
any owner who has requested noti-
cation of board meetings by mail, at
the address requested by the owner.
If the common area consists only of
an easement or is otherwise unsuit-
able for posting of the meeting no-
tice, the governing body must com-
municate the time and place of the
meeting by appropriate means. No-
tice may also be given by mail or de-
livery to each unit or by association
newsletter. The notice must include
the meeting agenda.
Notices of meetings must
specify those matters the board in-
tends to present for action by the
members. However, any proper mat-
ter may be presented at the meeting
for action, unless prohibited by law.
G Special Meetings
Typically, the board of directors must
promptly schedule a special meeting
of the members if the board votes
to hold such a meeting or receives
a written request for such a meet-
ing signed by members representing a
certain percentage of the total voting
power of the association.
H Meeting Minutes
The minutes or summary of minutes
of any meeting of the board of di-
rectors, other than an executive ses-
sion, is usually available to members
within 30 days of the meeting. The
minutes are distributed to any mem-
ber upon request and reimbursement
of cost.
I Action without Meeting
Usually, the governing body or board
may take actions without a meeting if
all of its members consent in writing
to the action to be taken. If the gov-
erning body resolves by unanimous
written consent to take action, an ex-
planation of the action taken must be
posted at a prominent place or places
within the common areas within a few
days after the written consents of all
governing body members have been
obtained. If the common areas are
unsuitable for posting the explana-
tion of the action taken, the governing
body must communicate the explana-
tion in an appropriate manner, such
as by mailed notices.
10 Finance Basics of
Homeowners As-
sociations
Typically, youll nd a homeown-
ers association (HOA) in a com-
plex, and sometimes in a subdivi-
sion or a planned unit development
(PUD). Regardless of the location,
HOAs are a fundamental element in
such communities because most of-
ten they have the job of making
sure that property is well maintained.
They do this by making sure that
the common areas, like roads, park-
ing lots, and recreational facilities,
are in good repair and condition, and
also by making sure that buildings in
the community are structurally sound
and not eye sores.
To do all of this, HOAs need
money, which they raise in various
ways. In addition, almost every
state has detailed laws on HOA -
nances, such as record keeping re-
quirements for nancial records. If
your condominium or subdivision
has a homeowners association, or if
youre thinking of buying a home in
an area with an HOA, its a good idea
for you know some of the HOA -
nance basics.
A Initial Finances
Often, a developer takes out a loan
from a private bank or mortgage com-
pany and uses it to create an HOA,
that is, he or she will build a complex
or subdivision and create an HOA
to manage it. The HOA member-
ship consists of the property owners
in the development. A typical loan is
called an interim loan, and its not
intended to be long-term or perma-
nent nancing. Rather, its repaid
as units-either condos or homes-are
sold. So, the units in the HOA or
PUD are like inventory, and the
interim loan enables the developer
build and sell units until the project
is complete and all units are sold.
When a unit is sold, the
buyer-owner will be subject to a num-
ber of governing documents for the
development. This can include the
HOAs covenants, conditions and re-
strictions (CCRs), which typically
restrict and limit how the owner can
use the property. Examples of CCRs
include things like a ban on pets and
how many cars you can park in the
parking lot.
Typically, anyone who buys a
home within the HOAs boundaries
automatically becomes a member.
Member-owners are then charged fees
and assessments, which are usually
charged and collected monthly, and
are used for things like landscap-
16
ing, snow removal and road mainte-
nance. Also, there may be special
assessments, which are used to pay
for emergency repairs or repairs and
maintenance costs that were not in-
cluded in the HOAs budget.
B HOA Financials
In almost every state, there are
specic, detailed laws that govern
HOAs, and particularly their nan-
cial records. Although the laws and
their requirements vary by state, gen-
erally HOAs must perform various
tasks with respect to their nances,
including:
Create and maintain a fund
of fees and assessments collected by
the HOA from owners/HOA mem-
bers Make an operating budget, typ-
ically for a calendar year, that shows
projected income from fees and as-
sessments and itemizes how the HOA
plans to use any funds throughout
the year, such as paying the costs of
landscaping, repairs to common ar-
eas, and building maintenance Cre-
ate and maintain monthly and yearly
records on how much money the HOA
has received, how any funds have
been spent, and the current balance
of the HOAs fund Store all receipts
for money spent by HOA from the
HOA fund Create and maintain a re-
serve fund from fees and assessments
collected by the HOA, which can used
only for unexpected emergency re-
pairs, such as sudden damage from
bad weather or natural catastrophes,
or for the future repair, replacement,
or maintenance of the major compo-
nents of the complex or subdivision,
such as building surfaces of the con-
dominium buildings, streets and sew-
ers, and heating and cooling equip-
ment Depending on the size of the
HOA, it might be required to have a
certied public accountant perform a
yearly audit In some states, the HOA
must provide these nancial docu-
ments to the owners/members within
a certain period of time and with-
out being asked. Often, they will be
posted in a common area, like a recre-
ation room or facility, or its common
for HOAs to have their own Web site
where these materials can be posted.
In some states, however, the HOA has
to provide these nancial materials
only when an owner makes a writ-
ten request for them. So, be cer-
tain to check the laws in your area
if youre trying to obtain nancial
records from your HOA.
C HOAs Taxes
Another important aspect of HOA
nances is tax liability. Generally,
HOAs are exempt income taxes if:
1. Most of its units are used by in-
dividuals as residences
2. Its organized and operated to
buy, build, manage, maintain,
and care for HOA property
3. At least 60% of its gross income
for the taxable year comes from
membership dues, fees, or as-
sessments
4. None of the HOAs net earnings
or income goes to any individ-
ual, except if its by a rebate of
excess membership dues, fees,
or assessments, for example
5. State law require the HOA to
make an election to be treated
as a tax-exempt organization.
Also, even if the HOA is tax ex-
empt, it must le a federal tax
return.
The tax exemption excludes
from the HOAs gross income all of
the membership dues, fees, or assess-
ments collected by the HOA. Essen-
tially, then, a tax-exempt HOA is
taxed only on its investment income,
if it has any, and any other income
it might have, such as from rent-
ing out a recreational facility to non-
member/owners.
11 HOA Assessments
and Fees
The diculty arises from the diuse
nature of both its topic and Home-
owners associations (HOAs) have the
right to impose assessments and fees
on each member of the association
to pay for the HOAs operations and
maintenance expenses. Assessments
can be regular or special, depending
on the purpose for which they are
made. Assessments are calculated,
collected and enforced in the man-
ner required by law and as provided
by the HOAs governing documents.
Regular assessments are made to de-
fray expenses related to the owner-
ship, operation, or furnishing of com-
mon interests or to the enjoyment
of mutual and reciprocal rights of
use. For instance, the revenue gen-
erated by regular assessments can be
used for the repair and maintenance
of common property, such as lobbies,
community centers, common roofs,
parking lots and garages.
Special assessments are made
for capital improvements or for other
purposes, such as replenishing a re-
17
serve fund that was spent on unex-
pected maintenance projects.
The governing documents of
the development, such as the decla-
ration of covenants, conditions and
restrictions (declaration or CCRs)
and the bylaws, should describe the
assessment process, including how
much the assessments can be in-
creased and in what circumstances.
A Regular Assessments
Regular assessments against the units
in a common interest development
typically must start on the date of the
rst transfer of a unit from the prop-
ertys developer or on the rst day
of the month following the rst con-
veyance of a unit. Homeowners dont
have voting rights until the HOA
has levied an assessment against their
units.
State laws provide that as-
sessments cant exceed the amount
necessary to defray the costs for
which they are levied. Regular as-
sessments to pay the expenses of the
ownership, operation, and furnishing
of common interests by the associa-
tion must ordinarily be levied against
each owner according to the ratio of
the number of units owned by the
owner assessed to the total number
of units subject to assessments. So,
if an owner has three units out of a
total of 50 units, the owner will be
responsible for 3/50 of the total as-
sessment, assuming that all units are
the same size. Adjustments in the ra-
tio can be made if an owner gets a
greater benet from the services than
other owners.
An HOA may increase the
regular assessment up to a certain
percentage of the prior years assess-
ment, provided that the board of di-
rectors has distributed an operating
budget for that year or a majority of
homeowners approves the increase. If
the increase exceeds that percentage,
approval by a majority of homeown-
ers is required.
B Special Assessments
An HOA cant impose or collect a
special assessment that exceeds the
amount necessary for the purpose or
purposes for which it is levied.
In any scal year, special as-
sessments cant exceed a certain per-
cent of the budgeted gross expenses
of the association for that scal year
without the approval of the majority
of homeowners. There are exceptions
to the limits on special assessments in
emergency situations.
C Collection of Assess-
ments
Assessments are made according to
the schedule indicated in the HOAs
bylaws or CCRs. The HOA must
send or deliver notices of each home-
owners assessment amount to the
homeowner. The homeowner then
has a specied number of days in
which to pay the assessment amount.
D Enforcement of Assess-
ments
Regular and special assessments are
delinquent a specied number of days
after they become due. If an assess-
ment is delinquent, the association
may recover all of the following:
1. Reasonable costs incurred in
collecting the delinquent assess-
ment, including reasonable at-
torneys fees
2. A late charge
3. Interest on all sums due
4. If a homeowner fails to pay the
assessment, the HOA has sev-
eral options:
5. File a civil action in small
claims court (if the amount due
meets the courts requirements)
6. Record a lien on the home-
owners unit or separate inter-
est and delay foreclosure un-
til the amount due equals a
pre-determined amount or the
assessments are more than 12
months delinquent
7. Record a lien on the home-
owners separate interest and
foreclose on the lien
8. Any other manner provided by
law
9. If the HOA is going to le a
lien on the homeowners unit,
at least 30 days before ling the
lien, it should send the owner
of record a notice including,
among other things:
(a) A general description of
the HOAs collection and
lien enforcement proce-
dures
(b) The method of calculation
of the amount due
(c) A statement that if the
homeowners separate in-
terest is placed in fore-
closure because the home-
owner is behind in his or
her assessments, it may be
sold without court action
18
(d) An itemized statement of
the charges owed by the
homeowner
(e) The right to dispute the
assessment debt by sub-
mitting a written request
for dispute resolution to
the HOA
(f) The right to request alter-
native dispute resolution
with a neutral third party
before the HOA may initi-
ate foreclosure
(g) To establish the lien, the
HOA must record a no-
tice of delinquent assess-
ment in the county where
the owners unit is located.
The notice must comply
with the requirements of
state law. Thirty days af-
ter the lien is recorded,
it may be enforced in
any manner permitted by
law, including sale by the
court, sale by the trustee
named in the notice of
delinquent assessment, or
sale by a properly substi-
tuted trustee.
E Restrictions on Trans-
fer Fees
HOAs may be prohibited by state
law from imposing any assessment,
penalty or fee in connection with a
transfer of title or any other interest
except for an amount to cover:
1. The HOAs actual costs to
change its records and
2. The reasonable cost of furnish-
ing documents and assessment
statements required by law
12 Nuisance
A nuisance is a use of property that
causes injury to others.
A private nuisance is an
unreasonable interference with the
use and enjoyment of property
of another, usually an adjoining
landowner. A public nuisance is one
that may cause a broader, more gen-
eral harm to the public. A classic ex-
ample of a nuisance is conducting any
ultra-hazardous activity such as the
use of explosives or the handling of
acutely toxic materials.
A Stopping a Nuisance
A nuisance may be stopped, or
abated, by a legal action usually
brought by a private property owner
against an adjacent property owner.
An action to abate a public nuisance
may also be brought by government
unless the nuisance interferes with a
common right of the public. Nuisance
actions may be brought under federal
or state law.
B Environmental Laws vs.
Nuisance Actions
Prior to the enactment of environ-
mental laws, nuisance actions were
often used to control or limit envi-
ronmental hazards. With the enact-
ment of environmental laws speci-
cally regulating activities that consti-
tute a nuisance, questions have arisen
as to whether the environmental laws
preclude nuisance actions objecting
to a use which is covered by those
laws.
Generally, nuisance actions
are considered a supplement to reg-
ulation and litigation under the envi-
ronmental laws. Although, in some
situations, nuisance actions will be
precluded. If Congress intended the
environmental statute to be the ex-
clusive remedy for a particular of-
fensive use or condition, a federal
or state common law nuisance action
may be precluded.
C Determining Unreason-
able Use of Property
In a nuisance action, determining
whether a particular activity con-
stitutes a nuisance usually revolves
around the question of whether the
defendants use of the property is
unreasonable under the circum-
stances. In a private nuisance action,
determining what is an unreason-
able use of a particular property usu-
ally involves, either explicitly or im-
plicitly, consideration of the character
of the surrounding area and whether
the particular use preexisted the pres-
ence of the complaining party.
For example, the mainte-
nance of manure piles on a farm may
be considered reasonable, especially
if the farm and the manure piles ex-
isted long before an adjacent residen-
tial area from which complaints have
arisen.
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13 Resources
1. Owners Education videos Homeowner Associations (HOA) 11 videos 1 hour, 9 minutes Owner Education Videos
View full playlist (7 videos)
2. Board Members Education HOA 27 videos 9 hours These videos provide some basic information you need to
know to be eective. HOA Board Members Education Full playlist (27 videos)
3. The Who, What, When and How of the Architectural Review Process for HOA. 1 video 1 hour HOA Archi-
tectural Review Process)
4. Communications for HOA: 7 videos 26 minutes HOA Communications Training Video View full playlist (7
videos)
5. Maintenance for HOA: 14 videos 1 hour, 39 minutes Videos providing information regarding maintenance
operations for condominium and homeowner associations:HOA Maintenance Training Video View full playlist
(14 videos)
6. Homeowner Association Issues 7 videos 36 minutes HOA Issues Training Video View full playlist (7 videos)
7. Finances for HOA : 31 videos 11 hours:Understanding the nancial operations of homeowner associations:HOA
Finance Training Video View full playlist (31 videos)
8. A Sample Governing Document CC&R for HOA :CC&R
9. Another Sample : CC&R
10. Community Association Law: Halpern Rodriguez, LLP: Detailed services for Community Association Laws
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