Owning Property in an Association
Many people do not understand what they're becoming part of when purchasing property that is governed by an Association.
The disclosure statement signed by homebuyers when they contract to purchase a home within an Association informs them that the Association exists and gives them some basic information regarding such. However, those disclosures do not go into detail regarding the responsibilities and obligations that go along with owning property in an Association.
There are some basic things both homebuyers and homeowners should know when purchasing and living in a community or condominium with an association.
10 Things Every Homebuyer Should Know
- Do your HOA homework before you make an offer. Don’t buy the perfect dream home in the neighborhood from hell.
- Know who is in control. Almost always the association is a non-profit corporation and is governed by a board of directors. This is either the declarant (developer/builder) or elected residents. Only 20% of associations contract with a professional management company for day to day operations.
- Know if your association is pre or post transition. The process of transferring control from the developer to the association residents is called ‘transition’. The developer has wide latitude to amend the documents and change development standards when in control.
- Ask for and read the governing documents before making an offer.
- Ask for and review the association financials. – Review the operating budget and make sure the reserve fund is adequate for future capital projects.
- Know that association fees (assessments) are required and that the board usually has the authority to impose special assessments.
- Know that you have to live by the rules or gain the support of the community to amend the governing documents and rules.
- Know that the board has the power to assess fines, restrict access to services, place liens, and foreclose.
- Know that HOA laws vary widely by state and are complicated. Right or wrong, lawsuits are expensive, time consuming and stressful. Better to educate yourself rather than becoming involved in a lawsuit.
- Don’t be a whiner if you don’t do your homework and purchase in a community with HOA issues. Your alternatives include accepting the issues, making things better by volunteering to serve, filing a lawsuit, or moving.
Information provided by https://www.hoa-usa.com/
10 Things Every HOA Resident Should Know
- Know the Rules - Understand and comply with the restrictive covenants, by-laws, and other rules and regulations.
- Know that you must pay your assessments on time.
- Do not ignore communications from your homeowner association, especially notices that may regard outstanding assessments, issues of compliance or fines. The board has the responsibility to govern fairly and consistently in the interest of all members, which includes placing liens or foreclosing for nonpayment of assessments and fines. Don’t let a minor fine escalate to the point that the association board must turn the matter over to an attorney. A fifty dollar fine can easily lead to five hundred dollars to five thousand dollars.
- You must maintain your property according to the governing documents and rules.
- Know that an Architectural Review Application and approval is generally required before making improvements. This typically includes sheds, fences, above ground pools, playground equipment and much more. This may also include paint colors, door styles, landscaping, and mailboxes.
- Know that your association has certain responsibilities to the membership including compliance with federal and state laws, fiduciary responsibility by board members, elections, meeting notices, meetings, due process and much more as defined in the covenants and bylaws.
- Stay informed and participate in the business of your homeowner association by reading the meeting minutes, attending the annual meeting, understanding the budget, and volunteering to serve on a committee or the board.
- Maintain a current address with your homeowner association. This is critical if you are a member of a homeowner association but do not live in the community. Examples include rental property, second homes, homes used by children in college or retired parents, or investment property intended for future construction.
- Know that if your home is rental property or occupied by others, ensure that tenants/occupants understand that they must also comply with certain restrictive covenants such as parking, pets, architectural changes, and other requirements. This may also include association rules regarding use of playgrounds, pools, tennis courts, parking and other common areas.
- Know who is in charge. Maintain contact information for an association representative. This may be an on-site employee, a management company, a board member, or the builder/developer.
Information provided by https://www.hoa-usa.com/
What is the Purpose of a Community Association?
- Maintain common elements of the community
- Ensure compliance with governing documents
- Conduct the business of the association
These goals are achieved by administering, maintaining and enhancing a real estate development through the establishment of a system of property rights, binding covenants and restrictions, and rules and regulations.
A community association combines the characteristics and activities of a local government, a business, and a community.
Roles of Board Member Officers
Congratulations, you’ve just been elected to serve as an officer within your HOA Board! Volunteering to serve your time in the community where you live can be an exciting and overwhelming experience. When accepting an officer position, it’s important to know that you are taking on a lot of responsibility, which can be extremely fulfilling to serve your community. Use CAMS as your guide to break down the various roles and duties of each officer within the Board.
The duties of each officer depends on the person’s title. What brings them all together is their obligation to make decisions and actions in good faith for the best interest of the community. Here is an overview of the different responsibilities for each HOA officer. For specific information about your HOA’s officer requirements and powers, see your Associations by-laws.
The association President serves as the CEO of the community, taking on very similar responsibilities and powers. Most of the time, HOA Presidents are expected to be preside at all Board meetings and execute orders, contracts, and documents in the name of the association. The President is also in charge of the association’s day-to-day administration and makes sure all duties are carried out. The President is the spokesman for the Board in most matters. They can also be removed at any time with or without cause from the officers by majority vote.
Get additional information from CAI about Board President.
If the HOA President must be absent for any reason, the Vice President is tasked with taking on all powers assigned to the President. The Vice President only possesses these powers in the absence of the President.
The Secretary’s responsibilities include keeping and maintaining all Board meeting records, membership records, and official HOA records. It’s important to note that the Secretary is more than a clerk for the association; they also file corporate annual reports and act as custodian of the records. Legal documents executed on behalf of the HOA often need the President’s signature and to be attested by the Secretary.
The Treasurer’s duties include acting as the HOA’s custodian of securities, funds, and financial records. All reports and financial records are the responsibility of the Treasurer. They also coordinate how the proposed annual budget will be developed and preparation of the annual financial report on the HOA’s financial status. They cannot bind the HOA or directors in deals with third parties unless given authority. Preparation of monthly financial reports and many financial transactions, such as collecting assessments and paying the association's expenses, are often assigned to a professional management company; however, the Treasurer and Board retain the responsibility.
Roles of Board of Directors
Board members are elected by the membership within an association and this typically occurs at the annual membership meeting. Board member term lengths are determined by the association's bylaws and usually run anywhere from one to three years and may be re-elected if the bylaws allow.
The main goals of the Board of Directors are to:
- Maintain common elements of the community
- Ensure compliance with governing documents
- Conduct the business of the association
Maintenance of Common Elements of the Community
While property owners are responsible for the maintenance of their individual property, the Association's Board of Directors is responsible for the maintenance of common areas such as private streets, entrance signage and amenities such as a clubhouse, pool, playground or fitness center. Common areas are maintained by developing and enforcing rules for use of the amenities, repairing and re-paving streets, entering into a contract with a landscaping company to mow grass and addressing other issues as they arise.
Ensure Compliance with Governing Documents
Ensuring compliance with governing documents is another component of successful association management. Board members have an obligation to be familiar with not only their association's governing documents but also with local, state and federal statutes as they pertain to association management and community governance. The requirements held within an association's governing documents should always be clearly communicated to the association's members.
Some tips for ensuring that communication is handled appropriately are:
- Inform new residents of the existence of governing documents - personally meet with them to verify they have received copies of the documents and answer any questions they may have
- Encourage owner participation in a compliance committee so the Board doesn't have to shoulder the entire responsibility
- Use due process when rules are violated by implementing a Compliance Policy and Process:
- Courtesy Notice
- 1st Notice
- 2nd Notice
For further information on ensuring compliance with your Association's governing documents, please see the articles below:
Conduct the Financial Business of the Association
Yet another function of the Board is managing the Association's finances. Financial Management includes collecting assessments, paying the Association's expenses and a myriad of other possible tasks.
Those who are tasked with managing the Association's finances may be responsible for some or all of the following:
- Financial Planning
- Disclosing financial information to Association members
- Establishing financial policies
- Record Keeping
For more information on managing your Board's finances as well as conducting other Association business, consider the following resources:
10 Things Every HOA Board Should Know
- Your primary role should be to protect and enhance the value of your community.
- As directors and officers of a non-profit corporation, you have a legal fiduciary duty. Your actions and liability as a board member are generally protected by governing documents or state statutes governing non-profit corporations based on duty of care, duty of loyalty, and acting in good faith. The board should also be protected with directors and officer’s insurance.
- The Board should adopt and adhere to a written Code of Conduct.
- The board must comply with federal, state, and local laws and ensure that the association’s governing documents are followed in a fair and consistent manner.
- Board members have no individual authority separate of the board and should not make any commitments on behalf of the board. Sensitive communications with other board members should be done by phone since email may be introduced by discovery in the event of a lawsuit.
- Know the basics of parliamentary procedure; participate with etiquette and support the chair.
- The board president does vote on motions unless there is a conflict of interest. In at least one state, Florida, the president must vote and is considered to have voted in the affirmative unless he or she votes against the motion or specifically abstains.
- Communication with members is key. Do not govern in secrecy except when executive sessions are required. Treat residents with the same respect that you would expect. Provide residents with an opportunity to address the board. This is usually done in a resident’s forum at the beginning of some or all board meetings.
- The board should not become ‘condo commandos’ by overly aggressive enforcement or fining practices. There are first time infractions that usually result from a resident’s lack of knowledge and misunderstanding. There are minor issues, major issues and safety issues. There are repeat offenders. There are the few that have obvious issues of noncompliance, challenge the authority of the board, and stir up disharmony in the community. The challenge for the board is finding the right governing balance that includes objectivity, fairness, consistency, diplomacy, tolerance and measured response.
- Always work to recruit new volunteers that have the time and skills to serve on the board and on committees. The board should also have an orientation or training plan in place for new members.
Information provided by https://www.hoa-usa.com/.
Duties of the Management Company
Much like hiring a professional contractor for household maintenance items, a professional management company is an integral part of ensuring that your Association is in good working order. There are several key components of any Association that can be made better by hiring the right management company.
The management company assists in:
- Financial planning and accounting
- Common area maintenance
- Project management and governing document compliance
...just to name a few, and they have connections with area specialists to make sure your Association receives the top-notch service it deserves.
Here are some of the service obligations a professional management company will have to your Association.
Accounting and Finance
- Lead preparation of annual budget
- Send annual letter to membership with budget
- Prepare, review, and analyze monthly financial reports
- Ensure maintenance and availability of accurate accounting records
- Collect assessments and fees as appropriate
- Coordinate the collections process for past due assessments and fees, including:
- Sending reminders
- Sending notices
- Implementing lien process as necessary
- Coordinate approval process and payment of all expenses
- Coordinating board involvement in the approval process as appropriate
- Track purchases
- Handle all correspondence regarding financial transactions
- Provide records to assist in the preparation of annual state and federal tax returns
- Coordinate filing of all legally required financial statements and returns
- Maintain accurate homeowner records and updating homeowner information as necessary
Management and Administrative
- Confer freely and fully with the Board of Directors in connection with the performance of their duties
- Assist in the efficiency and effectiveness of Board meetings with agenda preparation and attendance of manager
- Assist the Board in complying with the North Carolina Non-Profit Corporation Act (55A), Condominium Act (47C) or the Planned Community Act (47F)
- Assist the Officers of the Association in maintaining records of the Association
- Attend four Board meetings per year for two hours (begin prior to 6:00 p.m.) Review all invoices and properly code for inclusion into correct spending category
- Attend one annual membership meeting and prepare materials, supplies, necessary proxies and other information needed for a successful meeting.
- Produce periodic variance reports to inform the Board of material variances to budget
- Recommend and acquire insurance policies as required by governing documents
- Negotiate all maintenance and service contracts necessary to support the community
- Assist with preparation and distribution of letters/bulletins to conduct association business
- Maintain relationships to facilitate the hiring of attorneys, accountants and other experts required
- Assist Board/Committees in the interpreting and enforcement of the governing documents
- Conduct property inspections every two weeks
- Arrange for maintenance and repair of the limited common elements, common elements and other maintenance and repairs as required by the associations governing documents
- Issue work orders
- Track work order performance and completion
- Review vendor performance and ensure contract compliance
- Provide quality feedback to vendors
- Ensure association receives value for expenditures
- Assist in the enforcement of the Rules and Regulations of the Association
- Send compliance correspondence and track historical information
- Assure compliance with Condominium Act or Planned Community Act
- Maintain staff for live answers to homeowner phone calls
- Answer homeowner questions on:
- Billing and account information
- Work order status
- General questions about their community association
- Association communications such as bulletins, mailings, and newsletters
- Follow-up on collections issues and concerns
- Process individual mailing and group mailing pieces
- Assess and file insurance claims
- Act as association witness in legal proceedings
- Assist CPA in annual audits and taxes
Interview, hire and oversee personnel, if required or requested, on behalf of the association to work on-site.
Breakdown of Expenses for Management Services
- As background the key structural costs of CAMS are as follows:
- Financial Services
- Community Managers
- Client Services
- Support Staff (i.e. Information Technology, Personnel Administrators)
Role of Community Manager
As we discussed in the Duties of Management Company section, the purpose of the management company is to ensure that your Association is in good working order and functioning as smoothly as possible.
Your individual community manager is tasked with making sure this objective is carried out on a daily basis. Your community manager is your point of contact within the management company for anything and everything related to your Association per the specifics of your contract.
The community manager is responsible for your Association's general administrative tasks, making sure common area maintenance is kept up with and that you have access to the best contractors for the best price possible and managing the financial aspects of and insurance policies for your Association.
- Update association database with key information
- Attend board meetings
- Review policies and make recommendations for policies regarding:
- Common Area rules
- Governing Document compliance
- Amenity operations
- Facilitate completion of action items
Property Supervision: Maintenance of Common Areas
- Intimate knowledge of common areas and working closely with service providers to ensure all common areas are:
- Well maintained
- Properly insured
- Routinely visit the association property for inspections
- Ensure service contracts are appropriate, competitive and performed according to specifications
- Ensure services are performed within budget
- Inform the Board of forecasted budget overruns and provide options to deal with variances
- Implement effective preventative maintenance schedule
- Understand the association’s financial position
- Provide monthly financial reports to the Board
- Monitor budget and forecast income and expenses
- Explain positive and negative variances of actual vs. budget expenses and provide suggestions on how to deal with cost overruns
- Approve invoices for payment
- Follow the association’s collection policy
- Ensure year-end financial reports are obtained from tax professionals as approved by Board
- Ensure the board seeks and obtains insight and feedback from insurance professionals
- Assist in obtaining viable insurance bids, preparing the applications and presenting options to the board
- Compliance with governing document insurance requirements
- Document insurable assets of the association
Roles of Committees in Associations
One key to the success of any association is the formation of committees. Through committees, work can be specialized so that important tasks are able to be accomplished more efficiently versus depending on the Board of Directors to handle all issues that may arise.
Committees are comprised of non-board association members. Committee participation allows for new ideas and a broader sampling of community opinions; the greater number of association members who actively participate in committees decreases the workload for each individual and thus the likelihood that association members will get burnt out with community decision making.
Typically, each committee will have a Board Member liaison and each committee will have a chairperson who reports the committee’s activity to the Board. Written reports regarding committee activity are often circulated to Board Members alongside the agenda and are more expeditious than verbal reports given during meetings.
Though the authority over the association remains with the board, committees are very helpful in that they create community activities as well as provide feedback and recommendations to the Board.
Two types of committees that may be formed in an association.
Responsible for performing ongoing tasks such as handling financial matters, social activities and maintaining facilities.
Are formed for specific purposes and periods of time. Some of these purposes may include nominating Board Members or providing in-depth study of a community issue.
It is important to be sure that your association’s insurance covers volunteers and to recognize those volunteers – everyone wants to feel appreciated!