A homeowners association (HOA) is a formal legal entity created by developers of a residential community for the purpose of addressing the community’s common needs, primarily the need for governance, enforcement of the rules that govern the activities of the residents, and services, such as maintenance, landscaping and snow removal.
Importantly, the vast majority of HOAs collect fees that they use to pay for upkeep of the property and enforcement of its rules. An HOA is governed by a board of directors, which functions much like the board of directors of a corporation.
Homeowners associations are created through legal documents that contain the rules for their operations in by-laws, covenants, conditions and restrictions. A common restriction is a use restriction, which limits the type of business activities that can be conducted in the units intended for residential use only. Other important rules require homeowners to maintain their properties and keep up the appearance of the community.
How Is a Homeowners Association Created?
Developers of residential communities in which owners of individual units have common interests, such as planned-unit developments, usually create a homeowners association at the time the development is built.
The developer hires a lawyer to draft the necessary documents, which are then recorded so they apply to all the properties within the development when they are sold. The documents include covenants that “run with the land” after recordation, i.e., they apply to any subsequent owners.
Subsequent owners of the residential units in the development, whether the units are single-family residences or condominium units, are bound by the HOA’s covenants, conditions and restrictions.
A variety of residential units can be found in communities that are governed by HOAs, such as , any of the following:
- Condominiums;
- Single family residences;
- Townhouse developments;
- Cooperative apartments.
A single HOA may include a variety of kinds of units and may even incorporate more than one community association.
What Are the Responsibilities of the Board Members?
Typically, owners are allowed to vote in elections to choose board members for the association. The members of the board are responsible for the following:
- Budgeting: Generally on an annual basis, the board of directors must determine how much money the HOA is going to need in the coming year to fund the necessary services for the community. They must then determine how much each owner must pay towards funding this operating budget;
- Reserves: An HOA board must accumulate the money needed to repair, renovate and replace community assets and amenities. For example, roads and parking lots must be paved on a regular schedule. Sidewalks must be repaired and replaced. Roofs on structures must be replaced as well. In some cases, especially in condominium communities, the HOA may be responsible for repairing, renovating and replacing the exteriors of residential structures.
- These jobs can be major projects that are quite costly, and the board of directors must accumulate the money in special reserve accounts so that the HOA has the money it needs when the time for action arrives;
- Governance: The board of directors of an HOA is responsible for conducting elections of board members in compliance with the governing documents of the community as well as state and local laws. As mentioned below, they have to collect fees from members, perform routine accounting of income and expenses, assets and reserves.
- The board must hold regular meetings, often on a monthly or bi-monthly schedule, and it must meet openly, after giving adequate notice of the time and place of its meetings to the members. It must produce minutes of its meetings and make these minutes, as well as the association’s documents and records, accessible to all members upon request.
- The board must manage various accounts, operating accounts and reserve accounts. The board must identify the types of insurance coverage that the community needs and make sure it is purchased and paid for;
- Fees: In order to fund the budget and reserves, the board must collect fees from the unit owners. If owners fail to pay their fees, the board must engage in collection efforts, even hiring an attorney to handle collections if necessary;
- Maintenance: One of the main responsibilities of an HOA is to maintain the common areas of the development, which are the areas to which all members of the community have access;
- General Management: The board, on behalf of the HOA, may want to hire a professional property manager if the needs of the community require it. If the board needs to hire a number of contractors to provide services to the community, e.g., a pool operator, landscapers, maintenance workers for a high rise structure and the like, it may want professional management to handle these projects on a daily basis.
- Hiring contractors can involve soliciting bids, negotiating contract terms, presenting contracts to the board for a hiring decision, supervising contract performance, and issuing payment for services rendered, or contesting payment, if performance has not been as promised.
- If the management tasks are few and taken care of easily, a board might be self-managed. In many communities, however, the tasks are numerous and time-consuming. Managing a property may be a full-time job, so the board may delegate it to a professional management company;
- Replacement and Renovation: The board must figure out how often structures and amenities, e.g., swimming pools, playgrounds, clubhouses and the like, must be repaired, renovated and replaced as necessary. They must then ensure that the HOA has the funds in reserve to finance these measures.
- It may be necessary to hire a type of accountant known as a “reserve specialist” to advise the board on the amounts that are going to needed going into the future and how to amass the funds required to do what is necessary;
- Enforcement: An HOA board must enforce the association’s restrictions. For example, rules regarding construction, maintenance or appearance of the residential units and the uses made of them is the responsibility of the board.
In conducting the affairs of the community, the members of the board of directors have a fiduciary duty to the community and its members. A fiduciary duty is an obligation to apply their best business judgment to the affairs of the association, to act in good faith and avoid conflicts of interest, and to promote the best interests of the association.
The fiduciary duty owed by board members of a HOA board is similar to that of the board of directors of a corporation, except, of course, an HOA is a non-profit organization. Its goal is not to make a profit, but rather to provide sound management of the association’s assets and maintain the value of the community as a whole and the properties within the association.
Importantly, a member of an HOA board should avoid conflicts of interest. So, for example, a board cannot hire a contractor whose owner is a board member or relative or close associate of a board member.
What If I Have a Conflict with My HOA?
Generally, the governing documents of an HOA provide procedures for resolving disputes that members may have with the board. So, a good place to start is to read the governing documents and see what kind of procedure is available for conflict resolution. Usually, the place to start is to speak with the property manager if there is one or to attend a board meeting to make one’s concerns known. A member may want to ask for a hearing with the board.
State and local laws may also prescribe steps a person must take in order to resolve a conflict with an HOA board. Some localities have agencies or administrative bodies that may provide procedures or hearing processes for both HOAs and their members. A local real estate lawyer should be knowledgeable about local options.
It is important, however, to recognize that the covenants, conditions and restrictions in the governing documents of a person’s HOA are binding on owners, and administrative agencies and courts are likely to enforce them unless there is some kind of exceptional circumstance at issue.
Do I Need a Lawyer for an Issue with My Homeowners Association?
Many people who belong to HOAs do not fully understand the authority that HOAs have with respect to owners in an HOA-governed community. In the event that you have a conflict with the HOA about the payment of fees to the HOA, you want to consult a collections attorney, who is knowledgeable about debt collection law and what is and is not allowed.
If you have a conflict about other covenants, conditions and restrictions, e.g. about your obligation to maintain your property, you want to consult a real estate lawyer to advise you of your rights and the appropriate actions to take in dealing with your HOA.
