What is a Homeowners' Association?

A homeowner association (HOA) can have many forms and functions.  Basically, a homeowner association is comprised of two or more homeowners that belong to a mandatory membership organization for the maintenance of commonly owned real estate and improvements. Size-wise, it can range from a simple duplex up to a huge development with thousands of detached homes, condominiums and townhouses that maintain marinas, golf courses and other extensive recreational facilities.

Structure of a Homeowners Association

• Board of Directors - Establishes policies and procedures.

• Management Company - Executes policies and procedures as established by the Board of Directors.

• Committees - Research and make recommendations to the Board of Directors who then makes the final decision. Typical committees include Budget, Newsletter, Architectural Control, Rules and Grounds.

• Contractors - Professionals hired to perform services for the association. The Management Company oversees the sub-contractors.

• CPA/Auditor - Provide an impartial review of the association's finances. Depending on state or CC&R requirements, their services may be required annually or as requested by the Board.

Give the Board of Directors authority and direction to govern the association. They consist of:

• Articles of Incorporation - The formal documents filed with the state that allow the association to act as a not for profit corporation.

• By-Laws - Outline how the association is governed and deals with the association as a corporation, i.e. elections, assessment collections, terms of office and duties of officers.

• CC&Rs - Covenants, Conditions & Restrictions define how the physical entities that comprise the association are to be used, that is, use restrictions, easements and annexation.

• Rules & Regulations - Combines those provided with the By-Laws with those adopted by the Board of Directors within the guidelines of the CC&Rs.

• Resolutions - Formally deal with specific issues that require detailed procedures to accomplish, like the collection of money and architectural control.

• State Statutes - State legislation that take precedence over all other legal documents.

The Board of Directors Duties and Responsibilities

Depending on the management agreement, some of the following responsibilities can be turned over to a managing company

President

• Chief executive officer and leader of the association

• Presides at all meetings of the board and membership

• Executes legal documents on behalf of the association

• Sets meeting agendas and controls all meetings

• Represents the board before the residents

• May have nominating, if not appointment, responsibility for all committees

Vice President

• Performs all of the duties of the president in his/her absence

• Typically shares some of the burden of the president regarding appearances, liaison, public hearings, etc.

• Usually assigned liaison responsibility to specific staff or contractors, and to specific committees

Secretary

• Prepares and distributes board and membership meeting agendas, minutes, and materials referred to in minutes

• Maintains minutes and book on all meetings

• Maintains book of resolutions

• Maintains all official records, including official correspondence, contracts, membership roster, etc.

• Receives, verifies, and maintains all proxies

• Attests, by signature, to the legitimacy of certain documents

Treasurer

• Works with appropriate staff, contractors, and committees to develop and submit annual operating budget for approval

• Maintains adequate records of all association financial transactions

• Maintains roster of disbursement of funds, as authorized

• Prepares period financial reports

• Arranges, subject to board approval, an independent audit of financial affairs

Perspectives of Board, Homeowner, and Manager

Board of Directors Perspective

• Maintaining the value of the property and a good quality of life for the residential community

• Governing smoothly

• Enforces rules

• Establishing and keeping budget

Homeowners Perspective

• Most care a great deal about residences

• Will want service from manager and decisions from Board that will provide a good quality of life

• Problems may arise when expectations are too high or not realistic; this can occur when interests are too specialized or unique

Managers Perspective

• Working in balance with homeowners, board, and realities of management companies business (possible friction)

• Problem-solver

• Multi-task oriented

Property Management Services

Management companies provide a wide array of services to assist the Board and the association in managing the business affairs and common area. A general overview includes:

• Management Expertise - The management company advises the board on management techniques that will provide both efficiency and economy to the association’s operations.

• Financial Reports - Comprehensive monthly accounting of all financial activity of the association including all revenue, expenditures and delinquent accounts.

• Budget Preparation - Assists the Board of Directors in annual budget preparation through detailed analysis of previous fiscal years' activities and anticipated cost increases and/or special projects.

• Customer Service - The manager accepts owner requests and processes them according to their nature such as bookkeeping, general information, maintenance and rules complaint.

• Emergency Service - Provides 24 hour after-hours response for maintenance emergencies that threaten life or property.

Correspondence to the Board is received through the Management Company and responded to according to urgency: emergencies are dealt with as soon as possible and non-emergencies are dealt with either by the property manager or at regular scheduled Board Meetings.

Items of Special Interest

• Budget - The budget consists of anticipated operating and reserve expenses for the year as well as future years’ reserve expenses. Operating expenses include utilities, maintenance of the common areas, administrative (management, accounting). The Reserve Fund is a type of savings account that covers major expenditures and replacements like roofs, painting, paving, pool resurfacing and equipment.

• Common Area Interest - All homeowners own an undivided portion of the common area either through a deed or the corporation.

• Rules Enforcement - Living in a community association imposes some special restrictions intended to maintain harmony and enhance property values. Fines Imposed for violations of the CC&R's or Rules & Regulations are intended as a means to gain compliance as opposed to "punishment".

• Collection Procedure - The Board of Directors is given the responsibility to collect homeowner assessments which are necessary to maintain, preserve and enhance the common area and the property values. A collection procedure details the time frame for payments and the penalties for non-payment from simple fines to property foreclosure.

Accounting Basics

• Cash Method of Account-income and expenses are only recorded when cash changes hands. Financial reports only reflect cash transactions. This is a relatively simple system for simple situations. Because all obligations are not recorded until cash changes hands, this method does not provide an accurate portrayal of the financial condition of the association at any given time.

• Accrual Method of Accounting-keeps track of all financial activities, including revenue as it is earned (as opposed to when it is received) and expenses as the obligation is incurred (as opposed to when it is paid). This makes possible a more accurate determination of the financial condition of the association at any point in time. Also, this is a better method for multi-year tracking of capital reserves credits and deficiencies. The primary disadvantage is the greater complexity and technical knowledge that is needed to maintain the records, understand the reports, etc.

• Capital Reserves-the Board has the obligation to repair and replace major capital facilities, buildings, and equipment of the association. The ideal method of providing for these future expenses is the establishment of a capital reserves system and budget to assure that such funds are available when needed. With knowledge that the future holds predictable major expenditures for repair and replacement of facilities and equipment, the association could begin the gradual accumulation of funds through a reserve account to meet all or a portion of that expense when it comes due.