In the United States, approximately 29 percent of the population lives in a community association (e.g. planned communities, condominium communities and housing cooperatives). This is according to the National and State Statistical Review for Community Association Data, which is published by the Foundation for Community Association Research.
These communities, often referred to as homeowners’ associations or HOAs, are responsible for a variety of issues that affect homeownership, community rules, budgets and more. However, misconceptions often arise regarding the governance structure of HOAs. This blog will focus on explaining how HOAs operate, including the roles of the board of directors, how they are chosen, and the decision-making procedures. The goal is to address misconceptions related to HOA governance and underscore the importance of transparency, communication and community involvement.
What is an HOA?
An HOA is an organization in a subdivision, planned community or condominium complex that essentially makes and enforces the rules for the properties and residents who live there (whether homeowners or renters). Those who buy real estate within the HOA’s jurisdiction automatically become members – there is no “opt-out” provision — and are required to pay HOA fees or dues, which are then used for the maintenance of the community. Some associations have reputations for being very strict about what resident members can do with their properties. Others are more laissez-faire and give members more latitude.
One of the great benefits of HOAs is that they are made up of community residents and not nameless, faceless offsite landlords who don’t have as much incentive to do a good job with property maintenance.
Typical HOA Governance Structures
The governance of a typical HOA is usually managed by a board that is typically made up of resident unit owners. The board of directors is typically elected by the association’s unit owners to oversee the HOA’s rules and regulations and enforce them as needed. HOAs will present their rules as restrictive covenants in a document called a Declaration of Covenants, Conditions, and Restrictions. It is in these CC&Rs that HOAs set the rules for ownership, maintenance, and operations of all the homes in the community. Most HOAs are structured as corporations, which means they are subject to state rules.
The HOA’s board of directors is entrusted with many issues vital to homeowners, including financial planning, maintaining community amenities, and enforcing the rules. The board frequently deals with confidential information that general homeowners do not have. For this reason, for HOA governance to work effectively, there must be highly transparent communications with HOA members who may not engage frequently with the association and/or board of directors.
Transparency can be accomplished by unit owners regularly sitting in and observing the regularly scheduled board meetings. While unit owners may not participate during most of the board meetings, they are allowed to observe all the proceedings. As such, unit owners have a legal right to know when those meetings are going to be held at least 14 days in advance. Unit owners also have the right to access the recorded minutes from any board meeting where voting occurred.
Another important feature of a well-run and transparent organization is access to any of the association’s financial records that do not contain the personal information of unit owners. Some examples of reports that unit owners should have access to are balance sheets, profit, and loss statements, budget v. actual reports, and expense reports.
If ever an HOA Board or Property Manager is defensive, difficult or generally not forthcoming with any of the above-referenced documentation, it’s typically a big red flag and a likely indicator that the association is not being properly cared for.
HOA Rules
CC&R documents cover many areas, including the type of landscaping or fencing allowed, trash and recycling rules, parking, property maintenance, use of any community amenities and more. The goal of these rules is to maintain property values and ensure that no properties fall into disrepair or become eyesores, or that no residents are engaging in unsafe behavior.
HOA Drawbacks
In most cases, the board members of HOAs are volunteers who are engaging in their positions in their free time. In addition, these individuals may not have any property management or real estate experience. These organizations can benefit from professional guidance when it comes to the day-to-day operations of the HOA.
How Can you make the Best of Living in an HOA
The key to protecting your investment and having an enjoyable experience in an HOA is getting involved. Again, the most important thing you can do to make sure that your HOA is running effectively is to BE INVOLVED. Go to board meetings, build relationships with your neighbors and board members. Contribute to discussions in a positive and productive way (nobody wants to be around a complainer). And try to see things through the lens of the association and/or most residents and owners, rather than just from your own perspective.
Paladin Property Management offers management of day-to-day operations for HOA client associations, including reserve studies, maintenance requests, communication, collection of common charges, payment of vendors, bookkeeping, rule enforcement, resale packages and construction projects, as well as any other routine administrative responsibilities. Also, if you have concerns that your HOA is not doing things the right way, Paladin can also help get you out of a bad situation and into a better one. For more information or to contact us, call 860-395-8863 or visit our website.