Starting a new HOA? Keep it Legal!
In love with a spanking new house, love the neighbors and area, and want to start an HOA to preserve your property and share some amenities? Community associations are usually formed by developers, but it is possible for owners to create their own. When owners start their own associations, it is essential to learn the law before becoming a community. There are several legal procedures involved in establishing an HOA and many pre-existing laws that vary by state and municipal codes.
State and local laws set legal guidelines for establishing homeowners' associations. Discovering and complying with these laws is a prerequisite to forming a community association, and any individual or group considering joining forces as an HOA must follow these procedures.
Form a legal entity that is either a non- profit corporation or an LLC, a limited liability corporation. Study the options and select the form that is most suitable for your membership and needs.
Create covenants, conditions and restrictions (CC&Rs) that homeowners will promise to uphold and abide by.
Establish a procedure to modify rules and regulations at a future date.
Write CC&Rs in simple, easy to read, clear language.
Create other legal documents, including the articles of incorporation, and bylaws which will state the legal name of the association, describe meetings, voting guidelines, elections, collection disputes, etc.
Elect volunteer board officers that include at least four members, a president, vice president, treasurer and secretary. Persons should be qualified for the position they've committed to.
Since the first job in creating an HOA is to establish it as a legal entity, the first call should be to an attorney specializing in homeowner associations. The HOA cannot enforce rules that are illegall, nor can it stay in business when their documents are out of order or improperly processed. And, since federal, state, and local mandates have priority over HOA rules, an attorney's guidance is necessary to review all written documents if the HOA is to have proper legal authority to exist and govern.
Falling in love with a house, making new friends in a beautiful neighborhood, and forming a community organization to share the benefits and the burdens of ownership are lofty goals. Maximize your potential for success by following the procedures and finding a good lawyer to help you get and keep your new legal status.
Can HOA meetings be videotaped?
With so many of us carrying around video cameras in the palm of our hands, it's an interesting question to ask. Is it permissible to videotape community association meetings? Yes, with a few conditions.
In most states, unit owners have the right to videotape community association meetings as long as the process does not create distracting sounds or light emissions and community officers have a right to set the stage, so to speak.
An HOA Board of Directors should outline policies and procedures that will protect the association and its members from surprise posts on websites like You Tube and Facebook. A key to successful videotaping in the HOA rests in a good set of conditions crafted by the board of directors and association's legal counsel. It takes into consideration equipment, timing and notice to meeting attendees.
Here are some points to consider when developing an HOA video strategy.
Equipment: Identify acceptable technology and accessories that are compatible to the meeting space. Make sure that anyone bringing equipment to a meeting knows in advance what is and isn't acceptable.
Timing: Make advance notice a requirement. The board should decide how much notice is reasonable, and allow time to send an approval or denial of the request. A board should also set time limits when the equipment must be set up and when it is to be removed.
Notice: Publicize the show! The association has an obligation to tell meeting attendees that there will be cameras and video equipment present. Those who don't want to be filmed can excuse themselves from the meeting.
Yes! Meetings can be videotaped, with proper notice and attention to detail. Technology is here to stay, and so are board meeting movies. Staying in control of when and how the videotaping occurs will keep the HOA movie suitable for general audiences and worth the price of admission.
An Awesome Job
Make Sure Your HOA President is More than an Empty Suit.
HOA Board President. Has a nice ring to it, doesn't it? Make no mistake. Leading a homeowner's association is beyond difficult. As the president goes, so goes the community. Make sure your HOA president has the character and capacity to take your community where it needs to go. An empty suit just won't do.
The buck stops at the board president's desk. He or she is responsible for maintaining community assets and keeping homeowners happy. Presidential authority is outlined in the community's covenants and sustained by assorted statutes like the Condominium Act, the Uniform Condominium Act, or the Common Interest Ownership Act, depending upon the organization.
Presidents must know the association's governing documents backwards, forwards, and inside out and be able to articulate and interpret them clearly and concisely. Presidents must work closely with other board members, recruit volunteers and physically represent the community at all times.
Check in to this list of characteristics that give presidents the capacity to rule.
"Leadership and learning are indispensable to each other." - President John F. Kennedy
Intelligence: The president must be able to read and understand the written word. He or she must have the intellectual capacity to interpret covenants, contracts, proposals, insurance policies, budgets, and other critical official papers. Real estate and management experience helps.
Patience: Lots of it. The president must work with others and able to respect and manage different work ethics and timeframes. He or she must set the tone and pace, but understand that progress is sometimes slow. To make sense of the complex web of vendors, experts, and personalities, HOA presidents must be mature, with excellent interpersonal skills and the discipline to wait.
Tenacity: The President, more than any other board member, must never give up. He or she needs endless energy, enthusiasm, and effort to get the job done. As leader of the board, a president should inspire others with their consistency and grit. The president is the chief cheerleader and his or her stamina will help tackle the association's multiple agendas.
Time: As leader of the board and in fact, the community, the president's job demands a huge commitment of time. The job is best suited for those without full time employment elsewhere, since so many duties demand time during standard business hours. All officers are volunteers, but the president is the Chief Giver-Upper-Of-Personal-Time.
Attitude: Steve Jobs equated attitude to altitude. For the HOA board president, a superior attitude is the most important ingredient to success. While intelligence, patience, tenacity and time are great, a good attitude trumps them all.
Board presidents must have open, even, encouraging, happy, generous, and forgiving attitudes to accomplish the myriad of tasks that make up the position. Board presidents cannot afford to harbor secret prejudices or agendas that could harm individual homeowners or the association in general. Presidents must be respectful and sincere, and be able to show empathy and sympathy as necessary to master the big and little parts of the job.
So much for the empty suit. An effective HOA president is sharp as a tack, leads with a smile, and extends a hearty handshake. Intelligence, patience, tenacity, time, and most importantly, attitude make presidents more than just an empty suit. These characteristics are everything a prosperous community association should expect from their leader.
They Got Paid. What Else Do They Want?
Turns out the landscapers were hired to clear the vacant lots for 8 hours and they worked 12 hours straight to finish up. Evidently, the association paid for a straight 12 hours of work. Done!
Not so fast. What's wrong with this picture? It's the law, partner.
Homeowner associations must follow local, state, and federal laws that regulate working conditions and pay. Anyone contracted to work on community property is protected by these important statutes. HOAs must know the laws and abide by them to avoid potential lawsuits. Read and review the most relevant laws here, and contact your association attorney to answer specific questions related to your community.
The Occupational Safety and Health Act (OSHA) Employers must provide work and a workplace that is free of serious hazards. Safety and health conditions in most private industries are regulated by OSHA. OSHA performs workplace inspections and investigations.
The Employee Retirement Income Security Act (ERISA) governs employers offering pens or welfare benefit plans. Title I of ERISA imposes fiduciary, disclosure and reporting requirements on fiduciaries of pension and welfare benefit plans and those who deal with these plans. The Comprehensive Omnibus Budget Reconciliation Act of 1985 (COBRA) requires the Pension and Welfare Benefits Administration (PWBA) to administer reports for continuation of health-care provisions.
The Family Medical Leave Act requires employers with 50 or more employees to give up to 12 weeks of unpaid leave to eligible employees for the birth or adoption of a child or for the serious illness of the employee, spouse, child, or parent.
From the Equal Employment Opportunity Commission
Title VII of the Civil Rights Act of 1964 says employers cannot discriminate on the basis of race, color, religion, sex, or national origin.
The Equal Pay Act of 1963 says equal pay for equal work. No wage discrimination by gender.
The Age Discrimination in Employment Act of 1967 says no discriminating against people over 40.
Title I and Title V of the Americans with Disabilities Act of 1990 says no discriminating against qualified individuals with disabilities in the private sector, state, and local government jobs.
Smart associations will keep these laws handy and reference them when necessary. Hiring, firing, and maintaining employees need not create additional liability for the organization.
Community associations hire most employees "at will," able to terminate them at the board of directors' will. Things happen, however, (like health crises) that make the termination process tricky. Rather than exposing the organization to lawsuits, it's imperative that all employee issues are initiated legally, in good faith, and with sufficient documentation. Insurance rates can skyrocket when associations are hit with employment lawsuits and have no evidence that they knew or followed the law.
It isn't about giving employees what they want. It's about giving them what they are legally entitled to. Make sure your association knows, in every case, what that is.
Tempted to fix that fence between your property and the house next door? If you live in Georgia or most states in the U.S., better make sure you are within your rights.
Boundary fences are built on the property line between properties. Maintenance is the responsibility of both owners. Without prior mutual consent, one owner cannot arbitrarily work on the fence, tear it down, or replace it. And, any agreement that exists between current owners is null and void for new buyers.
Fence disputes are common, but easy to avoid with planning and forethought. Resolution involves communication and cooperation between the parties. Property owners often disagree about when and how boundary fences should be repaired or replaced, but unless they agree, neither party can act.
When buying a property with a boundary fence separating parcels, it's an excellent idea to meet the other owner and plan a strategy to handle the fence's upkeep BEFORE the fence deteriorates. Write out the plan, sign it, and stick to it! This will avoid litigation down the road. Good fence management makes good neighbors!
The owners of this fence need to talk today! It's an accident waiting to happen.
The Developer Did What?
No Fun Poolside.
I just bought into my HOA community six months ago, signed the loan docs and moved right in. Little did I know there was drama down the road, on the way to that sparkling pool and classy clubhouse that first sold me on this subdivision.
To my surprise, there was a sign posted on the clubhouse door that read, "This pool and clubhouse are now owned by AZY Investments. For only $1500.00 per year, you can begin enjoying the pool and clubhouse facilities. Contact us."
What just happened?
The developer built the residential units on one lot and the clubhouse, pool and common areas on another lot. The pool/clubhouse lot had a separate loan that was not paid, went into default, and was foreclosed on.
AZY investments bought the property and they are now selling pool memberships to anybody with the cash to join. People that don't live around you, have no vested interest in the community, and they get to swim in "your"' pool, fair? No. Legal? Yes.
Could this have been avoided?
Yes! If you or your agent had carefully reviewed the community's legal documents, the recorded map, plat, and plan, the multiple lots and loans would have been exposed. Any loan is subject to foreclosure if unpaid. A detailed inspection would have alerted you to the additional risk.
Make sure that your Board of Directors monitors the 'rented pool' and more importantly, manages the HOA finances properly. Otherwise, you could lose more than a leisurely dip in the pool. Ask questions and demand answers.
Scoop It Up and Throw It Away! Deal With Your Pet Waste!
Besides being a nuisance, uncollected dog waste is a serious problem for all homeowner associations. Next time you're tempted to leave your dog's droppings on the lawn, please remember these facts:
1. The Environmental Protection Agency is becoming aggressive about enforcing the Clean Water Act. It is quite possible, that in the future, homeowner associations could be fined if dog waste goes uncollected.
2. Uncollected dog waste may lead to a special assessment. If fined by the EPA, the association could face a potential special assessment that would be levied against all members-not just dog owners.
3. The appearance and quality of the common areas are known to affect home sales-not just whether and for how much they sell, but how quickly.
4. The more residents complain about dog waste, the more time Exclusive Association Management must spend on enforcement rather than serving the homeowners' association. No one likes letters and fines.
5. Uncollected dog waste spreads disease and attracts rodents who feed on pet waste.
Remember to use a leash during walks, and think twice before letting Fido or Frida use the common areas. When pets soil common areas, take special care to clean up the mess. It's the right thing to do!
Get a Move on Now!
The Georgia Condominium Act and the Georgia Property Owners Association Act describe the lien laws that govern associations when assessments are behind.
Most HOA's and COA's in Georgia can lien your property if you become delinquent in monthly dues or special assessments. The lien will automatically attach to your property because the previously recorded Declaration of Covenants, Conditions and Restrictions (CC&R's) creates notice of the existence of the lien and no further recording for any claim of lien is required.
The association can file a foreclosure action when the past due amount is at least $2000.00. The law requires that the association notify owners at least 30 calendar days before the start of the action, and other strict notice requirements apply. For example, the association must use certified mail or statutory overnight delivery with return receipt requested to the address of the property and any other address where the owner receives mail.
In addition to the mailing requirement, a statute of limitations exists on the filing. The lien must be filed within four years of the overdue assessment, or it will lapse and become ineffective. If recorded properly, however, the lien will have priority of all items except:
1) Property taxes 2) a first mortgage or deed of trust recorded before the association's declaration, or 3) a secondary purchase money mortgage.
Liens are a last resort, and usually avoidable. Contact your HOA today if you are experiencing financial difficulties.
Georgia and Reserve Studies: Just Plain Good Business Practice!
Georgia has not adopted any specific statutes requiring homeowner associations to order and maintain reserve studies. However, responsible homeowners and boards of directors know the value of reserve studies and order them anyway.
Prudent homeowner associations and boards know that reserve studies are just plain good business. Creating a capital replacement budget and knowing that the association is generating enough from fees and assessments to make major repairs in the future should be a requirement for all associations that collect monthly assessments and represent multiple households.
Reserve study inspections and reports should be performed every few years with the reports updated between inspections. Homeowners are wise to familiarize themselves with basic reserve study terminology so that the reports are easier to understand and discuss.
Reserve Study Terminology at a Glance
Component: An element that is part of the association's common area.
Contribution- An amount budgeted for a current or future year. For example a 2014 contribution would be the total annual contribution for the current budget year calculated by dividing every component's unfunded balance by its' remaining life.
Cost Per Unit - Estimated amount to replace a component per unit of measurement.
Current Cost - The estimated amount to replace a reserve component now.
Remaining Life - The number of years a component will last as of the current budget year.
Reserves - Money set aside to make repairs of an association's components.
Reserve Study - A report that includes a physical analysis and financial analysis of an association's common elements or areas, also known as components.
Unfunded Balance - The amount of reserve funding remaining that is required to fully fund a component, calculated by subtracting the component's current replacement cost from its year end reserve balance.
Top Ten+ Questions to ask BEFORE You Buy In
A Condominium or HOA Community
Considering purchasing a property governed by covenants? Get the answers BEFORE you close the deal.
Make the right choice for your budget. You can't afford to skip any details.
1. What is the monthly fee for your unit now? Has it changed recently?
2. What does the assessment cover and not cover?
3. Have there been any special assessments? Is one planned for the near future? If so, why?
4. What percentage of each assessment payment is dedicated to reserves? What is the association's reserve balance?
5. What percentage of the community is for sale now and what is the average time properties are on the market before closing?
6. Is the association in litigation with any homeowners, vendors, or developers?
7. When was the last reserve study?
8. What percentage of the community is owner-occupied?
9. How reputable is the builder?
10. Were the CC&R's made available to read during your inspection period?
Get the facts before you agree to agree. Buying into a covenant community requires extra research and due diligence since some assets and debts are shared. Make the 10+ a top priority!
Mad About It and Can't Take It Any More?
What's a Homeowner To Do?
When you first bought the house, the agent explained that people living in your subdivision can't park trailers on their lots. Now that you're working as a landscaper, this rule no longer works for you and you want to change it.
The procedure for changing rules is found in an association's governing documents - the CC&R's, covenants, conditions, and restrictions.
A majority vote of the association will be required, and changing existing rules is difficult. As much as you want a change, unless enough of your board members do, you are in trouble. If you'd like to make a change in your organization, do an informal survey of your neighbors to determine the level of interest. Then, talk to a few board members. Familiarize yourself with the mechanics of your HOA so that you are not wasting time.
Ask the board how often they meet with a quorum. What is a quorum?
You need to know about quorums if you expect change.
A quorum is the smallest number of board members necessary to legally conduct the business of your association. Most associations describe a quorum as a 'simple majority,' but there is nothing simple about it. WITHOUT a quorum, votes can't be taken and the status quo can't be changed. You won't ever be able to change that trailer rule without a quorum.
Every HOA is different, and every quorum is different. Get to know your board and what constitutes a quorum. Even if 100% of your community agrees with you and wants change, without a quorum at voting time, you will lose.
Turn your MAD to GLAD! Talk to your neighbors, contact the board, learn about the quorum, get on the next meeting's agenda and earn the right to park that trailer in your driveway!
Study Shows Homeowner Association Members Enjoy High Levels of Satisfaction with Community Lifestyle and Management!
Zogby International, a prominent public interest firm conducted research of homeowner associations across the United States with favorable findings for those living in and working with community associations.
In a 2005 survey sponsored by The Foundation for Community Association Research, Zogby's statistics indicated that more than 7 in 10 community association residents enjoy the community experience. Only 10 percent expressed any level of dissatisfaction and almost 40% claimed to be 'very' pleased.
Sometimes home buyers seek out deed restricted communities governed by strict covenants, just because of the rules and regulations. Others buy into the community and then become dissatisfied with the constraints. Zogby's research noted that 86% of residents said they got along well with their immediate neighbors and only 5% had 'issues.' Pets, noise,and parking topped the list of complaints, but these situations exist in every neighborhood.
In community associations and neighborhoods with governing documents, a majority (78%) of participants credited the rules - covenants, conditions and restrictions (CC&R's) for protecting and enhancing property values, while some (20%) of residents gave no credit to the covenants. Well run communities use their governing documents as an additional defense to neighborhood nuisances like pets, noise, parking and more, and depend on good management to help.
Zogby found that most homeowners living the community association lifestyle heartily endorsed their boards of directors and management companies hired to endorse covenants. 90% of paticipants said they knew and were friendly with their board members, and only 4% complained about them. An impressive 88% of residents who interacted with the association's community managers said the experience was positive.
These high levels of satisfaction prove that with good choices in management, and cooperative homeowners, life with community associations remains an excellent option for buyers seeking a certain lifestyle and orderliness of their environment.
The HOA Process:
Developer to Transition
A community's developer is also called the 'declarant' in official documents. Declarants draft the original bylaws and CC&R's (covenants, conditions and restrictions) to protect their investment while properties are sold. Also, Declarants set up the association as a non- profit corporation. Three documents, the Articles of Incorporation, the CC&R's, and the By-Laws become the community's governing documents. First and subsequent boards use these documents as a framework to build a set of rules and regulations.
The initial Board of Directors are not homeowners, but representatives of the Declarant. They do, however, have a fiduciary responsibility to act in the best interest of homeowners until homeowners become the new board.
Transition: Homeowners create their own Board of Directors during the transition phase. After a certain number of units are sold, or by a date specified in the governing documents, owners become responsible for the operation and management of their community. The transition process is complete when homeowners have voted in their own representatives.
Electing the Board of Directors
Election: A special election is held to create the first homeowner run Board of Directors. The new board then decides amongst themselves what positions they will take. The following are typical board positions: President, Vice President, Secretary, and Treasurer.
General Fiduciary Responsibility: Like the initial board, the new homeowner board has a fiduciary responsibility to residents. It must protect the interests of all homeowners when carrying out association business. Monitoring and maintaining the fiscal and physical condition of the development is a primary goal.
Officers: Titles may vary by association, but usually include at least the following:
President: Presides at meetings. Executes contracts. Acts as spokesperson for the board. Responsible for day to day administration of association. Has authority to order actions implementing board policies.
Vice President: Acts in absence of president. May assume additional duties or chair one or more committees.
My HOA Board of Directors. There's a Hold-Out!
What is abstention?
Merriam-Webster dictionary defines abstention as "the act of choosing not to do or have something or the formal refusal to vote on something."
Abstention, or refusing to vote, is especially relevant to homeowner associations. Why? HOA board of directors are elected to address issues, advocate change, and vote. Proposals to sustain and improve the organization's physical and fiscal health are regular agenda items requiring a vote.
When one officer refuses to vote, the motion fails. For example, if the board has seven members, three vote 'yes,' three vote 'no,' and one abstains or refuses to vote, there is no majority.
The holdout board member, the one who abstains, is singularly responsible for the deadlock. Until the abstaining member changes to a 'yes' or 'no' vote, the board cannot proceed with any motion on the table.
HOA board members generously volunteer their time and are mindful of their awesome responsibilities. Abstention is common and heading back to the table to get a definitive vote is part of their due diligence. No problem! Abstention does not mean 'absent no action.' It means 'not yet......keep working.'
Covenants, Conditions and Restrictions or CC&R's
Live in a subdivision, condo, or other planned unit development and belong to a homeowners association? Chances are, your property rights and responsibilities are governed by CC&R's. Make sure you understand these basics!
What they are: CC&R's are covenants, conditions, and restrictions. A covenant is a promise, a condition is something that exists, and a restriction is a limitation on or about something. In the case of subdivisions, planned communities, or condominiums, for example, CC&R's are important documents that explain the promises buyers agree to abide by when purchasing the real estate in question. They explain how the homeowners association operates and are sometimes referred to as the bylaws, the master deed or the house rules.
Buyers should ALWAYS read CC&R's BEFORE signing a purchase agreement. Even if agents fail to supply copies, buyers are responsible for knowing the content. CC&R's are legally binding documents that buyers agree to as acondition of buying the property in question. Communities with CC&R's that are enforced, generally remain attractive longer and retain value better than areas with no CC&R's or standards, but buyers should be aware of important limitations on their 'freedom' of choice before they buy into a deed restricted community.
If, for example, there is a predetermined exterior color palette for all properties in the association, buyers cannot arbitrarily paint the exterior of their property purple with polka dots if the deed restrictive covenants, conditions, and restrictions say 'no' to colors other than those stated in the CC&R's. Lawsuits between owners and homeowner associations are the unfortunate consequence of a lack of communication and understanding regarding rights and responsibilities like this.
Where they are: CC&R's are recorded deed restrictions and should be a part of every closing package involving a property governed by the documents. These covenants are recorded in private deeds, as deed restrictions or neighborhood agreements between private parties. CC&R's are also readily available from the management companies hired by HOA's. Management companies follow the guidelines set up in CC&R's to create and maintain efficient, law abiding homeowner associations. Individual homeowners should keep a copy of the documents handy, and stay up to date with the Board of Directors and annual meetings to remain in the know about changing local zoning or relevant issues specific to their community. Usually CC&R's are more restrictive than zoning ordinances, but every neighborhood is different.
If you belong to an HOA, now is the time to get your CC&R's and read them again! Direct any questions to your Board of Directors or management company to avoid misunderstandings about your property rights.
Reserve studies have two parts. 1) Physical Analysis and 2) Financial Analysis.
The physical analysis is the written report of the inspector's findings generated from an on-site inspection of all common areas. This section of the reserve study describes the community's components and the condition they're in - the useful life, remaining life or expected life, and the replacement cost.
The financial analysis describes the HOA's fund status (how much reserves exist at the time of the report) and funding plan (an association's plan to increase reserves to offset anticipated expenses).
Reserve study requirements vary by state, and while Georgia does not mandate associations to complete formal studies, it is to the association's advantage to complete regular studies and keep them updated. Information and analysis explained in the report is essential to the community's financial planning.
What is the Cost:
Reserve studies are individually priced. No two are the same. The unique nature of HOA organizations and their properties demand absolutely individualized reports. Reserve study reports share subject content but vary by cost, reflecting the unique nature of the property. The cost of the report is determined by the size and extent of the components inspected. For example, an HOA that has common elements like walls, roofs, etc. Or golf courses and roads will be charged more than adevelopment with identical single family homes and minimal common areas. Prices range from a low of $500-1,000, to a high of $5,000-10,000, depending upon the complexity of the community and requirements of the association.
Experts performing reserve studies are trained to know and be able to explain the various items on the report. HOA boards should shop around, verify credentials of the potential reserve study firm, compare costs and fees, then decide who to hire. A good reserve study is like money in the bank! Spend ahead, save along the way. Good financial planning makes for strong association management and happy homeowners.
When Residents Become Vendors
Common areas need repair? Need to save money? Tempted to hire a resident?
Think again. The potential legal conflicts are hardly worth the effort, even considering the altruistic notion of the homeowner 'helping' the association by bidding low, or the association 'helping' the homeowner by accepting the low bid.
There is always work to do. Regardless of a community's size, invariably, common components need miscellaneous repairs and updates. Plumbers, roofers, and licensed general contractors live in HOA communities and may volunteer their skills, for pay of course. When they are also members of the Board of Directors, with voting rights the conflict of interest is magnified. Maintaining harmony is an important function of a Board. Hiring residents can ruin this. Consider the possibilities:
Even if an association's CC&R's permit it, hiring residents smacks of favoritism and could create ill will between neighbors.
If the completed work is substandard, the health and safety of many people could be at risk, exposing the association to massive legal troubles.
A weak, financially strapped HOA could be ruined financially if the job has to be redone.
Disclosure and resolution of the glitch will create more work for the volunteer Board of Directors.
Long term community dissension could result if a lawsuit brought by either the resident or the association is inevitable.
For these reasons, homeowner associations should instead regularly review and renew vendor contracts to make sure suitable professionals are available. Jeopardizing the health and safety of the community and challenging Board resources is risky. Be careful using residents as vendors. You might want to resist the temptation and protect the HOA.