A community association, or “Homeowners Association” is a little democratic sub-society of necessity and that is a pretty good description because like state or local governments, an HOA is fundamentally an contract between the association’s members to a set of community rules to help ensure quality of life and property values.
Similar to a government, each community has a “constitution” formed by its declaration of covenants, conditions and restrictions (also referred to as CC&Rs), however critical determinations, such as a capital improvement or a change/amendment to the governing documents, require a majority vote of homeowners determined by the association’s bylaws. Less important decisions, and operational functions are entrusted to the community elected board of directors.
Just like with your local elected leaders (city council, mayor, congress person), if the constituents (homeowners) feel that their representatives (board members) are not acting in the best interest of the community, they can be defeated in the next election.
When members work together and cooperate with the association’s governing documents, the community runs more efficiently, and members enjoy the benefits that homeowners otherwise would not be able to enjoy if not for the homeowner’s association.
In California, the homeowners who live in an HOA community are considered “members” of the association. When a buyer purchases a home within a homeowner’s association, they are contractually agreeing to comply with the association’s governing documents.
When a HOA is developed and constructed, all of the community’s declarations are publicly recorded and filed with the county clerk’s office and a lot owner is deemed to have “constructive notice” of an association’s CC&Rs when purchasing a property’s deed. So it is important to understand all the governing documents before purchase of property. Either work with a real estate agent who is familiar with the community’s rules or contact the management company who represents the association. This will help avoid issues that may arise in the future after you have already purchased and moved into your home.
Sometimes a new homeowner will allege that they did not receive the association’s governing documents, however upon purchase of the property they affirmatively agree to its terms and the “implied contract binds a member of an association to comply with the community’s restrictions and covenants.
“Because a community’s declaration is a public record filed in the county land records, a lot owner is deemed to have “constructive notice” of an association’s covenants, restrictions, and rules when accepting a property’s deed.”
When buyers join a HOA they agree to resign some of their property rights in exchange for the advantages of owning real estate in an homeowners association.
If all members of the association agree to and cooperate with the community’s CC&Rs and support to the association’s budget, all homeowners benefit by increased property values and improved quality of life.
The HOA’s authority is obtained from the association’s declarations, a legal document that is recorded with the county clerk’s office when the community is formed. The declaration legally establishes the association and proclaims the association is organized under California law.
The HOA’s covenants (agreement between owners and association), restrictions (forbidden actions or limitations of real estate and common areas in the community), and powers/duties of the board of directors will be all outlined in the association’s declaration.
Powers and duties entrusted to the board of directors generally include authorization to collect homeowner assessments, arrange maintenance services for common areas or amenities, enforce the association’s covenants, and act on the behalf of the association in any legal, contractual, or financial matters.
The State of California or other sections of the association’s declaration can also grant further powers to the members or the board of directors and both can also create limitations on an association’s power to act.
It is crucial that your board members or management company stay informed, as the State of California regularly establishes new guidance and restrictions on associations that community associations must adhere to.
Bylaws establishes the regulations and procedures association’s election, board member/officer appointments, a board of directors or member meetings, and the requirements to amend the community’s governing documents.
The community’s bylaws are also recorded with the declaration, and the two documents work in collaboration. It is always important to review both CC&Rs and bylaws to ensure that you, your board or management are not violating any of the rules set forth and clarified by these documents.
In California, HOAs are organized as a mutual-benefit nonprofit corporation and are subjected to all articles of incorporation that regulate matters of corporate governance.
The bylaws and declaration generally allow the board of directors to adopt and implement what are known as Rules and Regulations to further define the community’s policies and intentions.
When there is a conflict in which the governing documents are inconsistent, the hierarchy is as followed:
1. Federal or State Law
2. Declaration (CC&Rs)
4. Rules and Regulations
Developers are always the first party involved with the creation and construction of an association or community. Once they secure the proper permits or approval, the development company crafts and records a subdivision plat for the community with the county clerk’s office in the county that the development will be located.
A plat is a divided parcel map with descriptions of each lot’s dimensions, along with reservations of easements or common areas.
During the construction process, the developer will record the declaration establishing the homeowners’ association. The plat map and declarations must record both of these documents with the County Clerk’s Office.
While development is underway, the developer remains the primary owner in the community and maintains control over the association.
The developer then appoints board members or officers, administrates the finances of the association including collection of owner assessments, and performs the duties (such as maintenance of common areas or amenities) that will ultimately be the responsibility of the homeowners’ association and board of directors.
As more homes or lots are sold, the developer begins to transition the management of the association to new members.
At a time determined either by developer or California state statue, the developer turns over managerial control to the elected board, and the board takes ownership of common elements and responsibility for the administration of the community.
THE BOARD OF DIRECTORS
The HOA has an annual meeting each year, part of that meeting is to conduct an election to determine the homeowners who will be elected to the association’s board of directors positions.
The board of directors act on behalf of the association, exercising the powers and duties granted by the community’s declaration. Candidate qualifications, powers and duties, terms of office, and the mechanics for election and removal of board members are determined by the association’s bylaws and subject to changes by California state law.
The board of directors may appoint officers by a majority vote of the board to carry out the board’s duties and powers. These positions are usually chosen among the newly elected board members immediately proceeding the election during the formation session of the meeting.
The most important aspect of the board of directors, its members, and appointed officers are their fiduciary duties to the community. The board must properly determine required reserve funding to account for the maintenance of the association’s amenities to ensure or increase homeowner’s property values.
Board members who do not act in “good faith and best judgement” may fail their fiduciary duty and may be liable to the members of the community or the association any damages caused as a result.
The next priority for the board should be to retain a positive quality of life for the members of the association. It is important to follow the declarants and rules of the community, as well as continue to update those regulations in accordance with the will of fellow members to preserve the peaceful coexistence of the neighborhood.
In HOAs, the authority in the association remains in the voting power of your fellow homeowners. Members of the association retain the ability to elect or recall fellow homeowners to the board of directors and any meaningful changes usually require 50-100% approval of the community.
It is crucial that homeowners stay involved within the association business and to elect members to the board who will properly represent the will of the community.
Members also have the power granted by the bylaws to hold member meetings to discuss with other owners the aspects of the association and work to create change as agreed upon.
ASSOCIATION MANAGERS AND MANAGEMENT COMPANY
A management company and association manager are an important role in the management of any community. They oversee most all aspects of the HOA and help advise both homeowners and the board of directors in business of the association.
However, it is important to understand that neither the management company, nor the association manager have the authority to make decisions for the board – but rather enact and complete direction from the board of directors.
Management companies and association managers should act in full transparency and always retain the trust of both members and directors while representing the community to ensure a fair and unbiased oversight of the HOA.
The architectural review & landscaping committee
Usually in larger communities, the board of directors will delegate duties and appoint officers (usually members of the association or fellow board members) to an architectural committee and landscape committee, sometimes one committee will oversee both architectural requests and landscape concerns.
These are both important roles in the protection of aesthetic values within the community and to follow the guidelines set within the declarants of the association for architectural or landscape modifications.
Depending on the governing documents, the committees may have the authority to approve or decline architectural and landscape requests, but usually most are tasked with providing review and recommendations to the board of directors, who then vote on the decision in a open meeting.
The level of discretion vested in an architectural Committee, and limitations on the arenas in which it has authority, vary considerably among jurisdictions and individual communities.
As outlined earlier in the article, State and Federal laws will supersede any declarations within an association. In California, the state as well as special interest groups commonly put forward legislation that effects, overrules or replaces powers, duties or restrictions of the association. It is important that boards or management companies, preferably both, stay well informed of these laws and changes.
It is also in good faith and best judgement to routinely have your governing documents reviewed (usually every 5-10 years) and amended when needed to conform with any changes.
The essential duty of the homeowners association is to safeguard property values of the membership and maintain or improve the quality of life within the community. Despite some claims, the HOA is not formed to make your life more difficult!
The HOA is responsible to maintain and administer the duties as declared within the association’s governing documents. The board of directors, acting on behalf of the association as delegates and officers, are tasked with the obligation to manage those duties in good-faith and best judgement in accordance with the association’s declaration, and in a manner that promotes the best interests of the community.
THE EXECUTION OF COVENANTS, CONDITIONS AND RESTRICTIONS
When purchasing a home within the homeowners’ association, the buyer agrees to and abide by the community’s covenants, conditions and restrictions, otherwise known as CC&Rs.
Before purchasing the property, it is incredibly important for the buyer to review these documents to ensure that there are no restrictions that they may or may not agree to. Because once you buy, you are bound to adhere to these rules!
The governing documents and enforcement of those declarations can vary widely between communities, as well as the approach and enforcement by both boards of directors and management companies. Some may have a more relaxed approach, while others can “rule with an iron fist”.
The resources of enforcement can also vary between jurisdictions and communities. Frequently, the association has the right to impose fines, restrict voting rights or access to community amenities, and place liens on the properties of assessment delinquent homeowners.
When these procedures do not suffice, the association may file a civil lawsuit requesting a court to order compliance from a homeowner.
However, a judge may refuse enforcement if the covenants violate a public policy or was enacted in a flawed manner and/or has been “arbitrarily or capriciously” enforced. Enforcement is considered arbitrary or capricious if the covenant has not been consistently enforced equally against all members.
In previous cases, courts have held that the inconsistent enforcement of a covenant results in an effective waiver of that covenant by the board.
Dependent on the jurisdiction or association members interest within the affairs of the HOA, the board of directors who fail to properly enforce CC&Rs may lead to the recall of board members or officers.
More commonly, the lack of enforcement by board or management often leads to decreased property values by way of aging or neglected amenities and maintenance of common area and property improvements.
ACCURATE BUDGETING AND ASSESSMENT COLLECTIONS
Planning the association’s budget is arguably the most important role for the treasurer, as well as the board of directors and association manager.
Directors, Officers and Managers in the State of California, may be required to complete an annual reserve study to determine the life expectancy and associated costs with the community’s property improvements.
Once these costs are determined, these individuals will have a better understanding of how much money needs to be collected to properly maintain and fund the association’s reserve accounts. When determining a budget, you also need to factor in CPI increases among vendors, utilities and any other financial obligations of the association.
Sometimes the treasurer or the board may decide or be forced to bring a special assessment to a vote of the membership if a large or unexpected costs is presented to the community that the association has not or could not properly budget.
In some cases, special assessments are intended to pay for an expense that will not benefit every lot in a community, or that was directly caused by some but not all homeowners. In either scenario, the association’s board will often impose special assessments proportionally among lots according to the relative benefit to be received by each lot from the expenditure.
State HOA laws provide associations with a statutory lien to secure payment of delinquent assessments. Along with the unpaid principal, HOA liens can also secure payment of late fees, interest, and collection costs if those charges are authorized by the community’s declaration and state law.
Subject to some limitations, homeowners’ associations have the power to foreclose upon an unpaid HOA lien—forcing a sale of the property to recover delinquent amounts owed to the association by the homeowner.
State HOA laws and individual communities’ declarations mandate regular member meetings to discuss association policies, status, budget and finances, and potential issues to be addressed by the board. At the meeting, the Board members conduct the association’s business and decide on issues within the board’s purview at regular board meetings. They may also present reports, finances, and other information important to the association or its members. Civil code in California requires that advance notice of meetings to all members, and that members have a right to be address the board concerning any issues affecting the community.
Member meetings generally only occur once per year during the “annual meeting” and give owners the opportunity to discuss information with the board, other members, and elect homeowners to the board of directors.
However, dependent on the association’s bylaws, members of the association may gather enough signatures as designated in the governing documents to hold a “member meeting” to discuss specific matters of the association.
Depending on the association, board meetings are to be open to all members of the association, unless when sensitive or privileged matters are being discussed (such as violations or delinquent owners) – which is usually reserved for “executive meetings”.
Each association has different requirements and meeting schedules. Board meetings can be held monthly, bi-monthly, quarterly or bi-annually usually depending on the size and needs of the community. In California, HOAs must record and maintain meeting minutes for all meetings. Members of the association have the right to request or inspect minutes of regular or “open” board meetings upon written request to the board of directors or management company.
STATE AND FEDERAL COMPLIANCE
The responsibility ensure that the HOA is compliant with all applicable laws and regulations falls on its board of directors and the management company. As stated earlier, boards should periodically contract the services of an experienced law firm that practices in community interest developments to review and amend their governing documents as necessary to conform with current or new regulations.
Homeowners are guaranteed certain protections and rights within an association as outlined in civil code and the associations declarations.
I have had board members request that we begin to deny access or request a writ of no trespassing to a delinquent owner, but even if a member is substantially past due on their assessments, homeowners’ have the rights to access and to peacefully enjoy their homes.
Though the First Amendment does not directly apply to homeowners’ associations, state and federal laws protect owners’ rights to engage in speech, display patriotic flags and freedom to practice their religion within their home.
The Fair Housing Act expressly prohibits discrimination in housing based on an owner’s religion. The right to display the U.S. flag is protected from HOA interference at the federal level through the “Freedom to Display the American Flag Act of 2005. Furthermore, most states recognize the importance of political speech by enacting statutes protecting homeowners’ right to display political signs on their property and to engage in peaceful political activities within the community.
In California, an HOA can only restrict a homeowner’s right to rent his or her property if the restriction was already in place at the time of purchase or the homeowner consents to the restriction. Any rental restriction passed after the purchase of a home cannot be enforced.
DISCLOSURE AND INSPECTION RIGHTS
State laws guarantee homeowners the right to inspect certain HOA records, such as portions of the financial reports, meeting minutes, and executed contracts or agreements. The board of directors also have the responsibility, usually annually, to disclose affairs of the association to its members. This is normally a financial disclosure—including the HOA’s income, expenses, assets, and following year’s budget projections and must occur either at the HOA’s annual meeting or within a defined period after the end of the fiscal year.
To review association records, homeowners should submit a request in writing (or e-mail) to the association’s representatives (board members or management company). The association is required by civil code to deliver or make records available within 5-10 days upon receipt of request, depending on the record that is being requested. Records subject to inspection by members of the association are also outlined in California’s civil code.
Because HOAs are also required to maintain detailed and accurate records and preserve most documents relating to the association’s finances, and functioning, the right to inspection is a critical component in ensuring the transparency of homeowners’ associations.
Documents relating to an attorney’s representation of an association, another owner’s personal information, or an association employee are expressly excluded from homeowner inspection.
A FAIR AND UNBIASED PROCESS
Homeowners have the right to due process and an unbiased enforcement of the communities governing documents. The board of directors cannot selectively enforce rules against some members and not others.
The right to fair treatment includes the right under the Fair Housing Act to not discriminate against homeowners based on their race, color of skin, religion, sex, familial status, national origin, sexual orientation, or disability.
In the cases of a member with a disability, associations are required by the FHA to make such “reasonable accommodations” as are necessary to allow the member to enjoy housing and access to facilities.
Discrimination under the Act includes “a refusal to permit, at the expense of the handicapped person, reasonable modifications of existing premises occupied or to be occupied by such person if such modification may be necessary to afford such person full enjoyment of the premises. The statute also makes unlawful any “refusal to make reasonable accommodations in rules, policies, practices or services, when such accommodations may be necessary to afford such person equal opportunity to use and enjoy a dwelling”
Amendments to covenants can only be made after majority or super-majority approval by the voting members of the association.
In California, HOAs must provide notice, a violation hearing, and a opportunity to cure the violation before a fine can be imposed or lawsuit filed based on a violation. Unless the associations governing documents provide for a shorter notice period, the board’s notice of hearing decision must be given by personal delivery or first-class mail within 15 days following the board’s decision and should include the board’s findings and how the board arrived at its decision.
When it comes to resolving an issue between homeowners and the association, litigation should be a last resort. Lawsuits are a costly process and if a homeowner sues the association and wins, they still lose because the association will be forced to incur legal costs that are paid for by every member of the association.
It not only causes a financial strain on the community, but an emotional one as well. Which is why in January 2020, the State of California enacted statutes requiring associations to attend Internal Dispute Resolutions and Alternative Dispute Resolutions with homeowners prior to proceeding to litigation.
It is always encouraged to try and understand both sides of an issue, as usually there is an amicable way to resolve the problem without costly litigation and hurt feelings from either party.
Managing an association or acting as a board member or officer is and often difficult position, that is exacerbated when homeowners are not involved in the process. It is important to take interest in the affairs of the association and make your thoughts and opinions heard. They will help better direct your board, and guide your association manager which will create a better overall experience for the entire community!
Be involved, take part and VOTE! It is the only way to make meaningful and active changes within your community or association!
Core Association Management, LLC.
Mail: 603 Seagaze Drive #1023 Oceanside CA 92054-3005
Phone: (760) 405-8595
Copyright © 2020 Core Association Management, LLC. - All Rights Reserved.