All About Homeowner Associations
An introduction to HOAs, how they operate, and more
What is a homeowner association?
A homeowner association (HOA) is an organization of residents within a community that develops and manages rules for all residents and properties in the community to abide by.
Those who purchase property within an HOA's jurisdiction automatically become members and are required to pay dues, known as HOA fees. Some associations can be very restrictive about what members can do with their properties.
In a condominium or condo association, individual owners own their unit and a percentage of all shared property such as lobbies, pools, and gyms. The association doesn’t have ownership of any real estate within the community.
Most HOAs are incorporated and thus subject to state laws, whereas some states consider condominium-based HOAs, often called "condominium communities," to be separate from HOAs because their property interests differ.
For example, an HOA may take issue with how residents are maintaining their home exterior, whereas in a condo community, residents typically aren’t responsible for exterior maintenance. While there are differences in focus by virtue of their nature, condo and homeowner associations ultimately achieve the same purpose.
Property Owner Associations
Note that an HOA is not a POA. A property owners association, or POA, is generally a broader category that encompasses people who want to better their communities and real estate values. HOAs tend to have strict outlines for properties within their jurisdiction and there are usually many rules, whereas POAs are built of not only homeowners—which an HOA is—but anyone in the community with an interest in the real estate within their zone.
In short, an HOA serves a residential community, whereas a POA may serve a community of commercial businesses.
Other Types of Community Associations
In a planned community, individuals own their unit and the land it sits on. The association owns common areas such as pools, parks, and roads. Other names you may hear for planned communities include owner association, townhouse association, property owner’s association (POA), and planned unit development (PUD).
Cooperatives or co-ops have shared ownership among all members for both the units and shared spaces. Instead of purchasing a home or unit, owners buy a stock or membership certificate to become part of the cooperative. This stock or membership then gives the holder rights to a lease or occupancy for a given unit.
What does a homeowner association do?
The main duties of an HOA are as follows:
Organize regular meetings
Establish and maintain budgets
Enforce rules and regulations within the community
Examples of Specific Responsibilities
These will vary from one HOA to another, but many organizations will address issues such as:
Property upkeep (including trash removal and landscaping)
Common community issues and restrictions (lights, noises, quiet hours, etc.)
Why do homeowner associations have fees?
HOA fees, which are typically collected annually, allow the association to conduct business and make improvements to the community. Because the organization does not generate profits like a business, HOAs rely on fees from residents to host community events, pay property managers, and maintain shared public spaces like pools or tennis courts. Fees will vary depending on the needs of the community and HOA bylaws.
What are the perceived benefits or downsides of homeowner associations?
Improves overall property value
Prevents unsavory conditions like abandoned or unkempt houses
Provides additional benefits in shared amenities such as community pools or tennis courts
Expensive to join
Creates friction between residents over enforcement of bylaws
Can be very restrictive in terms of what residents are and are not allowed to do
What are some legal issues that homeowner associations should consider?
HOA issues often involve various aspects of the law, from property law to county or state ordinances. Because of this, there are several legal considerations for HOAs to keep in mind and seek consultation on.
Are homeowner associations legal?
Legally speaking, many HOAs are corporations--that is, legal entities that can enforce contracts with their homeowners. The action may simply be to require the homeowner to reverse the violation; perhaps repaint the house, or give away the dog. However, another common penalty is requiring the homeowner to pay a fine.
Can a homeowner association evict a member?
While an HOA can take action against community residents if they fail to abide by agreed-upon bylaws, they do not have the legal authority to evict a property owner in most cases. Most punitive actions instead take the form of fines.
How do homeowner associations deal with renters?
Many homeowners' associations have rules about how long a homeowner can rent out their space. Some prohibit an owner from renting his home for less than 30 days.
A homeowners' association can require that landlords provide tenants with a copy of the homeowners' association rules. They can also require the landlord to provide the homeowners' association with tenant contact information and a copy of the lease. A homeowners' association can also cap the number of units that rent at a given time.
With more rental options becoming available such as Airbnb, homeowners must take care to abide by the same bylaws established by their HOA with regards to renters in general. HOAs may have specific rules in place limiting Airbnb rentals as well.
How is a homeowner association governed?
Homeowner associations are managed by a board of directors. The board will operate based upon the structure of its chosen governance model. Choosing a governance model is essential for establishing consistent and fair processes for making decisions. Without a clear model in place, there is likely to be confusion and disarray.
The primary distinctions between different governance models are reflected in how decisions are finalized.
General variations of governance models include the following:
- A homeowner association votes for one of many outcomes and the most popular option wins
- A designated leader has the final say regarding an outcome based on the input of the homeowner association
- A homeowner association ranks all possible outcomes and the most popular option wins
- A homeowner association compares all outcomes against each other and the most popular outcome wins
- A homeowner association votes for one of many outcomes, however, some members’ votes have more weight or value than others
How are the leaders of a homeowner association chosen?
An HOA typically lays out the appointment or election process for a board of directors within its formal bylaws. Depending on where the organization chooses to organize, there may be additional legal distinctions and local limitations to consider.
Board members are usually given staggered terms in order to prevent all of the board positions from being available for election at once. This ensures that there are always experienced, knowledgeable directors on the board, along with new directors who can bring fresh ideas to the table.
An HOA’s bylaws should contain specific information on how the leaders are elected, the length of the term served for each position, and how many voting members of the organization must vote in order for the HOA election to be valid (i.e. quorum).
What are the roles of a board of directors for a homeowner association?
The highest executive powers on a board of directors, overseeing all aspects of an HOA’s day-to-day operations and development.
A subordinate to the chairman, though they may assist and serve as a leader in the latter's absence.
Manages and reports the HOA’s finances, acting as a chief consultant and expert on all relevant financial matters.
Elected by the homeowners of the community and responsible to set the HOA vision and appoint the officers to carry out that vision.
How does a homeowner association make decisions?
An HOA will make decisions in accordance with its bylaws--the internal rules and structure that establish how things will be done.
Bylaws can apply to anything, including how meetings are run, what responsibilities officers have, the organization’s purpose, etc. Bylaws must be voted on and passed by a board of directors to take effect.
Bylaws do not have to be permanent documents. Bylaws may be amended to better serve the organization, so long as the amendment is agreed upon and executed in accordance with existing rules.
The decision-making process will vary from one organization to another based on how its bylaws are set out.
A common framework of an HOA decision-making process:
The chairperson or president will call a meeting of the HOA and set an agenda
The members will evaluate agenda items, which may consist of actions like newly proposed bylaws, bylaws amendments, or more immediate decisions
Each item may be brought up for discussion, debate, or a vote amongst the members
If the action is approved, the leadership can then sign it into effect
What do property management groups do for a homeowner association?
Many HOAs hire a professional property management company to properly and effectively leverage their expertise to handle day-to-day operations, perform ongoing maintenance duties and communicate with residents. In addition, the property management company is responsible for executing on all Board decisions and ensuring that all homeowners comply with bylaws and adhere to state condominium statutes.
Sometimes, homeowners confuse the roles and responsibilities of the HOA Board and their property management company, especially when it comes to community rule enforcement. Despite what many homeowners think, the property management company does not set any policies or rules pertaining to the community, nor does it determine the penalties for non-compliance.
Rather, the management company’s responsibility is to enforce the community policies and regulations made by the board of directors on behalf of the HOA.
Property management companies partner with the board to optimize property values and ensure harmonious living environments for the community.
Planning for success
Like any organization, an HOA is often responsible for making significant decisions that impact their community and the residents within it.
Managing and sustaining a residential community is not easy, and having all of the right resources available to the board to do its job is critical for future success. While there are no right or wrong ways to run an HOA, clearly defining roles and governance structures will prevent issues down the road.