What Are HOA Documents?
Too many terms and acronyms are thrown around and used interchangeably when folks are discussing homeowners' association documents. Sometimes when people are referring to the entire suite of homeowners' association documents, they will use the term CC&R, which stands for covenants, conditions, and restrictions. In fact, CC&Rs are just one part of the association's documentation. This article will distinguish CC&Rs from the other documents you need to know including articles of incorporation, bylaws, rules, and regulations, and financial documents.
Articles of Incorporation
Not to drag out discussion too far into the legal muck, but the reason that financial responsibilities apply to—even unpaid—HOA board members is that these communities are founded in a manner similar to a business corporation. Like any small business, a homeowners' association must file articles of incorporation with the secretary of state. Although publicly available, these articles of incorporation do not contain much information other than name, location, and purpose of the incorporated community.
Simply put, the bylaws establish the rights and responsibilities of the incorporated entity and set the rules for enacting future rules. First, it is from the bylaws that associations declare the right of the association—through a duly elected board of directors—to protect the community through promulgating future rules and collecting assessments. Yearly assessments in the bylaws are a quotient of the prescribed budget.
Most homeowners' associations are governed by an elected board of directors by a vote of the dues-paying members. It is within adopted bylaws that an association’s board procedures are established. Often included in these bylaws are terms that dictate:
- The number of HOA members permitted on the board,
- The number of board members necessary to qualify as a quorum necessary to vote on a matter,
- How often elections take place,
- If there are term limits for board members, and
- Who has a right to cast a vote for board members?
If you are moving into a recently-built community, the bylaws of the association may be of particular interest. There is often a gray area in the growth of developed communities where it is uncertain how long the developer will control the properties. It is possible that the first board will be appointed by the developer and his allies. If this is the case, there is a possible conflict of interest between the newly arrived homeowners that live in the community and the developer that prefers to complete the project for the least amount of money possible. If you happen to live in a nascent planned community that is governed by a board sympathetic to the interests of the developer, be aware of this conflicting interests, especially when considering maintenance of common areas.
Covenants, Conditions, and Restrictions
Also known as CC&Rs, we previously addressed your most pressing CC&R inquiries in a different article, but the sake of this discussion, know that CC&Rs are the most important documents of your community. The bylaws assign the right of the board to draft rules that are binding to all homeowners in the association. Within the CC&Rs, it is common to see restrictions relating to the color of your house, the maintenance of your lawn, and parking. Many states require that the associations CC&Rs be published with the county recorder.
But what happens if a homeowner violates a CC&R of the community? Let’s say for example the association has a prohibition against satellite dishes laid out in the CC&Rs. What is the big deal if a homeowner that just needs to see his opposite-coast baseball team play? Rules like satellite dishes might seem benign and unnecessary to enforce, but this baseball-obsessed homeowner forfeited his liberty to install a satellite dish when he agreed to the covenants of his new home. It doesn’t matter if our new owner sees the rule as silly; he can rest assured that his board will strictly construe all CC&Rs because they have a fiduciary duty to do so.
Violating a CC&R will almost certainly then result in some sort of penalty for the homeowner in question. At first, the board will most likely send a warning letter in writing, as this is usually standard practice for a fair adjudication procedure. Next, if the issue is not ameliorated, the board—as permitted by the CC&Rs—will issue a fine and offer the homeowner a chance to defend his due process rights in a hearing. If the fine is still not paid, depending upon the state, the board may (or must) file a lawsuit and/or exercise a lien on the property.
Other Rules and Regulations
CC&Rs provide the general guidance for the community, while the rules and regulations of an association are what the board thinks is necessary to preserve and protect the community. Common rules that cause issues for homeowners are fence/hedge height restrictions, and rules prohibiting the use of common areas at certain times. As you can imagine, there are broad possibilities of interpretations of what is best for a particular community, so it is these rules and regulations that are most often under dispute.
Rules promulgated by the board will be proper so long as they do not conflict with the CC&Rs, and they do not violate federal law. An example of the latter would be a rule restricting a common area pool to people “over ten years of age.” Such a rule would be considered discrimination against a person’s familial status and illegal under federal law.
Last among the community documents, but certainly worth your attention, is the financial documentation. Almost all bylaws will permit the board to assign dues to each of the homeowners to cover expenses of the association; these are uniform between the community members but may increase on an annual basis dependent upon need. Yet, bylaws will often also permit the board to require assessments for emergencies.
This latter point is why, if you are about to buy a home in a planned community, you should take a moment to look at the community’s finances. Well-run association boards keep a healthy reserve fund to pay a potential unknown, unknown. Yet, if you see that a community has little money on hand, rest assured that in case of an emergency, you will be billed an extra assessment.