Everything You Need to Know About Self-Managing Your Condo or HOA
Many condos and homeowners’ associations are or have considered becoming self-managed HOAs, also referred to as self-governing HOAs.
Regardless of what you call it, a community association governed by its residents can represent monetary savings, more freedom to make decisions, or both when properly managed. However, the reality for most board members is that a self-managed community can take up a lot of time of the board members, depending on how the association decides to conduct its business. Plus, there can be costly mistakes if the board isn’t aware of how to properly self-manage an HOA or condo association.
What Is a Community Association?
A community association or HOA is a nonprofit organization made up of home or unit owners in a private community. Subdivisions, condos, and planned communities use a community association to help make and enforce rules for the community and its residents. People who purchase a unit or home in a community with an association automatically become members of the association and must pay dues. Community associations are comprised of the residents of the neighborhood or building.
Different types of community associations include:
Self-managed homeowners associations: these types of HOAs are managed by the residents. The HOA board is responsible for selecting vendors, planning maintenance, and taking care of common elements.
Managed HOA: larger planned communities often opt for a professional property management company to take care of the day-to-day management and maintenance of the community. A property management company brings financial, legal, and other expertise that a self-managed association will typically have to outsource to several different professionals and consultants.
Condo association: a condo association is essentially a homeowners association for unit owners of a condominium community. A condo association can be use a property management company or self managed.
Co-ops: A co-op, or cooperative, is a community where the units are actually owned by a corporation. When residents buy an apartment that is in a co-op building, they are buying shares of the corporation that owns the building. Size of the apartment often aligns with the number of shares a resident owns in the corporation. Bigger apartment equals more shares. Would-be residents must often undergo an application and interview process with the co-op board, who can deny approve or deny applicants.
Subdivisions, condos, and other planned residential communities benefit from the establishment of a community association. The homeowners association’s aim should be to bring order, continuity, and upkeep to the neighborhood to promote a sense of community and protect property values. These goals can’t be met without a dedicated board of directors.
The Role of the Board of Directors
Members of an HOA board typically serve in an unpaid capacity unless the association’s bylaws provide for their compensation. The board’s powers and duties are limited by general law and the provisions within the association’s governing documents.2
HOA board member roles and responsibilities are as follows:
HOA Board President:You can consider this role as the CEO of the community. He or she is responsible for presiding over board meetings, managing the association’s day-to-day administration, ensuring all duties are carried out, and executing orders, contracts, and documents in the association’s name.
HOA Board Vice President: In the event the president is absent, the vice president takes on the powers of the president. Otherwise, the vice president may also have duties and responsibilities for recreational and common areas, grounds, buildings, and other activities. An HOA vice president may even manage employees of the association if the HOA has them.
HOA Board Secretary: The secretary maintains a variety of records: board meetings, membership, and official HOA records, for example. This board member is more than just an administrative resource. He or she must file corporate annual reports and attest to any legal documents signed by the president.
HOA Board Treasurer:Obviously, the treasurer has responsibility for securities, funds, and the financial records of the community association. This role is also usually responsible for coordinating the development of the proposed annual budget and preparing yearly financial reports regarding the HOA’s financial health.
As you can imagine, the role of a community association board member may feel a little daunting, especially for new members. Because of the legal and financial responsibilities the HOA or community association board holds, training is not only a good idea — in some states, it’s required. Florida law, for example, requires that newly elected directors complete an approved education course within 90 days of election or appointment. Considering the magnitude of the board’s roles and responsibilities, your community and board members will benefit from training even if your state or local government doesn’t require it.
Welcoming New Board Members
Roles and Responsibilities. Help your newest board members understand their specific position on the board, as well as the day-to-day duties of any employees and vendors.
Even if your community doesn’t use an HOA property management company, you may still have a community association manager or consultants who assist with the running of the HOA. Provide new members with information about any paid employees or vendors so that all board members understand who does what.
Community Guidelines: Your newest board member may be a long-time community resident. However, don’t assume that he or she has complete knowledge of the community guidelines.
HOA Law: Board members don’t need to go to law school, but they should be aware of HOA laws in their state. Existing board members should introduce new members to the basics while underscoring how important HOA law is.
Meeting Guidelines: Does your board abide by Robert’s Rules of Order? Do you have other procedures in place to facilitate board meetings? Make sure your newest members are aware of these procedures and stress the importance of attendance. Also, ensure everyone on the board understands the legal requirements associated with timely notification to all residents of upcoming board meetings.
Outside Training Services:If your board is welcoming multiple new members, an outside training course may be valuable. The Community Association Institute offers The Board Leadership Development Workshop, and there may be training providers in your state who cover the ins and outs of HOA law for your area.
How Do You Run a Self-Managed HOA?
If your neighborhood or building chooses to self-manage, it must select the approach that’s right for the size of the community and one that complements the skill sets and availability of the volunteer board. Before discussing the different types of self-managed community associations, let’s define what a self-managed community association is.
A self-governing HOA maintains the recreational and common areas, ensures residents abide by the community guidelines, manage financial and legal responsibilities of the association, and other duties that a property management company would otherwise do.
A self-managed association has a few options when it comes to management and maintenance:
- A volunteer-driven approach, typically best suited for very small associations.
- On-site management via a dedicated part or full-time community manager.
- Outsourced services or hybrid management approach.
HOA Formation and Turnover
Typically, a developer establishes the HOA when constructing a new community. Procedures for forming an HOA or condo association will vary depending on where the association is located. However, the following steps will be required in most instances.
- Creation of CC&Rs that outline the rules homeowners must follow as well as how the HOA or condo association will operate.
- Documentation of rules and regulations that make the CC&Rs easy for residents to understand and follow.
- Establishment of a business structure through the formation of an LLC or nonprofit corporation.
- Creation of governing documents such as the bylaws and articles of incorporation.
- Development and documentation of a procedure for future changes to the CC&Rs.
- Election of officers and board members.
The HOA turnover process, which is sometimes referred to as the developer turnover process, occurs when the real estate developer gives control of the community to the residents and their community association. Upon turnover, your association will receive all items listed in the contract from the developer. In some cases, state laws may come into play to determine when a developer must turnover control. State law may also require an audit by a certified public accountant of all financial records from the time of incorporation to turnover.
Regardless of location-specific requirements, some standard procedures will occur. The developer must turn over:
- All documentation required to run the community association (bank accounts, articles of incorporation and bylaws, and so forth).
- Property that belongs to the HOA (furniture, office equipment, computers, phones).
- Deeds to the HOA’s common property areas.
- Minutes of prior meetings.
As part of the turnover process, the HOA board needs to ensure that the developer fulfilled all promises and contractual obligations. The board should also determine whether or not the developer appropriately maintained the property and properly handled the finances during its control of the community. The window for issue resolution with the developer is limited, so the board must be meticulous and efficient in examining and addressing these issues.
Typical turnover tasks for the board of directors include:
- Determining whether or not any additional services should be retained to maintain the community properly.
- Review of all contracts the developer entered into on behalf of the community.
- An audit of financial records for the period of control by the developer.
Who Owns a Self Managed Association (SMA)?
If you’re an owner member of a community with an HOA, you own the association. Home and unit owners have an equal share in the association (unlike co-ops). When a luxury apartment building, condo, or subdivision have caring and involved residents who appreciate their role as “association owners,” the HOA can help community flourish.
Community Association Management (CAM) Law
As mentioned elsewhere in this guide, community association management and HOA laws vary from state to state. The Community Association Institute’s State Laws and Resources section provides links to each state’s set of laws, lists of resources, and more.
While it’s true that most legal requirements surrounding HOA and condo associations are applied at the state level, associations must comply with the following federal laws:
The Fair Housing Act (FHA)
The Fair Housing Act protects people from discrimination in housing based on belonging to a protected class. Protected classes include race, color, national origin, sex, familial status, and disability. Community associations must ensure that all rules and regulations do not affect any person’s right to buy, rent, or use real estate within the community based on the individual’s membership in a protected class.
The Americans with Disabilities Act of 1990 (ADA)
The ADA prohibits discrimination against disabled people when it comes to public accommodations, communications, transportation, and access to government services and programs. Obviously, the HOA must provide accommodations for any disabled employees. However, the community association also must ensure common elements and areas that are accessible to the general public, which qualify as public accommodations, are accessible to people with disabilities. Areas that are only open to members do not fall under the ADA.
The United States Bankruptcy Code
The United States Bankruptcy Code protects members of a homeowners association who file for bankruptcy by preventing the association from taking “actions to collect assessments subject to the bankruptcy case, including filing liens or civil complaints, while the case is pending or until the court issues an order lifting the ‘automatic stay.’ 11 U.S.C. §362. Violations of the automatic stay can result in penalties imposed by the bankruptcy court, including, at minimum, having to return money or release a lien.”
The Service members Civil Relief Act (SCRA)
The SCRA protects members of the armed services from collections and foreclosure during their time in service. The SCRA protects active duty service members, activated reservists, and National Guard members who are active for more than 30 consecutive days. The act prevents creditors, including HOAs, from collection actions and foreclosures.
Over-the-Air Reception Devices Rule (OTARD)
OTARD has been in effect since 1996 and protects people’s access to video programming. Under the Over-the-Air Reception Devices Rule, community associations may not unreasonably restrict installation, maintenance, or use of antennas and satellite dishes with a diameter of one meter or less.
The Fair Debt Collections Practices Act (FDCPA)
When a homeowners or condo association turns an unpaid assessment over to an attorney or debt collector for collection, the FDCPA requires certain notices to debtors and prohibits specific methods of communication. Additionally, the FDCPA bans harassment of debtors and abusive conduct by those who collect debts.
Freedom to Display the American Flag Act
The Freedom to Display the American Flag Act is a federal law that does directly address homeowners associations. This act prohibits common interest communities from restricting or preventing the display of the flag on residential property within the association. With that said, the community association does have some leeway to enact restrictions based on time, place, and means of display.
Laws are constantly being changed and added, and it is encouraged that all community associations work with their attorneys to ensure they are compliant with local and federal laws that pertain to associations.
Community Association Accounting & Finances
The budget planning process for a self-managed HOA or condo association should start with estimating costs then determining the source of revenue, typically homeowners association fees. Some community associations make the mistake of looking at homeowners fees first in an attempt to keep them low.
Unfortunately, this “fees first” approach can often lead to under-budgeting. Under-budgeting leads to shortfalls in next year’s budget or may force your HOA board to take a special assessment. Worst-case scenario, your board will be forced to dip into reserve funds, funds that should really only be used for HOA replacements and repairs.
Boards should keep the following tips in mind when setting and managing budgets:
- Forecast what expenses are on the horizon in the coming year. Will you require any extensive maintenance or upgrades to any of the common areas, repairs to roads, or other elements?
- Think about preventative maintenance to keep the community’s common areas in good condition. Your neighborhood can get a longer life out of pools, pergolas, fences, and other items.
- Look at the prior three years of expenses. Do you see any purchasing trends that you need to plan for in the next year’s budget?
- Determine if you can save costs by making changes in your insurance, utilities, and service providers.
- Plan for the unexpected by designating a portion of collected dues to go into the reserve fund.
A community association’s reserve funds serve two essential purposes: 1) limiting the need to raise special assessments or homeowners fees to cover unexpected costs, 2) long-term planning for future upkeep and maintenance.
To determine how much your association should have in its reserve fund, consider hiring an outside accountant to prepare a reserve study. The reserve study provides your board with a long-term schedule of likely costs for repairs and replacements to the common areas over the next 20 to 30 years.
If your HOA or condo association fails to fund its reserves adequately, you may be faced with levying a special assessment or immediately increasing dues. In either scenario, you will have to face angry residents.
The following financial reports for your HOA are essential for understanding and properly managing your associations’ finances and reporting obligations to HOA members.
Balance Sheet: The Balance Sheet gives you an overview of the association’s current financials as of the date it’s run. Running this report on an annual basis will provide you with a snapshot of the community’s financial position for the year.
Profit & Loss Report (Budget vs. Actuals): The Annual Income & Expense Report (also Statement of Revenue and Expenses) provides a full accounting of the actual monies into and out of the association’s ledger for the year, compared to the amounts defined in the budget. This report is a key budgeting tool, so your board should be comfortable reading it. The Profit and Loss Report also provides excellent insight into what came in and what went out for the year and how well you planned for it.
Reserve Statement:The Reserve Statement presents a breakdown of your association’s reserve funds, the amount allocated to each fund, and the amount distributed from each fund. This snapshot of the flow of your reserve funds combined with your updated reserve study and annual investment reports should give the board a good understanding of how well funded the community’s reserves are.
Investment Reports:These reports detail the status of investments the community association has made throughout the year, such as CDs, MMAs, stocks, and bonds. You will need these for tax and audit purposes. Compare your investment reports to the reserve statement to help ensure accounting record accuracy and to identify any red flags.
Bank Statement:If your bank offers an annual statement of all transactions throughout the year, add this to your financial reports package.
Summary of Annual Contracts:By maintaining a list of all contracts and renewal information, your organization can ensure that nothing auto renews before you can renegotiate the terms, cancel services that are no longer required, or find a new, lower-cost vendor.
Professional Assistance for Self-Managed HOA
With the various legal and financial considerations of running a community association, many community associations do decide to work with a property management company. However, many communities have found success going the self-managed route by working with different professionals and consultants. Other communities even hire a dedicated community association manager (CAM).
If your HOA or condo association is self-governed, these four types of professionals can advise your board to ensure you are fully compliant with rules and regulations and are upholding the board’s obligations to the association members.
An accountant can help your HOA review finances and give you a better idea of the big picture when it comes to your community association’s finances. Your accountant can also support your association by:
- Providing oversight and give recommendations when it comes to spending.
- Delivering financial projections for your association’s future.
- Turning bookkeeping data into useful planning information.
- Reviewing the books and double checking for accuracy.
- Providing tax advice and planning.
A certified public accountant (CPA) can deliver the same services as an accountant. They can also deliver things that a regular accountant can’t, such as writing an audited financial statement (income statement or balance sheet).
Community associations must abide by any laws your state has pertaining to homeowners associations and condo associations. Additionally, you need to keep in mind some of the federal laws discussed earlier in this resource. To safeguard your board and your community, you should carefully consider whether or not you need a lawyer for your HOA. A single misstep could cost you or your community time, money, and headaches.
Did you know that some states require HOAs to have a reserve specialist? Even if your state does not require your HOA to hire this type of specialist, you may benefit from hiring one. Here’s what a reserve specialist does:
- Forecasts when items may need to be replaced and the potential costs of replacements.
- Evaluates the condition of community equipment and elements.
- Conducts a study of your association’s capital systems.
A reserve study gives your community timelines and estimates for long-term, projected costs.
Community Association Technology Tools for Success
HOAs and condo associations, regardless of whether or not they are self-governed, can benefit from using the right community management software. You could piecemeal together several different solutions to manage your community, but that adds more complexity, time, and expense. Instead, look for a one-stop solution that addresses all of your community’s needs.
Three Core Features You Need in a Community Association Technology Solution
An owner portal, such as The Owner Access Portal in TOPS [ONE], gives homeowners real-time access to their most frequently requested account information and communicate with the board or community association manager at any time from any device. With an owner portal, you can reduce administrative tasks by providing your residents with the ability to:
- Communicate easily and efficiently with the board or manager.
- Open work orders anytime from any device.
- Look into open rule violation tickets.
- Review their account history.
- Make assessments payments.
- View their current balance.
Regardless of which owner portal solution you choose, ensure that it connects with your CRM and accounting system at the very least. Ideally, your portal will also connect with your management system, too, so that the information your shareholders can access is always up to date.
Chasing down documents is no one’s idea of fun. You need a centralized repository where board members can store and quickly retrieve unlimited community and homeowner-related files.
The TOPS [ONE] Document Manager helps community associations manage important documents more efficiently. No more frustrations like working on the wrong version of a file or not finding files when you need them.
Your community needs a solution that’s more advanced than a spreadsheet or off-the-shelf accounting software. Generic accounting and spreadsheet solutions simply don’t provide HOAs with the industry-specific features you need to properly manage the finances of your association.
A cloud-based solution HOA platform gives community associations a robust accounting engine that comes built-in with comprehensive automation and extensive customizability.
Look for an accounting software package that provides the following features:
- Customizable Chart of Accounts
- GAAP Standard Accounting
- Statements / Coupon Books
- Delinquency & Collections
- Board Report Packages
- Reserve Fund Tracking
- Customizable Reports
- Vendor Management
- Check Templates
- Budgeting Tools
- HOA Banking
Consider an All-In-ONE Community Association Platform
While it is possible to find all of the above technologies in individual packages, putting those different solutions together so that they connect and function together can be difficult and costly. We recommend that community associations consider an all-in-one platform that incorporates Owner Portal, Accounting, Document Management, and more.
TOPS [ONE] is your all-in-ONE platform that serves all the people in your community association’s ecosystem: the board, residents, even your community vendors. TOPS [ONE] helps alleviate some of the time-intensive tasks involved with self managing an HOA or condo association. It also seamlessly integrates with many industry banks and technology providers to allow you to stay with your preferred vendors.
Ready to Self-Manage?
As we’ve discussed, there are a lot of issues to consider when it comes to self managing your HOA or condo association. Carefully weigh the pros and cons of self management versus outsourcing to a property management company.
If your board has the right skills or if you can afford to hire professionals to help with accounting and legal aspects, a self-governed association can be rewarding and offer your community more flexibility.
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