Homeowners’ associations are becoming increasingly popular. In fact, over 50% of owner-occupied homes in America are part of an HOA. This is why it’s important to understand how a homeowners’ association operates and why HOAs use governing documents to guide the operation of the association.
A homeowners’ association, and every homeowner within the association, must act in accordance with the terms and conditions set forth in the association’s governing documents. That’s why it’s critical for a potential buyer or homeowner to understand not only what the governing documents are, but their purpose.
While reviewing the governing documents may seem a bit daunting if you are not a legal expert, it is possible (and definitely worth your time) as a homeowner or potential buyer within an HOA. Read on for layman’s terms and explanations of everything you need to know about HOA governing documents.
Let’s start with the purpose of governing documents and move on to the hierarchy:
Purpose of Governing Documents
Simply put, the association’s governing documents specify the HOA’s authority and obligations to define the rights and responsibilities of all members. Think of it as a rule book for how the association must operate.
Hierarchy of Documents
Governing documents operate within a hierarchy, so if you find that there’s a conflict between two of your HOA’s documents, you should refer to the hierarchy.
This document hierarchy is imposed by the state and orders your association’s governing documents by authority. In some circumstances, you may find conflicts between the HOAs governing documents and federal, state, or local laws. Should this occur, possible amendment to the governing documents – which requires a special procedure and the help of legal counsel – will likely be necessary.
To understand how your particular state handles the governing document hierarchy, it’s important to check state laws. In general, the hierarchy is as follows:
- Legislative law (Federal, state, local – in that order)
- Plat map
- Declaration of Covenants, Conditions, and Restrictions (DCC&Rs or CC&Rs)
- Articles of Incorporation (AOI)
- Rules and Regulations
Hierarchy is ranked by precedence, as outlined above. There are two types of precedence – temporal precedence and degree of generality.
Temporal Precedence is just as it sounds. As a matter of logical necessity, the plat of the land is drafted and recorded before the declaration is made, the declaration is made before the articles of incorporation, and so on. By understanding which document was drafted and recorded first, you will quickly see which document has the most authority.
Degree of Generality refers to how the governing documents toward the top of the hierarchy will tend to have more foundational, general, or strategic statements and rules than those found at the bottom of the hierarchy. Documents at the bottom of the hierarchy tend to include more specific and procedural statements and provisions.
The Importance of Understanding Your HOA Documents
As a buyer (or potential buyer) in any HOA community, it’s critical that you know and understand the rules you’re signing up for when purchasing a home and/or living in a homeowners’ association. Many prospective buyers shy away from fully reviewing the governing documents because they find them confusing or intimidating. Don’t do this – it only leads to conflict and causes homeowners to become disgruntled.
The last thing a homeowner wants to receive is a violation notice! However, it should be understood that these notices aren’t punitive. They are meant to keep the community to a certain standard to protect property values.
Here are a few tips to help you understand why the rules exist in the first place:
- Rules and regulations are in place to ensure that every homeowner’s equity is protected.
- These documents help homeowners understand what is expected of them, as well as what they have the right to expect of their neighbors.
- If you receive a violation notice and didn’t realize you were in violation, ask the board for an explanation. (Keep in mind that by reading the governing documents, you will better understand what is expected of you as a homeowner in the association and misunderstandings can be avoided.)
- Violation notices typically follow a certain protocol, such as warning notice, second violation notice, third violation notice, and then a fine or hearing. This process can easily be avoided by understanding, and complying with, the documents you agreed to when purchasing a home in the association.
By understanding the hierarchy of governing documents and what each document covers, you can happily live in your chosen HOA.
Now, let’s move on to the actual documents:
Declaration of Covenants, Conditions, and Restrictions
The Declarations of Covenants, Conditions, and Restrictions of an HOA, frequently referred to as the DCCRs (or CC&Rs), describe the rights and obligations the association and each homeowner. These documents are lengthy and comprehensive because they contain the most important information about the HOA development and its operation. They are legally binding documents and are officially recorded and filed with the state.
The declarations may vary significantly between associations, but they typically outline the responsibilities and rules that must be adhered to within the association. If another governing document conflicts with the provision of the DCCRs, the DCCRs win, as they take precedence over the other documents of the association.
The declarations set up the general structure of the HOA development and define the association’s powers of enforcement, use of amenities, procedures for dispute resolution, owner usage restrictions, regulations on pet governance, collection of assessments, and more.
In the DCCRs (or CC&Rs), you will find things like:
- Assessment obligations
- Guidelines for rule enforcement
- Insurance obligations
- Lender protection provisions
- Dispute resolution mechanisms
- Maintenance obligations for the association and individual members
They also contain restrictions on the use of each owner’s property. Every owner must abide by the terms, rules, conditions, and restrictions found in the DCCRs, which is why it’s imperative that, before purchasing in the association, the potential owner understands the general restrictions on the use of property within the HOA development.
Most DCCRs contain procedures for amendments. In older developments, there may be a number of amendments revising the original terms of the documents. The majority of states require that DCCRs be recorded in real property records of the county where the association is located.
Because a record of the DCCRs (or CC&Rs) is kept on file with the state, it is difficult to amend the documents and a vote by the membership is also required to make any changes to these documents.
Important: Architectural Standards
Pay special attention to the Architectural Standards section of the governing documents. The Architectural Standards section of the DCCRs outlines steps that a homeowner must take for submission and approval of any potential change to the exterior of the home or property. (If this section is not located in the association’s DCCRs, check the Rules and Regulations or ask the HOA management company or property manager for this information.)
The architectural standards vary from association to association, but typically stipulate general guidelines regarding changes to your property that can be seen from common areas. Failure to obtain prior approval by the association’s Architectural Review Committee (ARC) or Architectural Control Committee (ACC) can result in violations, fines, and lawsuits.
Recorded, or plat, maps mark the official boundaries of a planned development. They are typically filed when the development is first formed and are eventually connected to every deed and mortgage on the parcel of land.
Sometimes called a “subdivision map”, a plat map is a visual drawing or illustration of how the association is divided into units or lots. These maps are prepared by licensed professionals and reviewed by government agencies before being filed with county authorities. These maps are used to establish the responsibility of maintenance and location of property.
Once an association is formed, they will adopt a set of bylaws. The association’s bylaws describe the procedures of how the HOA will run. In essence, they establish the structure of day-to-day governance of the association.
Bylaws are typically created by a legal professional and are reviewed by government when the development is created, although they are not filed with a government agency.
The bylaws include:
- how officer and director positions are filled, including length of terms and procedures for elections
- the number of board members that serve at one time
- responsibilities and duties of board members
- guidelines for meeting, including frequency and quorum
- guidelines and procedures for voting
- how record-keeping and reporting will be conducted
- how to determine assessment amounts
Bylaws also describe the association’s rights and responsibilities and lay out procedures for determining and creating the annual budget.
Like the DCCRs (or CC&Rs), the bylaws are difficult to amend, as they also require a vote by the membership.
*Quick Tip: If the DCCRs (or CC&Rs) cover the “what” of the association, the bylaws cover the “how” of the association.
Rules and Regulations
While local and state government may impose their own restrictions, HOAs often have additional regulations and procedures for passing internal rules, as outlined in the association’s DCCRs. These rules and regulations are often more specific (and often lengthy). They often cover restrictions on pets, use of recreational facilities or amenities, signage, parking, and more.
Because these rules and regulations cover a multitude of topics that not everyone can agree on, these documents may cause controversy or dispute. For example, if the rules and regulations limit the number of swimmers in the HOA’s pool at one time, there may be disagreement about the feasibility of this rule. Keep in mind that the purpose of the association is to do what is for the common good of the community as a whole and the board serves to ensure this happens.
In short, the association’s rules and regulations are a catch-all for topics that aren’t covered in the DCCRs and bylaws. The rules and regulations can be changed by board vote and with review by the membership. Often, the board will adopt a rule and send notice to the community members, who then have 30 days to review and voice their comments, questions, or concerns. The board will then consider all the feedback they receive before making a final decision on changing the rule or regulation.
*Quick Tip: Basically, the rules and regulations affect how the property is used. These rules are internal, so the DCCRs take precedence over them in terms of legal importance.
Articles of Incorporation
Typically short, these documents, or “articles”, set the name of the HOA and provide basic information such as the association’s location and purpose. The articles also establish that it is a nonprofit and identify its initial agent. (The agent is the individual authorized to receive legal notices on the association’s behalf.)
The association is typically created by filing the Articles of Incorporation with the secretary of state where the development is located. These articles create the association as a legal entity and can be made more extensive through the inclusion of information on topics such as directors, voting, and amendments.
Changes and Amendments
While it may be a difficult process, the DCCRs (or CC&Rs), bylaws, rule and regulations, and other documents can be changed, or amended.
When a community is incorporated, the developer tries to anticipate the type of community they are creating. However, the needs of the community aren’t fully established until residents move in. This may result in the need to modify documents, which is a matter of understanding and following the process required to make the change(s) desired.
To recap, remember these summations when seeking to change documents in any way:
- DCCRs (or CC&Rs) define the rights and responsibilities of owners, as well as the restrictions on the use of common areas and the owners’ property. They are filed with the state and require the assistance of an experienced attorney.
- Bylaws describe the association’s rights and responsibilities, as well as rules about how the association will be run. They require a vote of the membership and can be difficult to change.
- Rules and regulations detail specifics about rules that members must follow in order to be in accordance with the DCCRs. They are in effect at the community level and require a board vote with membership review.
- Recorded Maps – mark the official boundaries of the development
- Articles of Incorporation – include basic information such as the association’s name, location, and purpose
The More You Know
For those homeowners or prospective buyers who really want to be informed, consider reviewing the association’s financial records from the past two years, ask for a statement of current homeowner’s assessments (often referred to as “dues”), and obtain copies of the association’s meeting minutes from the past 1-2 years. You can obtain this information from the HOA board directly, or via your real estate agent or the title company handling the purchase of the home sale transaction.
- When you take a look at the history of homeowner’s dues, you can eliminate unpleasant financial surprises by getting a good idea of how much (and how often) you will be paying assessments, and whether any hefty increases or special assessments may be likely in the future.
- By reviewing the meeting minutes and financial records of the association, you can get a better picture of how the HOA is run, the financial condition the association is in, and the overall health of the association. This is important because you do not want to become obligated to an association that does not have a healthy reserve fund or is barely scraping by due to poor management by previous boards!
The Property Management Company Role
Your association’s property management company (assuming you have one) acts as an agent of the HOA. Their role is to help the board increase property value, facilitate membership enjoyment of the community, and provide guidance to board members, who are often volunteer homeowners.
It’s important to realize that the association’s property management company has no say in the development of the DCCRs, bylaws, rules and regulations, articles of incorporation, or other legal documents that set the structure for the HOA. They simply help the board implement the guidelines that are set forth by the board.
The property management company provides professional advice and guidance to assist the board and ensure that they’re making decisions that protect the best interests of the community as a whole. They can assist the board in changing the documents by showing the board the risk and/or rewards of changing the DCCRs or other legal documents.
Remember, one of the key benefits of living in a homeowners’ association is that it is governed to maintain a certain aesthetic and ensure the protection of your property value. It is the right and responsibility of the homeowner to understand and abide by the governing documents of the association.
By investing the time to read and understand your association’s governing documents, you will take an active role in homeownership and will be better able to enjoy your community! To learn more about your duties as an HOA board member, be sure to sign up for our online training courses.