What is a homeowner's association?
It is a non-profit corporation registered with the State and managed by a duly elected Board of Directors. Its purpose is to maintain all common areas and to govern the community in accordance with the provision of Federal Law, State Law, CC&R's, Bylaws, Articles of Incorporation, and the Rules and Regulations of the Association. The corporation is financially supported by all members of the homeowners association. Membership is both automatic and mandatory.
Your homeowner's association is structured in a similar fashion to your City government where the Board of Directors acts in the capacity of the City Counsel and your managing agent performs the functions of the City Manager.
Who is the Declarant / Developer?
The Declarant is the entity that signed the original Declaration of Covenants, Conditions & Restrictions (CC&R’s), filed your Articles of Incorporation and also had your Bylaws written on behalf of the Corporation. Typically the declarant is also the developer of a homeowners association.
How is my community governed?
Your community will be governed by an elected Board of Directors. Much like City government, the Board is in place to support and enforce the governing documents of your community via “consensus” governance, which requires a majority vote of the Board. The most successful communities are those who have diversity amongst the Board as they are better able to discuss and view issues from a broader spectrum and therefore gain better clarity and understanding of an issue and its impact to the membership. Board members as individuals may not always agree on the best course of action, but typically the best and most fair decisions are reached through this method of governance. It is an understood principal of association governance, that while all Board members may not always be in agreement as to the best course of action, the minority vote of the Board will support the majority decision.
What is the Board of Directors?
The Homeowner's Association again is a corporation and therefore a governing body that is required to oversee its business. The Board of Directors is elected by the homeowners, or as otherwise specified in the bylaws. The limitation and restrictions of the powers of the Board of Directors is outlined in the association’s Bylaws.
The Board of Directors may not take action as individuals, as their power and authority, as well as their protection from individual liability, is limited to those decisions taken via a quorum vote (majority vote) at a duly held and noticed meeting. Once a Board member steps outside of a meeting, they have the same rights and responsibilities as any individual member living within the community. They pay assessments, must follow the rules and are held to the same standards as any other community member.
Why is the Declarant/Developer Serving on the Board? Isn’t this a conflict of interest?
Long before the land was graded and your home completed, the developer was hard at work putting your homeowner’s association together. It typically takes up to two years, or more, of planning just to get approval for streets, landscape, buildings, grading, etc. through the City, as well as meet the strict requirements for budgeting and disclosures as required by the Department of Real Estate and other governmental agencies. While your home is amongst one of the largest investments you may ever make, the investment and responsibility of the developer far exceeds that of an individual homeowner. Additionally, they are responsible to the City and the Department of Real Estate, to ensure that the community is completed according to the approved plan/s and within the guidelines as set forth by the Department of Real Estate.
Because of their huge investment and the need to comply with all regulations, the State of California has recognized the importance of having the developer serve on the Board and therefore provides legal allowances to make this possible for specified periods of time. These allowances can be found in your Bylaws and CC&R’s and typically provide for an elevated Class of Voting rights.
Just like any member, the developer pays assessments on all unsold lots within each phase of development. Additionally, most developers have sat on numerous HOA Boards, therefore their role in helping to educate initial homeowners as to their role and the specifics of the community, is an invaluable service for the long term benefit of your association. As the community is completed, and the various common area elements are signed off by the City or other governing agency, the developer will typically begin to give up controlling interest on the Board. This will allow your association to slowly acclimate new volunteers onto the Board and provide the time needed to help get them up to speed so that on the day your developer turns the community over to the homeowner board, they will have the experience and knowledge necessary to run the corporation.
What is a "management company,"?
As Board Members are unpaid volunteers, it would simply not be feasible to expect them to take on the day-to-day administrative duties necessary to run an association. Therefore a management company is contracted by the Board of Directors to provide such services as: Collection of assessments, supervision of subcontractors, obtaining bids for subcontracted services, providing financial statements and collection reports, as well as a general clearing house for problem solving, communications with homeowners and the Board of Directors and to serve in an advisory capacity. The management company reports directly to the Board and supports and ensures all policies and governance decisions as adopted by the majority vote of the Board of Directors is enacted. In effect, just as in city government, the managing agent (City Manager) gathers information and supporting documentation and provides it to the Board to assist them in making sound business decisions.
What are the Articles of Incorporation?
The Articles of Incorporation is a recorded document and is on file within the County recorder’s office of the County in which the property is located. It is the “birth certificate” of the corporation and allows the Association to operate under the corporate law.
What are the CC&R'S?
The Covenants, Conditions and Restrictions (CC&R's) are the governing legal documents that set up the guidelines for the operation of the planned community and set the expectations and requirements for the Board and membership. They are contractual in nature and are legally enforceable against and by the Board and the Member. The CC&R's were recorded by the County recorder's office of the County in which the property is located and are included in the title to your property.
What are the Bylaws?
The Bylaws are the guidelines for the governance of the non-profit corporation. The Bylaws define the duties and authorities of the Board and outline the role of the various offices within the Board of Directors. Located within the Bylaws are the terms of the Directors, the membership's voting rights, required meetings and notices of meetings, and the principal office of the Association, as well as other specific items that relate to the manner in which your community is governed.
What are Rules & Regulations?
Most associations have developed Rules and Regulations as provided for in the CC&R's and adopted by the Board of Directors. Rules are established to support and define the requirements of the CC&R’s and are written in plain language. They assist in providing clarification and direction to the homeowners for common courtesies with regard to parking, vehicles, pets and pool use hours, etc. In addition, your Association will adopt Architectural Guidelines with procedures for submitting requests to make exterior changes to your home. Such changes may include patio covers, decks, landscaping, exterior color changes or extensive interior changes and additions. These rules and guidelines are set up to maintain the aesthetic value and integrity of the community on behalf of all owners, and hopefully protect the market value of your investment as well. While the rules and regulations may not be viewed as a benefit to an individual member of a company, they are in place for the betterment of the corporation as a whole. Rules and regulations that are not in conflict with the governing documents of the community, or State and Federal statutes are legally binding and enforceable.
What are Policies & Procedures?
Policies and Procures are adopted by the Board and define a course of action that will be taken in the event a requirement of the community governing documents are not upheld. Policies and Procedures provide disclosure to members as to the course of action that will be taken, provide direction to the managing agent as to the expectations in which to proceed and ensure that the actions of the Board are fairly and equally enforced so that their decisions are not arbitrary or capricious. An example of a policy would be your Enforcement and Collection Policy.
What are the different types of meetings within our community?
There are two basic types of meetings that will be held within your community. A Membership Meeting is any meeting for which the members have a right to take action. A Board meeting is a meeting for which the Board takes action and governs association business that falls under their purview as the elected officials of the corporation.
Membership action is via a ballot vote, and there are specific quorum requirements for which the membership must meet (as defined in your Bylaws) in order for action to be driven. As an example, your Annual Meeting is a membership meeting, and is in place so that members can elect Board Members. From time to time situations may arise for which the Board or Membership may call a Special Membership Meeting, the reasons for this can vary and would cover issues such as special assessments above 5% of the annual budget, assessment increases above 20% of the annual budget, governing document amendments or various other issues which require a membership vote, and as outlined by statute or your governing documents.
Board meetings are an integral part of your community and are in place so that your Board of Directors may review pertinent association information and take action on issues related to the community. Board action, just as membership action, is via a quorum vote of the Board.
Are Board Meetings open to all residents? If so, where and when are they held?
Yes, all regular meetings of the Board are held and noticed in accordance with the requirements of the Open Meeting Act. Notice of the time and place of any regular board meeting as well as agenda items slated to be discussed will be noted in the community newsletter. The agenda, if not available at the time of publication of your newsletter, will be posted within the community or can be accessed online if your community has a web-page. Board meetings provide a vehicle which allows the Board to take action on behalf of the corporation.
Members have a right to be heard at a regular Board meeting, although participation is limited to what is commonly referred to as the “Open Forum” session of the meeting. During Open Forum, a specified amount of time is dedicated to members in attendance to provide feedback and/or concerns to the Board. Once the Open Forum session of the meeting is closed, members are encouraged to observe the business portion of the meeting, but may not participate in the decision making process.
Are there any meetings for which I do not have a right to attend as a member of the Association?
As with any business, there are discussions and decisions which must be made that involve privileged information or matters that are personal in nature. In these instances, and as supported by statute, the Board may convene what is known as an Executive Session Meeting. Those items which a Board may convene and address in an Executive session are: Litigation Matters, Formation of Contracts, Disciplinary Hearings, Personnel Issues and Payment of Assessment issues.
The Board is required to generally disclose all issues addressed at an Executive meeting to the membership at the first Regular meeting of the Board following an Executive Session.
How are CC&R and Rules and Regulations Enforced?
Enforcement of the CC&R’s and Rules and Regulations are among the most difficult aspect of association governance. It is an understood principal within a community association that members knowingly entered into their “contract” and therefore will willingly comply with and support the requirements of the community on a volunteer basis. This principal is supported through disclosures that were presented to each member prior to purchase into the community and based upon the fact that through purchase, membership and compliance are automatic and legally binding.
In most cases, rule infractions are simply a misunderstanding on the part of the community member and once they receive notice that they are in violation, the infraction is fixed in a reasonable amount of time. Unfortunately, in some instances a member will place their personal desires above that of the community and more rigorous action must be taken by the Board on behalf of the association. In these instances, while it may appear that action is not being taken, the Board is actively pursuing the matter in accordance with the association’s adopted enforcement policy and those statutes which govern the manner in which due process must occur.
Penalties, such as fines and suspension of privileges or voting rights, cannot be imposed against a member unless due process has been followed. “Due process” is a procedural fairness in the Board’s decision-making process. The process must be fair and reasonable, and not arbitrary or capricious. The elements of due process include: (1) giving the accused notice of the alleged violation; (2) providing a reasonable opportunity for the accused to cure the violation; (3) if not cured, providing a reasonable opportunity for the accused to defend themselves and to know the accuser and have an opportunity to question (cross examine) the witness and (4) giving the accused an opportunity to examine and refute the evidence. In effect, it is very similar to due process through our judicial system. This process is outlined in your community enforcement policy.
In rare instances, a member may choose to ignore Board findings and the matter may have to be escalated to legal counsel. In these instances, avenues for compliance may involve various forms of arbitration, mediation and even the filing of a lawsuit.
If I am having a problem with a neighbor for a violation of the Policies and Guidelines, what can I do?
Residents should always try to resolve a situation between themselves, prior to turning to the Association. Part of being a good neighbor, is keeping the lines of communication open. Many neighbor-to-neighbor disputes could have been avoided through a simple conversation. Conversely, if you have tried to resolve a situation through neighborly means without success, and you are willing to actively participate in the enforcement provided by the Policies and Guidelines, you may complete a Covenant Violation form and submit it to the manager of your association. If the situation is deemed in violation of the Policies and Guidelines, the Board of Directors will take action in accordance with the community’s adopted enforcement policy. Your continued assistance may be required.
How do I find out what committees are active and how I can get involved?
The best communities are those that have volunteer participation through active committee members. If you are interested in volunteering, please contact your community manager to see what volunteer opportunities are currently available.
What is my assessment?
The assessment is the periodic amount due from each homeowner to cover the operating expenses of the common area and provide for reserve funds for replacement of common facilities in future years. Your assessments are due on the first of the month. Statements will be sent for assessments as a reminder of the amount due.
How is the amount of my assessment determined?
The Department of Real Estate typically requires an initial budget from the developer for each community that a developer proposes to build. This budget is set upon specific guidelines for utilities, landscaping, administration, long term reserves for each common area component, etc. Initial budgets must meet very strict guidelines before they are approved by the Department of Real Estate (DRE). Prior to purchase into a new or developing community, members must be provided the approved DRE budgets for each phase of development. These budgets once approved, cannot decrease more than 10% or increase more than 20% per phase. If this happens, then all construction and all sales must immediately cease, until a new budget is approved by the Department of Real Estate.
Once a community has been built out, the Board of Directors comprised of homeowner members will adopt their own budget. This is typically the time when the Board decides if they wish to increase or decrease various services. The amount of the budget has many variables (level of service, types of service and number of members for which costs are shared). Once the budget is adopted by the Board, it must be sent to the membership at least 30 days prior to the end of your association’s fiscal year along with many other mandatory disclosures. Your annual assessment rate may not exceed 20% of the prior fiscal year’s assessment rate unless approved by the membership.
What are Reserves?
Reserve funds are monies set aside for future repair or replacement of all common area components located within your association, and for which there is a life expectancy of 30 years or less for the component. Reserves may cover items such as: lighting, street resurfacing, pool equipment, painting, landscape replacement, etc. There are very strict laws which govern the manner in which reserve funds may be used, and with the exception of a short term loan to operating, reserves may not be used for any purpose other than for long term repair/replacement.
Will my assessment go up?
There is no concrete answer to this. Typically the Civil Code provides for annual increases, but not to exceed 20 percent per year without the vote of the membership. The Board of Directors may approve an increased budget, increasing your assessment up to this percentage in order to cover increased costs of operating and maintaining the common area and sufficient reserve funds.
Assessment increases are largely driven by the economy and the level of service and amenities desired by community members. As within your own budget, the more service a community wants, the higher the assessment rate.
What happens if I don't pay my assessment?
The maintenance and management services incurred by the Association are dependent upon timely receipt of the assessments due from each homeowner. Late payments will result in a late charge as assessments are due on the first of the month. In addition, the CC&R's allows the Association to charge late charges and interest and proceed with a lien on your property, including a personal judgment or even foreclosure proceeding for nonpayment of assessments.
If you are having a difficult time paying your assessments, please do not simply stop payment, as collection charges add up quickly. The best route to take is to open clear lines of communication with your Board and request a payment plan. In many cases, your Board can assist through a difficult situation and limit your having to pay collection charges which can far exceed your monthly obligation.
Why must I get Board approval for making changes to my home or landscape?
Living in a planned community provides many benefits to the membership, and imposes some restrictions as well. And, while no two sets of CC&R’s are the same, they are all similar in that every homeowner associations has some form of architectural improvement requirements. The specific requirements for your community can be found in your CC&R’s. While the process may sometimes seem cumbersome, it is for the protection of the corporation in ensuring a standard of conformity that is in keeping with the overall architectural design of the community is maintained and also provides a process for neighbor awareness.
Your governing documents can provide more specific information on the requirements of your community as well as the manner in which the Board must go about the approval process. In some communities, the Board will serve as the Architectural Committee, while in others a committee of members may be appointed by the Board. In some instances, if supported by the governing documents, the Board will hire an independent 3rd party contractor to review applications. The necessity for a fair, reasonable and expeditious process is supported by state statute.