What Happens When Homeowners Take Over an HOA?

by Contributing Writer; Updated September 26, 2017
Homeowners that manage an HOA must ensure that covenants are adhere to with other legal issues.

An HOA (homeowners association) is a legal entity which has the authority to enforce covenant laws agreed to by homeowners through a board of directors. Most HOAs operate within a townhome or condominium environment. Subdivision single family units can create an HOA when the development is constructed. There are two options in managing an HOA: through a management company or through the homeowners. If the HOA is managed by homeowners, certain items and procedures which must be reviewed and considered in the management of the HOA.

Board Election

As homeowners take over responsibilities of managing an HOA, the first order of business is to establish a board of directors. This is accomplished by having an election for the offices of president, vice president, secretary and treasurer. Each unit within the HOA has one vote. If a homeowner is not present at the election, he can send his vote in by proxy or through another member in the unit. After the officers have been elected, a meeting must be called to review responsibilities of the officers and review the bylaws of the HOA. The bylaws can be adjusted according to the new HOA structure with the consent of the homeowners.

Review of Covenant

An HOA covenant outline details of management or board of director responsibilities involving the home owner as related to items concerning internal and external property issues, fiscal responsibility and to ensure homeowners are complying with the rules established and contained in the HOA governing documents. If a covenant has not been established, the board of directors must work with the homeowners to create a covenant that is fair, suitable and enforceable. Once the covenant is established, the board of directors reserves the right to enforce violations which violate the rules within the covenant.

Legal Issues

In every organization, even an HOA, there are legal issues to consider such as assessments, incorporation and tax reporting issues. When an HOA is taken over by homeowners, these items are important. The HOA must be registered with the applicable Secretary of State's office. If the HOA is registered, the board of directors must ensure that state reports for HOA activities are filed and up to date. If the HOA is not registered with the applicable Secretary of State's office, the board of directors and homeowners must develop articles of organization stating the purpose and activities of the HOA. Accounting and tax reporting issues are critical to the operation of an HOA. If the HOA has an accounting system, a financial auditor should be commissioned to examine accounting reports and tax documents for federal and state law compliance.

HOA Training

One of the problems of homeowners taking over an HOA is lack of training and time. Many homeowners are unfamiliar with the organizational process or do not have the time to participate in the HOA.. Elected board members may lack the expertise to conduct meetings, draw out plans and may lack the skills needed to communicate with other board members and homeowners. HOA training is available for homeowners and board members in various areas of HOA activities ranging from board member training to the establishment of a vibrant HOA community.

Photo Credits

  • Jupiterimages/Comstock/Getty Images