What Do I Do to Set Up a Homeowner's Association?

When setting up a property association, you must follow through on all of your responsibilities of disclosure. The failure to do so can have a serious impact on your association and in some cases, leave you open for a lawsuit. Before you begin the process of establishment, learn what those responsibilities are. You must exhibit prudence and apply a reasonable level of judgment. You will have both statutory as well as judiciary responsibilities. I am not an attorney, and this article is not intended to be legal advice, summarizing only, issues that must be address when establishing bylaws and rules for an association. When preparing legal documents it is always a good idea to do so under the direction of an attorney.

Reserve

The reserve is a fund established to maintain the property. A good reserve figure should based on a through analysis of the needs over the next 3-5 year period. For example if the roof will need to be replaced in 6 years, an assessment should be included so that at the end of the 5 year period there will be enough money in the reserve fund to pay for the new roof. If there is knowledge that the roof will need to be replaced, or repaired, and provisions were not in the reserve fund, a special assessment will need to be assessed against each owner to pay for the roof. This will provide a basis for the claim you provided misleading and inaccurate information. A reserve study should be done every 3-5 years and adjustments made as necessary to maintain an adequate reserve fund. Keeping the owner assessment low should not be what drives your decisions. While no one like to see an increase in association dues, they like even less, a large special assessment.

Rules

Every association has rules. These rules are only effective if everyone knows about them. Be sure that every owner receives a complete copy of every rule and every update. If a member did not receive a copy of the rules, he or she is not bound to obey them. You could end up in a lawsuit by attempting to enforce viable rules simply because you failed to copy all owners.

Excess Income

Our government, the Franchise Tax Board (FTB) and the Internal Revenue Service (IRS) want a piece of all the action. Because an association is a common interest development, they will want a piece of the leftovers. Make certain that the members of your association pass a resolution that will allow all excess operating income to roll over to the following years to be applied to future assessments.

Disclosure Statements

You are required to file an annual Disclosure Statement with the secretary of State to maintain good standing as an association. One very important function of this is the provision that allows you to protect yourself if sued or to bring lawsuit against another. If you standing is not good, you have no protection.

Insurance Disclosure

All owners should receive a copy of the insurance disclosure. Everyone should be aware of the coverage the association does or does not have. This will protect you in the case of damage not covered by insurance. If they are aware of the coverage, you cannot be hit with a negligence claim due to loss.

Collections

No one likes to deal with this one, but you will have to. Every association should have a collection policy. Every association will have to deal with late or non-payers. As with any other document, if the owner is not provided a copy of the policy, it is not enforceable. Simple as that. You cannot collect late fees, court fees or attorney fees if they have not been clearly outlined in the bylaws. All collection procedures should be outlined. You need to establish the procedures that will be followed if payment is not received. i.e. late fee of $$ after ## days, lien filed after ## days, foreclosure after ## days.

Financial Disclosures/Budgets

All owners must receive this information to make sound judgments with regard to budget increase or decreases. Budget increases or decrease are voted on by board members and require approval to apply. This information is also needed when an owner is selling the property and provides for fair disclosure of expenses and future assessments.

It is imperative that good records be maintained and document copies are available to owners on request.