Homeowner’s associations are commonplace in many communities throughout the United States. The goal is to keep a neighborhood looking uniform in its aesthetics, while ensuring upkeep on homes and amenities throughout.
Not every community you see has an HOA, but new HOAs are formed all the time. This guide was created to help anyone understand what necessary steps must be taken when converting your neighborhood into an HOA.
Weigh Community Interest in an HOA
To form a homeowner’s association in your neighborhood many of your neighbors to be in support of the idea as well. State and local laws vary, some states need a majority acceptance while others require total acceptance to form an HOA.
While weighing and determining your community’s interest level in forming an HOA, you should gather feedback from your neighbors about what they want and expect the HOA to provide. This information will be vital in directing your pathway forward.
Mandatory or Voluntary? Determine HOA Participation Requirements
Next, you will need to decide if the HOA you are creating will be voluntary or require participation by all homeowners in your community.
The ease or difficulty of implementation will be determined by what duties you want the HOA to perform. For instance, the proposal of streamlining the neighborhoods trash collection service could be opted out of by homeowners that choose to schedule their own garbage service.
However, if you choose to have the HOA pay for constructing a community playground and providing plowing services, it would not be fair for membership to be voluntary because those who do not join would still receive these benefits which are paid for by those who opted in.
Research State & Local Laws – Hire an Attorney
Now, you have secured most or all the neighborhood’s support for an HOA. Next, you will need to research state and local laws and contact an attorney.
Once your movement for an HOA has reached the point where your neighbors are ready to see change within the community, you should reach out to an attorney. At that point, an attorney can begin looking at deeds, current arrangements, and possible courses of action.
Typically, road maintenance agreements are the source of the need to form an HOA. Residents are already paying for road maintenance and want to add services such as snow removal or undertake neighborhood beautification endeavors.
Decide Community Wants & Needs in an HOA
Many services can be offered by HOAs, so you will need to decide which will be included for your association.
A typical service provided by an HOA is maintaining community common areas. For those living in a condominium, this would include the lobby, patio areas, elevators and amenities such as a swimming pool or fitness center. Fees such as water, sewer and trash collection are often included in condos and planned communities.
Determine the HOA’s Operational Needs
Determining the operational needs of the HOA is next on the list. A few questions that need to be answered are:
- How will the HOA function and operate?
- What formal process will occur when changes need to be made to the HOA rules?
- Will there be committees, subcommittees or organizations that will need to be formed?
Oversight from a lawyer can make the answers clearer and implementation smoother. There are a lot of factors that need to be accounted for when creating an HOA. A one-size-fits-all approach is not possible, and all HOAs must be examined individually.
Communicate the Plan to the Neighborhood
Despite gaining the initial approval to form an HOA from your neighbors, maintaining enthusiasm and neighbor agreement throughout the process is pivotal to achieving success. Keep your neighbors engaged and informed through each step to make them aware that they are an important part of the process.
Honest and effective communication will keep your neighbors happy and help maintain a high level of enthusiasm for the HOA.
Craft the CC&Rs
Every HOA has CC&Rs: covenants, conditions, and restrictions. The terms the CC&Rs will be drafted depending on the needs of your community that you have identified.
It is important to remember that you need full support of the CC&Rs from your neighbors. The more severe restrictions are, the greater the likelihood is that some residents will not be accepting of them.
Being a part of an HOA limits flexibility of what a homeowner can typically do. This can make communities with an HOA less desirable for some, but more desirable for those looking for assurance that their neighborhood will continue looking nice. When a community looks more presentable, the thought is the homes in that area will retain their value.
In fact, a study conducted by Penn, published in the Proceedings of the National Academy of Sciences, showed that cleaning up and improving the appearance of a neighborhood can drastically reduce crime, make it safer, and increase perceptions of that neighborhood.
Form the Budget
You want to ensure that the HOA you are forming remains solvent, which means creating a budget that will address and cover all operational costs for the services the HOA will provide to the community.
- What will the cost of services rendered by the HOA be?
- Has a buffer for price increases or emergency repairs been made?
HOA fees do go up over time, but creating a realistic budget is key to preventing unnecessary price hikes.
Establish the HOA Fee Schedule
Typically, HOA fees are monthly, but they can be collected yearly. Determining the proper fee collection schedule for your community can be made through a combination of a vote by member homeowners and the financial needs of the HOA.
Name the HOA
In order to make your association official you will need to name your HOA. The name of your HOA does not really matter, but it should be appropriate. Most HOAs are named after the neighborhood in which they serve.
Ensure that the name that you have chosen has not been trademarked by another organization and be sure the name is not too similar to other associations names to avoid confusion.
Create an LLC or Nonprofit
As a legal entity an HOA should be formed as a limited liability corporation (LLC) or nonprofit. Filing to become an LLC or nonprofit is the first actual step to becoming a legitimate association. It is important to remember that once your LLC or nonprofit is established, the HOA will have to pay taxes.
Formulate the Governing Documents
The operational needs and services provided by the HOA will largely be the basis of the governing documents that you formulate. Typical governing documents will include articles of incorporation which must be filed with your Office of the Secretary of State. Also, included are your HOAs bylaws which address how often meetings are held, how voting is conducted, and the election process of board members.
Elect HOA Governors
At this point you will need to form your HOA board. Hopefully, you will have interested volunteers willing to serve on the board. When the HOA members select and vote for the board, ideally, the individual chosen should have experience in the position they take. For example, the treasurer should have some prior experience in finances.
Create a Website
Creating and hosting a website for your HOA will provide an online accessible central source of information for your HOA members.
If you do not have skills in web design, you can easily find services that create and host a website for you or purchase HOA management software that has a platform for websites integrated into it.
Obtain Insurance for the HOA
HOAs need insurance much like homeowners do to protect the association and its officers if something were to go awry.
According to Service Insurance Group, an HOA should have these types of insurance:
- General liability property insurance
- Regular liability property insurance
- Directors and Officers (D&O) coverage
- Social host liability coverage
- Garagekeepers coverage (if the association has a garage where non-members can park)
- Worker’s compensation and employee dishonesty bonds (if HOA has employees)
- Discrimination claims coverage
Monitor the Budget
Congratulations! You are now a legitimate HOA that is collecting fees from members, holding meetings, and providing its designated services. Now you must make sure you manage the budget correctly and maintain transparency in your actions.
The treasurer of the HOA should issue a regular report of the fees collected, an itemized list of how those funds have been allocated in addition to the remaining balance within the account.
Keep the Neighborhood Engaged
To be a successful HOA you will need to keep neighbor involvement and engagement. You should consider that even if you have a website for your HOA that you may have older residents that rarely log on or do not log on at all. To ensure you are reaching all HOA members you, should employ several different channels of communication – newsletters to recap meetings and events included.
Thoughtfully Handle Complaints
Complaints are simply to be expected when managing an HOA. You will need to have a thorough process for managing and addressing complaints as they arise. You will also need to determine how strictly your HOA will enforce the CC&Rs.
Tactfully and thoughtfully handling complaints will limit problems with members and ensure problems are dealt with in a fashion everyone can agree to.
Find An Experienced Phoenix HOA Real Estate Attorney
The attorneys at MacQueen & Gottlieb have significant experience with real estate and HOA law in Arizona. Our attorneys can assist you with any issues and help you understand your rights. If you live in an HOA community or are thinking of creating one, our attorneys can assist you. Contact us today at 602-726-2229 to schedule an initial consultation or make an appointment online.