Real Estate developers create a legal corporation known as a Homeowner's Association (HOA) when they are ready to manage and sell the homes they built for residential communities. Each such corporation needs HOA governing documents to enforce the rules for homeowners. So, what kind of documents are we talking about? That's a good question. Luckily, we've got four good answers.
Reason #1: Articles of Incorporation. The Articles of Incorporation create the HOA as a legal entity, a non-profit corporation. The Articles are formal, written, and usually reserve voting rights and privileges for the developer to run the project during its beginning stages. The corporate articles also provide the legal avenue for the developer to turnover the project and the legal and financial responsibility to homeowners once the developer sells a certain number of units (usually around 2/3 of the units). The Articles are where you will find details on the Board of Directors composition.
Reason #2: By-Laws. The By-laws, also in writing, are the operational guidelines for running the HOA. They determine operational issues such as notice requirements, how many times a year the Board meets, how many Board members will serve, elections of board members, roles/responsibilities of Board members, how often membership meets, and what constitutes a quorum for the Board.
Reason #3: Declarations, Covenants, Conditions & Restrictions (DCCR). These are the written rules that set out the restrictions and conditions on the use of the property covered by the HOA. Homeowners agree and accept the DCCRs as a membership condition in the HOA. They flesh out the details behind the Articles of Incorporation and Bylaws with policies and procedures for enforcement by those higher authorities.
The Declarations are where you look for the stated goals and purpose of the HOA as well as the governing and managing infrastructure. Declarations lay out the common and limited common areas. They allocate the responsibilities for maintenance and repair between the owners and the HOA community. They describe the budget process and assessments of HOA fees as well as the protective standards and use restrictions. Here is where you find the process for handing off the community governance and financial responsibilities from the developer to the association.
Examples of HOA governing policies are similar to the policies you would expect to see for general corporations and their Boards of Trustees:
- records retention;
- collections of delinquent dues assessments;
- enforcement of covenants;
- how the Board conducts meetings;
- Board minutes and resolutions;
- adoption of policies;
- reserves and investments thereof; and
- arbitration or other alternative dispute resolutions.
A few examples of HOA rules, regulations, and restrictions are:
- whether the community allows pets and any restrictions on breed or size
- restrictions on building colors, height of fences (if allowed)
- restrictions against barbecues, outdoor clothes lines, backyard pools
- parking spaces (how many for each unit and whether assigned)
- ages of residents
- architectural restrictions on changes
- other conditions that affect homeowner use and enjoyment of the property.
The HOA Board enforces the various covenants/restrictions or homeowners may bring legal action against violators. DCCRs "run with the land" which means all subsequent buyers take the land subject to the same adopted restrictions. In most states, the HOA files the DCCRs with the County Recorder of Deeds and provides them to prospective buyers so they understand them before they buy.
Note: The rules and regulations cannot conflict with higher level authorities.
Reason #4: Hierarchy of the governing documents. We have listed the governing documents below in order of the high to low authority level. The higher levels have more authority than the levels beneath them and are dispositive when provisions are inconsistent between varying levels of authority:
- plat (The map, or plat, provides the physical layout of the community. It describes the areas that are common areas and where the units lie. It also indicates where easements exist and may have notes.)
- articles of incorporation
- resolutions. (Resolutions are the formal documents -- outside of the Board minutes -- that address official Board actions taken during meetings and noted in minutes.)
To learn how important the governing documents are when communities have Master Agreements and sub-HOAs, read the Heraldextra.com's article entitled "Eagle Mountain Ranches HOA lawsuit decision of $14M in damages brings both sides to the table.