Top 6 HOA Terms Every Resident Should Know
Becoming a homeowner is a dream come true for many people. Whether living in a condo, an apartment in the suburbs, or your lovely single-family detached home, it's always fascinating to at least know you own it?
HOAs are legal, non-profit associations created by residential developers in a specific location and share common amenities. Most are mandated to manage, run, and oversee common areas and amenities in a particular neighborhood. In addition, the community association ensures its members follow the governing documents, the rules, regulations, and conditions.
But are you conversant with the terms used by the homeowners' associations (HOA's)? Different terms such as BOD, CC&Rs, or even CAM, to mention, but a few can be new terminologies for an HOA or Condo newcomer or even a board member. To make life simpler and hustle-free for you, we will break down these terms and explain them bit by bit. Here are the six most commonly used HOA/Condo terms.
1. Board of Directors (BoD)
For community associations to function effectively, they create a board of directors elected by the homeowners and are authorized to act on their behalf. A BoD enforces guidelines, rules, restrictions, and conditions, referred to as governing documents put in place by the developer of the community. They also have the authority to enact fines if there is a violation of one of the set rules.
The board consists of a president, vice president, secretary, and treasurer. To be eligible to be one of the board of directors, they must be from the community association or the HOA they want to represent. Being a board member is voluntary, though members of the HOA must first elect you to get into the BoD.
“One of the biggest concerns of owning property in a common interest development is individual property rights may be subordinated to the collective interests of the owners' Association, and together with restrictions on the use of real property, constitutes one part of the Board's Duty of Care. This requires directors and officers to act in a competent manner as would "reasonably prudent" people in their positions, making decisions that they believe, in good faith, to be in the best interests of the Association as a whole, and after appropriate inquiry and due diligence. Courts will generally uphold decisions made by the board of directors of an owners association so long as they comply with this "business judgment rule" and represent good faith efforts to further the purposes of the common interest development, are consistent with the development's governing documents, and comply with public policy.”
- Geoffrey Browne CMCA®, AMS®, PCAM® Division President
2. Community Association Manager (CAM)
CAMs are tasked with performing basic tasks such as managing standard property/ amenities such as the elevators, swimming pools and resolving disputes and issues brought forward by the homeowners. CAMs work alongside the board of directors, whereby they provide information and advice to the board on making critical decisions in the Association. Unlike the board of directors, they can be contracted to help fill in where the board cannot perform due to insufficient expertise or profession in certain areas.
"An association hires a Community Association Manager (CAM) to act as the liaison between the community (board/residents) and the business partners that service the community, while they assist in running the day-to-day operations of the Association. The CAM guides both the board and unit owners and carries out the policies set by the Board of Directors. The CAM is not the decision-maker for the Association, but offers professional recommendations based on experience and education."
- Kimberly Sutherland, MBA, CMCA®, AMS®, PCAM® Vice President of Operations
3. Covenants, Conditions, and Restrictions (CC&Rs)
These are the declaration of covenants, conditions, and restrictions that are legal, filed with the county's recorder, and made part of the official real estate record. It outlines the rights, responsibilities, rules, and limitations in a specified neighborhood or community.
CC&Rs generally explain the homeowner's rights, what they can and can't do with their property. Regulations such as noise levels, pets, and parking areas are examples of what is stipulated in this declaration.
"I like to think of CC&R's as recipe ingredients. Each one compliments the other to create a recipe to protect each resident's investment, property value, community appeal, provide community harmony and comfort of living. The result is a beautiful community that residents are proud to live in and call home."
- Amber Jackson, Executive Vice President, Integration Management Office
4. Fiduciary Duty
Also, termed as fiduciary responsibility, is the ability of the board of directors to accept or take the responsibility to act in the best interest of the community or Association. The board is granted the ethical and moral right to decide what best benefits everyone in the community. The duty is only given to the BoDs whereby they have an obligation of loyalty/good faith, care, and act within the scope of authority.
The fiduciary duty prevents them from making decisions to benefit themselves or a slight majority of the Association, that is, the homeowners.
"Board members have the important role of being fiduciaries for the community in which they serve with these three primary objectives in mind – duty of loyalty, a duty of care, and duty to act within the scope of authority. This means to act in good faith to promote the best interests of the entire Association, to make informed decisions regarding association matters, and not act or make decisions on matters that are outside the boundaries of their roles and association responsibilities to homeowners."
- Stacy Titleman, LCAM, CMCA® Senior Vice President of Operations
5. Assessments and Fines
Fees concerning HOA are the legal assessments collected from every homeowner depending on different associations and governing documents. These assessments pay for property maintenance, repairs or are used to revamp the amenities. The levy amount is subject to agreement/decision by the board of directors.
Fines, contrarily, come into action when there is an infringement of the laid down rules. Fines are per the governing document or local/state laws. They range from improper disposal of your garbage to illegal parking, speeding in residential ways, or even when you don't pick it up after your dog messes someone's lawn.
“The monthly assessments should be calculated to cover all the associated expenses with room for unforeseen circumstances, however, every Board should take precaution in not over assessing their owners. Most boards are hesitant to increase the monthly assessments from year to year however it is prudent to increase when necessary to take rising costs from the association service providers and other expenses into consideration.
Every Association should take the time to adopt a thorough enforcement procedure to allow for fining when a violation of the governing documents occurs. Fine policies are now being structured where the fine fit the violation. For example, a fine schedule can be adopted for minor breaches with a lesser fine amount or larger fines can be imposed for blatant more serious infractions.”
- Rhonda Drews, PCAM® Regional Vice President of Operations at RealManage
6. Reserve Fund
As you expect, no organization can run effectively without having a clear budget and a source of funds to cater for it. Community association reserve fund is the money set aside expressly to cater for maintenance, renovations, and/or replacement of various components that don't necessarily transpire on an annual basis. For example, parking lot revamps painting works, roof replacements.
"It's important to hire a reserve professional to review the remaining useful life of your common elements and to review the current financial status for their future replacement. Reserve study professionals work closely with the management company to ascertain the community's current plans and to share any proposals or contracts that may also be relevant. Properly reserving for your community can impact the value of your homes, and it can impact the community's ability to maintain and improve the infrastructure that the residents rely upon."
- Kara Cermak, CMCA® AMS® PCAM® SVP, Learning & Development Community Manager Success Group