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HOA Terminology

The world of homeowner associations can be confusing for new board members. Below is a quick reference list of HOA Terminology in an easy-to-understand format. If SCS manages your community, training is provided to new board members to help them get up to speed on key terms and procedures.

For those of you who are new to homeowner associations, we’ve provided a list of homeowner association (HOA) terminology to get you oriented.

Duties of Board, Homeowner and Manager

Board of Directors Duties

It is the responsibility of the Board of Directors to maintain the value of the property and a good quality of life for the residential community. In addition, their duties include governing smoothly, enforcing the community’s rules and establishing and maintaining the budget.

Homeowner Duties

It is the responsibility of the Homeowners to maintain their residences on a daily basis, rely on services from the Community Manager and vote on decisions from the Board that will provide a good quality of life.

Community Manager Duties

It is the responsibility of the Community Manager to work in balance with the Homeowners and the Board of Directors. Community Managers must be problem-solvers and multi-task oriented.

Basic Governing Documents

State Enabling Statute

The following are documents that regulate community life. Documents may vary depending on type of Association (condo, townhome, neighborhood, etc.) and are as follows:

  • State Law
  • Declaration of Covenants or Master Deed
  • Conditions and Restrictions
  • Bylaws
  • Rules and Regulations
  • Plats of Survey and Easement Agreements (may be separate, often included in the declaration)

Basic Condominium/Townhome Legal Documents

State Enabling Statute

Permits the creation of a condominium or townhome form of ownership and prescribes the basis of determining ownership interest, rights and obligations of the owners, duties and powers of the association, and the process of dissolution of the condominium.

Subdivision of Condominium/Townhome Plat

Describes the location and nature of the common elements and the units.

Condominium Declaration or Master Deed

Defines the units, common, and limited common elements and is the collection of covenants imposed on the property to provide for. Covenants imposed include the following:

  • The basis for allocation of percentage ownership interest
  • The obligation of each owner to share in funding the cost of association operations
  • The power, authority, and responsibility of the association in its operations and in making and enforcing rules

Individual Unit Deeds

Comprises the individual unit deed.

Articles of Incorporation

Creates the association as a corporation under state corporate statute and defines its membership and sets forth the process for creating the board of directors, voting procedures, etc.

Bylaws

Implement, in specific detail, the provisions of the Declaration and the Articles of Incorporation regarding the association operations including delineation of the meeting process, election procedures, powers and duties, board meetings, committees, insurance requirements, rule-making and enforcement process.

Rules and Regulations

Set forth the operational powers or provisions and the use restrictions adopted by the association.

Legal Docs for Homeowner Associations and the Hierarchy of such Documents

Subdivision Plat

Describes the location and nature of the common property and the individual lots.

Property Deeds

Comprise the individual lot deeds and the deeds to common property, which give a legal description of the property.

The Declaration of Covenants, Conditions, and Restrictions

The declaration of Covenants, Conditions and Restrictions (CC&R’s) is the collection of covenants imposed on all property within the development and provides:

  • For automatic association membership of all owners and the basis for voting rights
  • The obligation of each owner to share in funding the cost of association operations
  • Certain restrictions (architectural control and other rules) on the use of the property and the association’s enforcement powers
  • Sets forth the power and authority of the association to own and maintain the common property and to make and enforce rules

Articles of Incorporation

Creates the association as a legal entity under state corporate statute; defines the board powers and responsibilities of the association and its membership; and, sets forth the process for creating the board of directors and voting system.

Bylaws

Implements, in specific detail, the provisions of the CC&R’s and the Articles of Incorporation regarding the association operations, including: delineation of the meeting process, election procedures, powers and duties, board meetings, committees, insurance requirements, rule-making and enforcement process.

Rules and Regulations

Set forth the operational powers or provisions and the use restrictions adopted by the association.

Applicable Civil Rights Laws

• Prohibition against racial discrimination as stated by the Civil Rights Act of 1866
• Equal Credit Opportunity
• Fair Housing Amendments Acts, 1988, applies to sale of residence
• Does not prohibit discrimination by owners, if selling or renting as long as they own 3 or less homes
• Board is prohibited from discrimination in exercising its 1st right of refusal
• Association must abide by laws prohibiting discrimination against families with kids
• Persons with disabilities (at own expense) must be allowed to make accommodations per the Americans with Disabilities Act, 1993

Accounting Basics

Cash Method of Accounting

A method of accounting that only records income and expenses when cash physically changes hands. Financial reports only reflect cash transactions. Because all obligations are not recorded until cash changes hands, this method does not provide an accurate portrayal of the financial condition of the association at any given time.

Accrual Method of Accounting

A method that keeps track of all financial activities, including revenue as it is earned (as opposed to when it is received) and expenses as the obligation is incurred (as opposed to when it is paid). This makes for a more accurate determination of the financial condition of the association at any point in time. Also, this is a better method for multi-year tracking of capital reserves credits and deficiencies. The primary disadvantage is the greater complexity and technical knowledge that is needed to maintain the records and understand the reports.

Capital Reserves

The Board has the obligation to repair and replace major capital facilities, buildings, and equipment of the association. The ideal method of providing for these future expenses is the establishment of a capital reserves system and budget to assure that such funds are available when needed. With knowledge that the future holds predictable major expenditures for repair and replacement of facilities and equipment, the association could begin the gradual accumulation of funds through a reserve account to meet all or a portion of that expense when it comes due.

Should you have any further questions about HOA Community Management terminology, please give us a call at SCS and we’ll be happy to help you: (803) 865-5470