Your homeowner’s association does more than collect fees and repair fences. To best serve your community, your HOA has rules and regulations about how it operates. The HOA board and its members follow these rules to keep the community running smoothly.

These basic rules, for both the HOA and its members, are contained in what is called Governing Documents. As a member of an HOA, you should be familiar with these documents. They provide the guidelines for both the association and living in the community.

We’re going to tell you about five important documents and the purpose they serve for the HOA and its community members.

The documents fall into two general categories: Descriptive Legal Documents and Financial Documents.

Descriptive Legal Documents

Articles of Incorporation

This is the document that establishes your homeowner’s association. Like any business, the HOA must file articles of incorporation that establish financial responsibility.

This document is usually filed with the secretary of state. HOAs often file as non-profit organizations and some are filed before anyone moves into the community.

Articles of Incorporation contain basic information like the name, location, and purpose of the association. While it’s important to know it exists, it’s not a document that members will frequently review.

Bylaws

The Bylaws of an HOA are procedural documents. This is where you’ll find a description of how your homeowner’s association is run.

The Bylaws document rules about how meetings are scheduled and run and how board members are elected. You should find information here about the number of board members, term limits, who can vote for the board, and how often elections take place. Some HOAs also state specific qualifications that board members must meet.

Beyond establishing and maintaining the board and setting meeting methods, the Bylaws also set out the rights and responsibilities of the HOA. This is where you’ll generally find information about the collection of fees and dues and the enforcement of HOA rules.

Some Bylaws also document the required procedures for the creation of the annual budget.

Before you move into a home with an HOA, take a look at the Bylaws. It’s helpful to be familiar with the basic procedures of the organization and they can differ quite a bit from place to place.

Covenants, Conditions, and Restrictions (CC&Rs)

This is the meatiest of the descriptive legal documents. The Bylaws tell you that the board has the right to make rules, the CC&Rs tell you about those rules. This is a big document and one you should read thoroughly. It is an overview of the responsibilities of the members of the community.

CC&Rs cover a vast landscape of different rules and restrictions. From the use of common areas to what a member may have on their property, the possibilities are endless.

It’s common to see restrictions or rules about common areas like pools and green spaces. You may also find rental limitations, yard maintenance guidelines, fence restrictions, or house color restrictions.

Knowing the CC&Rs when you move into a home with an HOA will help you avoid accidentally violating them. The board is obligated to take action against violations, and those may include warnings, fines, and in extreme cases legal action.

You may discover that the CC&Rs have been amended over the years through procedures outlined in the Bylaws. This is common for older HOAs. In most states, HOA Covenants, Conditions, and Restrictions documents must be filed with the county.

The board can make additional rules and regulations as long as they don’t conflict with the CC&Rs (or violate the law). These rules fill in any gaps in the CC&Rs, adding more specificity and detail.

The biggest favor you can do yourself before moving into a community with an HOA is to understand the nature and scope of the CC&Rs. Read Homey’s CC&R Guide to learn more about this important document.

Financial Documents

Operating Budget

Think of the Operating Budget as the HOA’s equivalent of your home budget. Like your budget, this document outlines regular spending that is anticipated and often recurrent. It also includes income. Most HOA income is in the form of members’ dues and fees, but some HOAs may include income from HOA fundraising events, rental fees, investments, or other additional income streams.

The Operating Budget is where you’ll find projected expenses for common area maintenance, landscaping, and utilities. Taxes, insurance, fees for legal or other business services, and other basic expenditures are part of the Operating Budget.

Looking at the Operating Budget tells you how the board is spending, and planning to spend, your fees.

Reserve Study

The Reserve Study is a document the board uses to set aside money for large projects or unexpected expenses.

A Reserve Study helps the board understand the long-term needs of the community and plan to fund those needs. For example, a Reserve Study may indicate that a common building will need a new roof in five years. It will also estimate the cost.

The board is then able to plan fees and assessments to fund that project. That money is kept in the Reserve Fund.

The Reserve Study also helps the board decide how much money to keep in the Reserve Fund for unexpected expenses like storm damage. Because estimating these expenditures depends on the state of the economy, the study must be current.

Conventional wisdom holds that an HOA should have a new Reserve Study done every three years. Your HOA may have one more often when variables like inflation are affecting estimated costs.

As a member, reading the Reserve Study helps you understand the long-term goals of your HOA. A healthy homeowner’s association has 70-100% of those goals funded through regular homeowner contributions.

Read Homey’s Reserve Study Guide to learn more about understanding this document.

A homeowner’s association is designed and obligated to act in the best interests of the community. Understanding the legal and financial documents related to an HOA may help you decide on a home purchase or run for the board of your current HOA.

If you have questions about homeowner’s associations, read more articles at Homey Learn or contact us today.