How to form a Property Owners' Association
Homeowners’ associations (HOAs) are established to maintain a certain standard of quality in a neighborhood. These associations are usually nonprofits managed by property owners. The main goal of HOAs is to keep property values as high as possible in a given area. State laws govern and regulate these associations. Most people that want to learn how to set up a homeowners’ association are in newly developed properties, but residents from established neighborhoods sometimes seek to form an HOA as well.
Form a core group of people to start the HOA.
The group should be less than 10 people that will commit to doing the work required for setting up the association. Having more than 10 people will be harder to manage, leading to lower productivity.
◦ Determine a time and place to hold meetings. The initial meeting of the core group should result in electing a temporary chairperson. The core group should meet as many times as necessary to devise a strategy and come up with common neighborhood goals before establishing a first meeting for all residents.
Research local laws and regulations for forming an HOA.
Your state’s property codes determine the specific guidelines your community will need to follow in order to set up a home owners association.
◦ You can use online resources such as Lawyers.com to locate state codes and statutes.
◦ Consider hiring an attorney with experience in HOA formation if no one in your core group is a real estate law expert. An attorney can ensure you abide by all state laws.
Create by-laws, covenants, conditions and restrictions (CC&Rs).
These describe what rules the homeowners are held to and how the HOA will conduct operations, including meeting frequency, leadership election and voting guidelines. It’s sometimes easiest to start with existing CC&Rs then customize it to fit your own HOA. A real estate attorney with experience in documents for forming HOAs will be able to help you draft your CC&Rs.
Establish your HOA as a business.
◦ Obtain a Tax Identification Number. Contact the IRS to have one assigned to your HOA.
◦ Form an LLC or nonprofit corporation. Your real estate attorney will assist you in drawing up articles of incorporation to be filed with the government.
◦ Open a bank account. Since funds will be paid to the HOA and be spent on behalf of the HOA, you will need to determine the best bank account type for managing funds, whether it is a savings or checking account. Depending on the bank, you may qualify for account fees to be waived.
Elect officials You can use the HOA’s first meeting to elect officials or to schedule elections and go over the election process as presented in your CC&Rs.
Set up committees, if needed.
Committees are usually divided into 2 major categories.
◦ Internal affairs committees include fund raising, publicity, bylaws and social events.
◦ Neighborhood affairs committees include housing conditions, traffic safety, law enforcement/neighborhood relations, neighborhood maintenance, economic development and community services.