A management company is contracted by the Board of Directors to provide services such as: collection of assessments, supervision of subcontractors, obtaining estimates for subcontracted services and providing financial statements/information and income and expense reports. The Board may choose to outsource only financial or covenant compliance services to a management company while choosing to oversee the vendors and physical assets of the community.  Also, a management company can be a resource for problem solving, communications with homeowners and the Board of Directors and to serve in an advisory capacity. The management company reports directly to the Board and/or a designated member of the Board. All decisions are made by a majority vote of the Board of Directors.

The Association is most often a corporation by law, and therefore a governing body is needed to oversee the business of the Corporation. The Board of Directors is the elected governing body of the Corporation or a non-incorporated association. These Directors (the number is determined by your Articles of Incorporation and your Bylaws), create the rules and regulations for enforcement within the community, oversee that funds are being properly budgeted and have the duty to enhance, maintain, and protect the property values of the Association. The Board of Directors usually organizes several committees to aid in the decision making. Examples would be Architectural and Election Committees.

There are generally two areas of the annual budget:

1. The Operating accounts for utilities, landscaping, legal fees, common area maintenance etc.;
2. And the Reserve accounts for future (long term component) replacements such as exterior painting, re-roofing, re-paving, pool resurfacing, replacement of mechanical systems, etc. The individual assessment amount is usually determined by the number of units, homes or town homes built within a given Association. Thereafter, the Board of Directors of the Association determines the needs of the Association and the ensuing budgets (with the assistance of the property manager).

To summarize, your monthly assessment covers the operation, maintenance and repairs for which the association is obligated in accordance with the Covenants, Conditions & Restrictions (CC&Rs). Items such as insurance, taxes, water, electricity, refuse collection, landscaping, pest control, security services, janitorial, etc. are just a few items covered by the monthly assessments.

A portion of your monthly assessment should go towards funding the reserve account, which is for future repair or replacement of major components. Think of a reserve account as a savings account for a rainy day. Roof repair, pool/spa resurfacing, fencing, painting, floor covering, mechanical replacement (i.e. sump pumps), major mechanical systems repair, etc. are just a few of the long term components that are funded via the reserve account. The reserves vary for each community association.

The Declaration states that not paying the monthly assessment causes the owner to be subject to a lien notice at 30 days past due, as well as interest and possible late charges. A notice of lien and late charge is usually assessed soon after 30 days past due and is the first action taken. If there is no response from the owner a lien is then filed which could eventually result in foreclosure of the unit. The governing documents of your Association provide further information as it applies to your homeowners association.

Governing Documents give the Board of Directors authority and direction to govern the association. They consist of:

• Articles of Incorporation – Provide the legal basis for operating within State Corporation Codes.
• By-Laws – Outline how the association shall be governed and deal with the association as a corporation, i.e., elections, assessment collections, terms of office and duties of officers.
• CC&Rs – Conditions, Covenants & Restrictions that deal with the physical entities that comprise the association, i.e., use restrictions, easements, and annexation.
• Rules and Regulations** – Rules and Regulations adopted by the Board of Directors within the guidelines of the CC&Rs.
• Budget – Annual Budget prepared and distributed to homeowners. Your budget consists of anticipated operating expenses for the year as well as an outline of reserve allocations. Operating expenses include utilities, and maintenance of your association’s common areas. Your Reserve Fund is a type of savings account that covers (future) major expenditures and replacements (i.e., roofs, painting, pump/motor replacement, major mechanical systems, etc.).
• Deed to Common Area – You, as the homeowner, own an undivided portion of the common area either through your deed

Most associations have developed Rules and Regulations as provided for in the CC&R’s and adopted by the Board of Directors. Rules are established to provide direction to the homeowners for common courtesy with regard to parking, vehicles, pets and pool use hours, etc. In addition, your Association will adopt Architectural Guidelines with procedures for submitting requests to make exterior changes to your home and/or building. Such changes may include patio covers, decks, landscaping, exterior color changes or extensive interior changes and additions. These rules and guidelines are set up to maintain the aesthetic value and integrity of the community on behalf of all owners, and hopefully protect the market value of your investment as well. Violations of these rules may result in action by the Board of Directors and a fine. In addition, if you proceed with an exterior improvement or change, without written approval of the Board of Directors, or Architectural Committee, as applicable, you will be required to remove or correct the alteration and/or be fined for the violation.

The Organizational hierarchy of an association consists of:

• Board of Directors establishes policies and procedures.
• Management Company executes policies and procedures as established by the Board of Directors.
• Committees research and make recommendations to the Board of Directors who then makes the final decision, i.e. Newsletter Committee, Architectural Committee, Rules Committee and Grounds Committee.
• Sub-Contractors are professionals hired to perform services for the association. The Management Company oversees the sub-contractors.
• The Auditors work independent of the Board of Directors and the Management Company in order to provide a fair and impartial audit and review of your association’s finances.

In order to protect your interests in the association, the following types of insurance cover your association. Insurance requirements vary according to your property type and legal documents. Always call upon your Association’s insurance agent when considering purchasing a policy or when increasing or decreasing coverage or deductible. The following examples show various types of insurance available to homeowner associations:

• Property Damage (fire)
• General Liability (common area injuries)
• Directors & Officers/Errors & Omissions (questionable business judgments by your Board)
• Workers compensation** (protects against financial liability caused by injury to employees)
• Fidelity Bond (protects against theft of association dollars)
• Earthquake Insurance (optional)
• Flood Insurance (optional)

**Many associations may not require a workers compensation policy since the association may not have any paid employees (this holds true mostly for small and medium size homeowner associations). Occasional work performed by a plumber, an electrician or a garage repairman – these are services performed by independent contractors and not considered employees of the association (always ask for proof of insurance before allowing an independent contractor to provide services).

The majority of claim-related occurrences are covered under the Association’s liability insurance policy. Consult with your association’s insurance agent (and your association’s attorney) to see whether having a workers compensation policy is necessary for your association. As a general rule, we recommend all Associations carry a workers compensation policy. It is a small price to pay for peace of mind.

• Prepares agenda for meetings.
• Presides at all meetings of the Board and Association.
• Appoints and supervises all Committee Chairs.
• Liaison with Manager.
• Selects and trains Board Members for future leadership positions
• Responsible to control all meetings, keeping them moving, on time, and seeing that decisions are made in an orderly manner.
• Sets positive example for other volunteers.