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Although there are plenty of homeowner association horror stories and nobody claims to like them, they continue to grow in popularity. According to Investopedia, half of all new houses in the U.S. between 1980 and 2000 were built and managed under an HOA. Typically formed by developers, homeowners in areas not governed by a community association are organizing them too. They recognize their use in handling issues such as security, ensuring property maintenance and contracting for services not provided by local governments.

There are many steps in organizing an HOA, which is essentially a business, and you will need the help of an attorney, particularly when it comes to following fair housing laws. You will need to establish its business structure first, forming it as a nonprofit organization or an LLC. Other steps include:

  • Drawing up legal documents that will govern the association, such as bylaws. These bylaws will define how often the HOA meets, how members vote and elect leaders and other operating procedures.
  • Determining the covenants, conditions and restrictions (CC&Rs) needed to establish rules that homeowners must follow and how the HOA manages its business. Once the CC&Rs have been decided, they should be translated into words that are easily understood by residents.
  • Creating a system and procedures for modifying the CC&Rs.

Next, come election of board members and officers. As in any business, the treasurer should know accounting methods and how to manage funds, while the secretary should have some writing and administrative skills. If the officers do not have these skills, the HOA can contract for these services.

Directors’ and officers’ insurance can protect your board members in homeowner lawsuits that are almost sure to come at some point. Homeowners have sued HOAs over parking rules, minor housing changes, not allowing children to live in the community and many different reasons.

An HOA will need to collect and manage dues, as well as call for special assessments for unexpected expenses that cannot be covered by reserves. You also need to establish a system for keeping homeowners informed of all board business, enforce HOA rules and resolve complaints promptly.

Although its primary function is to handle the community’s business, an HOA can also serve a social purpose as well. Bringing homeowners together socially can help make for a more pleasant community and one that can resolve issues in a friendly manner.

The information in this article is of a general nature and is not meant as legal advice.