How to Verify If an HOA Complies with Legal Requirements?

Homeowners’ Associations (HOAs) must meet legal obligations regarding maintenance and financial health. As an agent or appraiser, knowing if an HOA complies is crucial, as it affects an apartment’s marketability and value.

What Legal Requirements Must HOAs Meet?

1. Maintenance Reserves:
   • The 2018 Improved HOA Functioning Act requires HOAs to reserve funds annually for major maintenance. This can be:
     • 0.5% of the building’s reconstruction value.
     • Or based on a long-term maintenance plan (LTMP).
2. Mandatory HOA Establishment:
   • An HOA must be created when a building is divided into apartment rights.
3. Regular Meetings:
   • HOAs must hold at least one meeting annually.
4. Financial Transparency:
   • HOAs must prepare annual financial reports and provide insight into their financial health.

How to Verify Compliance

1. Request Documents:
   • Deed of division: Confirm the HOA’s establishment.
   • Maintenance plans or financial reports: Check for adequate reserves and plans.
2. Review Meeting Minutes:
   • Look for discussions about compliance and regular meeting schedules.
3. Assess Financial Health:
   • Ensure the HOA has sufficient reserves to avoid unexpected costs for owners.

Why Does This Matter?

Non-compliant HOAs pose risks:

• For Buyers: They may face unexpected expenses.
• For Sellers: Non-compliance can make sales difficult.

Practical Tip

If an HOA isn’t compliant, advise owners to address these issues before listing the property for sale.