- What is a Homeowners Association?
- Why a Homeowners Association?
- What is the Maryland Homeowners Association Act?
- What are the Homeowners Association Documents?
- How is a Homeowners Association Run?
- Where does the money come from to run the Homeowners Association?
What is a Homeowners Association?
A Homeowners Association is an incorporated or unincorporated entity which owns real and personal property that is available for use by all lot owners within the community; has authority to levy and collect assessments from lot owners to maintain property owned by the association and to promote the community; enforces the covenants and restrictions contained in the recorded declaration, unrecorded by-laws and duly adopted rules and regulations.
Each homeowners association consists of Lots upon which members have their homes and other improvements. Homeowners associations are either Mandatory or Voluntary. If mandatory, then the lot owners must be members, must comply with the covenants and restrictions and must pay assessments. If voluntary, then the lot owners may elect to join the association, pay the assessments and receive the benefits of the use of the community facilities or amenities. Most new homeowners association are mandatory membership associations.
The covenants and restrictions applicable to a homeowners association customarily take the form of a Declaration of Covenants, Conditions and Restrictions which is recorded among the county land records where the property is located. It creates the authority for a homeowners association to impose upon the lots, or upon the owners or occupants of lots, a mandatory fee or assessment.
The homeowners association actually has legal title or a deed to the common areas. Lot owners or occupants are the Members and have the right to use the common areas subject to the regulation by the homeowners association.
A homeowners association, whether incorporated or unincorporated, includes an elected Board of Directors and members who are the lot owners or occupants of dwellings on lots.
Why a Homeowners Association?
New developments are often required to have recreation and open space lands for the use of lot owners and occupants. In the past these lands were often held in trust by the counties. In an effort to have these lands owned and maintained by the associations who receive their benefit, the lands are deeded to the associations who must then have a method of collecting fees to maintain and improve the lands. In addition, the homeowners associations are the primary entities to enforce community covenants and restrictions in order to maintain property values within the communities.
What is the Maryland Homeowners Association Act?
The Maryland Legislature has adopted laws requiring disclosures to purchasers that a lot is located within a homeowners association for which fees must be paid; sets forth warranties; rules regarding meetings of the association; family day care activities and other aspects of homeowners associations. The Maryland Homeowners Association Act is codified and can be found in the Annotated Code of Maryland as part of the Real Property Article, Title 11B. The Act is refined by amendments from year to year.
What are the Homeowners Association Documents?
The Articles of Incorporation for incorporated homeowners associations establishes the homeowners association as a legal, corporate entity. Articles of Incorporation are recorded with the Maryland State Department of Assessments and Taxation.
The Declaration of Covenants, Conditions and Restrictions is a written statement by the owner of the land within the homeowners association, subjecting the land to assessments, covenants, restrictions and rules. It describes the land included in the homeowners association, the lots and the open space and recreational lands. It refers to the recorded plats and states whether or not there will be any future additions to the homeowners association.
The Declaration must be recorded among the land records of the county where the community is located. A homeowners association adopts By-Laws which describe and provide for, among other topics, the Board of Directors, officers, insurance requirements, procedures for meetings, voting rights, and adoption and enforcement of rules, regulations and amendments.
The Record Plat or Subdivision Plat for the homeowners association is recorded among the plat records of the county where the land is located. It shows the number of lots, the location of the open space and recreational lands and often contains important notes governing the use of lots, streets, and the open space and recreational lands.
All of the above documents are prepared before you purchase your lot. Purchasers of residential lots located within developments with mandatory fees, governed by homeowners associations, both new and existing, must receive, as a matter of law, a Disclosure Package from the seller or management agent which includes copies of most of the documents set forth above as well as other information. Maryland law also gives the contract purchaser of a lot within a homeowners association the absolute right to rescind (cancel) his contract within a short time after receiving the disclosure package or any amendment to the disclosure package. If you proceed to settlement without the complete disclosure package you waive your right to rescind. It is important that you read this information and understand it before or immediately after you sign your contract to purchase your lot. A lawyer is trained to prepare, interpret and explain these documents, and to assist you with them. By reading and understanding this information you will better appreciate the type of life-style in which you are investing.
An abbreviated version of the disclosure package for each homeowners association is maintained in a special document file at the Circuit Court for each county where the homeowners association is located. The homeowners association Depositories are required for existing and new homeowners associations with mandatory fees. They provide basic information from which further inquiry can be made to obtain all of the material details regarding the homeowners association.
How is a Homeowners Association Run?
Typically, a homeowners association is run by all of the lot owners (initially it may be the developer also known as the declarant) formed together as the incorporated or unincorporated homeowners association.
The lot owners constitute the members of the homeowners association and are analogous to stockholders of a stock corporation. They elect representatives to the Board of Directors. The Board of Directors chooses the President, Vice President, Treasurer and Secretary from among themselves. The Board of Directors and officers make the decisions for the homeowners association from day to day.
In most cases the Board of Directors may delegate its authority to manage the homeowners association from day to day to a professional Management Agent. The Management Agent is answerable to the Board of Directors and acts only with authority from the Board.
Where does the money come from to run the Homeowners Association?
Lot owners pay annual Assessments into a general fund. Assessments may be billed and payable monthly, quarterly or annually. The amount of the initial assessment is established by the developer and is stated in a proposed annual budget. Subsequent annual budgets are based upon past experience and anticipated expenditures. The Board of Directors commonly proposes the budget and the members approve it. The budget includes costs for maintenance, common utilities, planned additions, insurance, administration and reserves for future major expenditures for homeowners association property. Failure of a lot owner to pay the association assessments may result in a lien against that lot being filed among the land records of the county. Lawsuits and costly foreclosures may result if assessments continue unpaid. Needless to say, management of a homeowners association can be a big responsibility and a big business.
Homeowner association living is a life-style in which property owners join together to own and maintain open space and recreational lands for their joint benefit and agree to subject their lots and improvements to covenants and restrictions in order to maintain property values. Your lawyer can explain those parts of your homeowner's association documents, which will have the most direct impact on you, such as assessments and maintenance responsibilities and ownership rights. The more informed you are regarding your responsibilities and rights; the more you will enjoy your homeowner association living experience.