Some associations must submit an HOA annual report to homeowners. But, what is the purpose of this report? And what should it include?
For a large chunk of homeowners associations, filing an annual report with the Secretary of State is nothing new. But, did you know that some HOAs must also prepare an annual report for homeowners?
HOA laws can vary dramatically from one state to another, so not all associations need to do this. In Minnesota, for instance, homeowners associations are required to provide members with annual reports. You will find this requirement under Minnesota Statutes 515B.3-106, which states that HOAs must prepare an annual report and give each homeowner a copy of the said report.
On the other hand, California law does not require homeowners associations to provide a full annual report to members. Instead, associations must give homeowners some financial details. Additionally, there are some states, such as Oregon, that do not require associations to prepare an HOA annual report for members at all.
Because not all states have the same requirements, it is important that your HOA board examines the laws in your state. It is a good idea to seek help from an experienced HOA attorney or a management company. This way, you can protect your association and board from possible liability arising from noncompliance.
While it may seem tedious to prepare, the annual report remains an important part of community governance. For one thing, the homeowners association annual report is a way to exercise transparency within your community.
It keeps homeowners informed of the state of the association’s finances. It lets them know that the board is using their dues well and for the benefit of the community as a whole. This, in turn, sows trust between the board and the homeowners. Additionally, it helps prevent fraud and embezzlement within your association.
Apart from that, the HOA annual report is a way for the HOA board to highlight its own achievements. Serving on the board is difficult and often thankless. People expect you to perform miracles for no pay, gratitude, or accolade. Presenting a positive annual report gives you an opportunity to tell homeowners that you did a great job managing the association’s finances the past year. If nothing else, the HOA or condo annual report is a reward in and of itself.
An annual report basically provides homeowners with a picture of the association’s finances. Therefore, it should include all pertinent financial information. Again, state laws vary in this arena, so make sure to check yours first.
In Minnesota, for instance, annual reports should include the following:
Given how state laws can vary, there are many homeowners associations that don’t need to provide members with an annual report. However, it is wise to do so. Some homeowners associations present an HOA president’s report, which has a similar function as the annual report.
The president’s report generally consists of the same financial information. In addition, it can also contain any significant actions the board took and other updates regarding the community. The board president usually delivers such a report during the annual meeting. Most associations experience a higher attendance rate for annual meetings compared to board meetings, so it is the perfect time for such a presentation.
Keep in mind that the annual report is meant to communicate HOA matters to residents and recognize what the board has accomplished. If it is not mandatory for your HOA to deliver an annual report to homeowners, consider doing it anyway. Of course, a president’s report works just as well.
Just because it is called an HOA annual report does not mean it should include every single detail related to the association. Some information is inessential, while others are confidential. Do not disclose any protected or sensitive information about the association or its members. Going against this golden rule is a surefire way to get yourself embroiled in legal trouble.
Unless state laws say otherwise, it is best to withhold the details of any pending litigation your association is involved in. In Minnesota, you are required to provide the status of the litigation, but more detailed information is not necessary.
Minnesota law also requires you to include the total past due assessments in your annual report. Take note that this requirement only asks for the total amount of unpaid dues. The report should in no way list down the names of delinquent owners and how much they owe.
The HOA annual report serves several functions. It keeps homeowners in the loop regarding the financial condition of the association as well as gives board members a subtle pat on the back.
While it may not be required for all associations, it is a good idea to practice issuing annual reports to homeowners in your community. This way, you can remain transparent and protect your board from liability.
Staying on top of a homeowners association’s finances is hard to do; adding an extra layer of reporting makes it even harder. Make life easier for your HOA board by hiring an HOA management company. Start looking for the best one in your area with the help of our online directory.