HOAs are governed by a lot of laws and documents, particularly the Governing Documents including Declarations, Rules and Regulations, and Bylaws. Most HOA’s and Common Interest Communities (CIC) have all three of these documents on file and active at any given time. We like to think of HOA rules as blades of grass. At the base, you have those Declarations that are embedded in the title of the property, and they are inflexible, and very difficult to change. In fact it takes a 67% majority vote by members, approval of mortgage holders, and the modification of the Property Title to change the Declarations. Anything in an existing Declaration is further must not be disallowed or changed by the By-Laws or Rules and Regulations. The Rules and Regulations and the Bylaws are like the tops of the grass; bendable and able to blow in the wind., but must always adhere to the base of the blade of grass.
Changing HOA Rules
The Rules and Regulations are voted on based on the Declaration requirements. Some HOAs require a majority vote of the Board or of the entire HOA constituency. That’s how you change rules. You cannot deny something that is allowed in the Declarations. For example, if the Declaration doesn’t say that rentals aren’t’ allowed, then you can effectively have a rental property. But some Boards will vote to disallow rentals in their Rules and Regulations. That’s not actually legal or enforceable. So you have to be careful that the Rules and Regulations are only amending and not changing the Declaration. The same thing holds true with the Bylaws.
Enforcing the HOA Rules and Regulations
For Rules and Regulations and Bylaws to be enforceable, they have to be clear and voted on properly by the Board or the constituency, subject to the specific procedures outlined in the Declarations. Fines are typically added to those rules to put some teeth behind them and make sure people comply. Those fines must be stipulated and consistently and fairly enforce throughout the HOA. Generally the act of enforcement is a process, not a one- time event.The process should start with a polite warning letter. Give people who have a lapsed or are non-compliant on an issue an opportunity to cure the issue without a financial impact. Fines will discourage future violations, gain compliance and maintain the hospitable environment of your HOA without alienating your members. For those who still do not comply or correct the issue, further actions is generally needed.
Escalating Enforcement PenaltiesEnforcement rules should be escalating in nature. One of the best tools is an escalating fine structure. If you have a pet rule, for example, that says the maximum size of a pet is 25 pounds, and a member is in violation, you’ll start with a warning letter telling them to remove the pet. Your subsequent letter might have a small fine, then a larger fine after a week and so on until the issue is resolved. Escalating the fine will allow you to impose a small fine for those who will comply and change their behavior quickly. It also has a large enough stick for those who are serial violators or disregarding the HOA rules or reminders.
Accounting for HOA FinesTo be most effective, fines are usually charged and paid before member dues. With a violation, there will be a fine that is submitted on a monthly statement with the regular monthly dues. The practice of most HOAs is to apply incoming funds to the fine first and then the balance to member dues. When this is done, the fine is immediately paid and any lapse in payment is a subsequent delinquency in the dues payment which can also trigger late fees. Stipulate this practice in your Rules and Regulations or Bylaws.
It’s hard to say how much a fine should be. The general rule is that it’s high enough so people comply with rules. If there are a lot of belligerent members who don’t follow the rules, raise it or convert it to an escalating fine structure. You’ll know where the threshold is to gain compliance over the fellow non-compliant members. If they’re willing to pay $25 a month to have an unlawful pet, raise the fine level so the violations are not ignored and become perpetual.
Align Rules and Regulations with Legal RequirementsFinally, make sure all your Rules and Regulations are compliant with local, state, federal laws. This includes fair housing, HUD and EPA statutes. Make sure the rules you instill are attorney reviewed and clearly articulated. Document all the necessary votes and be ready to enforce them consistently and fairly.
33rd Company® can help you find some of the more effective verbiage and fine structures that will benefit your HOA. A strong management company can be an advocate for the HOA and help enforce the rules. If you have any questions about how to handle this, please contact us 33rd Company Minnesota.