Greater Los Angeles Chapter, CAI Executive Leadership Summit - 2024

Earlier this month, Bryan and I had the opportunity to attend the two-day CAI Executive Leadership Summit at the beautiful Langham Huntington Hotel in Pasadena, CA. The summit was a deep dive into the future of HOA management, focusing on people, technology, and business development—three areas that are crucial to the success of the communities we serve.

We explored the latest innovations, especially in AI and how it can improve efficiency and service for homeowners associations. We also gained valuable insights into leadership and growth strategies, all of which will help us continue providing the highest level of service to our clients.

One of the highlights of the summit was the networking—it allowed us to connect with industry leaders, exchange ideas, and learn from their expertise. We’re bringing back innovative insights that we believe will directly enhance the communities we manage. We’re eager to implement these new strategies and tools to help our communities flourish.

HOA Board Member Training: Key Principles & Responsibilities

If you're stepping into a new role on your HOA board or just looking for a refresher, you've come to the right place. Being an HOA board member comes with big responsibilities, but it also provides a great opportunity to make a positive impact in your community.

In this article, we’re covering the core principles that every board member needs to know. From the election process to fulfilling fiduciary duties, this guide will help you confidently navigate your new role and contribute effectively to your community’s success.

Board Structure and Responsibilities

Election and Appointment: Board members are elected by homeowners, and once elected, specific roles (President, VP, Treasurer, Secretary) are assigned.  While the board can delegate certain tasks, it cannot delegate its authority—the board remains the ultimate decision-maker, the "boss" of the HOA.

Key Responsibilities:

• Decision-Making: Boards are responsible for making critical decisions affecting the community.

• Budget Approval: Boards must approve and oversee the HOA budget.

• Policy Setting: Boards establish policies that govern the community.

• Loyalty & Fiduciary Duty: Board members must always act in the best interest of the community, free from personal bias.

Board Positions and Voting Power

Each board position, regardless of title, gets one vote, ensuring all members have equal decision-making power. Common roles include:

• President: Leads meetings and represents the HOA.

• Vice President: Assists the President and stands in their absence.

• Treasurer: Manages financials.

• Secretary: Keeps records and meeting minutes.

Understanding Fiduciary Duty

1. Confidentiality: Keep sensitive info private.

2. Loyalty: Prioritize the community’s interests over personal gains.

3. Competence: Act with the necessary knowledge and skills; seek professional advice when needed.

4. Enforcement of Governing Documents: Ensure community rules and regulations are upheld.

5. Impartiality: Stay unbiased in decision-making.

6. Financial Integrity: Keep HOA funds separate from personal accounts.

7. Duty to Annually Disclose: Regularly disclose any conflicts of interest and financial details.

The Business Judgment Rule

This rule protects board members when they:

• Act in Good Faith: Make honest decisions with the community's best interest in mind.

• Act Prudently: Take actions carefully and responsibly.

• Seek Advice: Consult experts when needed.

• Stay Impartial: Avoid personal gain in decision-making.

Conflict of Interest

Avoid conflicts of interest. If one arises, the board member must step away from related discussions and decisions to maintain trust and integrity within the community.

Handling Rogue Board Members

A rogue board member acts against the board's decisions or the community's interests. Here’s how to handle the situation:

1.   Document the Misconduct: Keep records of actions.

2.   Issue a Warning: Formally outline the issues.

3.   Start Removal Process: Follow governing documents for removal.

4.   Insurance Caveats: Be aware that Directors & Officers insurance might not cover willful misconduct.

Special Committees

Committees help streamline operations by handling specific tasks (e.g., landscaping, safety). They report directly to the board.

Types of Meetings

Homeowner Meetings:

• Annual Meetings: For elections and community updates.

• Special Meetings: Called for urgent issues.
  Notices must be posted 10-30 days in advance, and agendas must be detailed and available for review.

Board Meetings:

• Regular Meetings: Held consistently (e.g., monthly).

• Special Meetings: For specific matters that arise.

• Emergency Meetings: Called for urgent situations.
  Notices should be posted at least 4 days in advance, with detailed agendas.

Meeting Formats:

• Executive Sessions: Closed meetings for confidential matters.

• Open Sessions: Transparent meetings open to homeowners.

Understanding and following these principles ensures effective HOA governance. By staying true to these guidelines, board members can serve their community with integrity, maintain trust, and uphold their duties.

Understanding the HOA Budget: A Guide for Board Members & Homeowners

The HOA budget is more than just numbers; it’s the backbone of the community’s financial health. It outlines how we plan to maintain shared spaces, fund essential services, and prepare for future needs. From covering routine maintenance and utilities to setting aside reserves for major repairs, the budget ensures the neighborhood remains well-maintained and financially secure. This guide will help you understand how the budget is created, the roles of the board and management, and how your dues are put to work to benefit everyone. Dive in to learn how we keep the community thriving!

Purpose of the HOA Budget: The HOA budget is a crucial annual financial plan that outlines how the association will manage its revenues and expenses. It ensures the community has the necessary funds to maintain common areas, amenities, and services, while also preparing for future needs. Here's how the HOA budget is typically used:

• Maintenance and Repairs: Covers routine maintenance and repairs for common areas such as landscaping, pools, clubhouses, and other shared facilities.
  

• Utilities: Pays for utilities that serve common areas, like water, electricity, gas, and sometimes shared internet or cable services.
  

• Insurance: Funds insurance policies that protect common areas, provide liability coverage, and, in some cases, cover parts of individual units depending on the HOA’s scope.
  

• Reserves: Allocates money to reserve accounts for future large expenses, such as roof replacements or road repaving, helping to avoid special assessments.
  

• Administrative Costs: Covers management fees, accounting, legal fees, office supplies, and other administrative expenses.
  

• Security and Safety: Funds security measures like gates, security personnel, or surveillance systems, as well as safety features in common areas.
  

• Community Activities and Services: Supports community events, recreational activities, and additional services like pest control or street cleaning.
  

Why It Matters:
The budget helps the HOA board make informed decisions about spending, setting regular assessments, and maintaining the community’s financial health. It also promotes transparency and accountability, showing homeowners how their dues are being used.

Role of Management in the Budgeting Process: The management team plays a supportive role in the HOA budgeting process by:

• Providing Financial Data & Reports: Supplying the board with up-to-date financial information.
  

• Drafting the Preliminary Budget: Assisting in the creation of the initial budget draft.
  

• Allocating for Reserve Funding: Ensuring reserves are adequately funded according to reserve studies.
  

• Recommending Cost-Saving Measures: Suggesting ways to reduce costs without sacrificing service quality.
  

• Facilitating Communication & Distribution: Helping communicate the budget to homeowners and distribute the finalized version.
  

• Monitoring and Reporting: Tracking spending throughout the year and providing updates.
  

Role of the Board of Directors in the Budgeting Process:

• Planning and Preparation: The board reviews past financials, current needs, and projected future expenses, working with management and committees to gather input.
  

• Setting Goals and Priorities: Establishing the community’s priorities, such as upcoming maintenance projects or new improvements, and allocating resources accordingly.
  

• Drafting and Reviewing: Creating and reviewing the budget, including maintenance costs, reserves, and administrative expenses, and making adjustments based on historical data and homeowner feedback.
  

• Reserve Fund Management: Ensuring reserves are adequately funded, using reserve studies to guide contributions.
  

• Approval: Reviewing, revising, and approving the final budget.
  

• Monitoring and Adjusting: Tracking actual expenses against the budget throughout the year and making necessary adjustments.
  

• Ensuring Compliance: Making sure the budget complies with state laws, HOA governing documents, and financial policies, and upholding the board’s fiduciary duty to act in the community’s best interest.

Understanding the HOA budget is essential for both board members and homeowners. It’s more than just an annual requirement; it’s a strategic plan that ensures the community thrives both now and in the future. The budget reflects a collective commitment to maintaining the quality of life in the neighborhood, supporting essential services, and safeguarding shared assets.

It’s important to remember that all deadlines related to budget planning, approval, and homeowner notification are outlined in the governing documents. Adhering to these deadlines ensures transparency and accountability, allowing every member of the community to be informed and engaged in this vital process.

Thank you for your involvement in maintaining the financial health of the HOA. Together, we’re building a stronger, more vibrant community.

Q&A: Corporate Transparency Act (CTA)

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Do board members "exercise substantial control" over the HOA if each has only one out of x amount of votes?  

Under the CTA, "substantial control" is defined by the influence an individual has over significant decisions or the general direction of an entity, rather than solely by their percentage of voting power. While a single board member with one out of five votes (20%) might not independently meet the threshold for substantial control, there is consideration for the overall structure and decision-making processes of the HOA.

Does holding a 25% separate interest mean having a stake in our individual home  or does it refer to an interest in the HOA as a whole? 

Holding a 25% separate interest means having a stake in the HOA as a whole, not just in your individual home. Under the Corporate Transparency Act (CTA), this refers to owning or controlling 25% or more of the entire HOA. For example, this would apply to someone owning 4 out of 16 homes in a small association.

Are there any rules about sharing a board member's info  from a BOI with other board members or homeowners?

The law is clear about keeping information private. The BOI data is mainly for Financial Crimes Enforcement Network (FinCEN) for law enforcement not for general disclosure. The CTA does not allow for the sharing of a board member's info with other board members or neighbors unless there's some legal reason for it.

If one board member submits changes do all board members need their data to be re-entered?

Yes, the data is entered for the entity as a whole each time there is an update. Individual updates are not available.

If my Driver’s License expires and I get a new one does this mean I need to resubmit my information?

When you renew your Driver's License, your personal information and the unique identification number on it remain the same. You won't need to resubmit any information.

On the other hand, when you renew your passport, you'll receive a new passport with a new passport number. In this case, you will need to resubmit your information.

Are association advisors (management, legal team, etc.) or committee members considered to be Beneficial Owners?

No, only the board members are considered to be executing substantial control of the association as well as any owner (or developer) owning more the 25% of the community.

What does this mean to us?

Starting next month, we will initiate the process to ensure compliance with the Corporate Transparency Act (CTA) by collecting the necessary Beneficial Ownership Information (BOI) from current board members. Here’s what you can expect:

1. Collection of Information:  

We will provide a form for each board member to complete, which will include:

• Full legal name

• Date of birth

• Current residential or business address

• A unique identifying number from an acceptable identification document (e.g., passport, driver's license

2. Ongoing Updates:

• Moving forward, NCM will incorporate reminders for updates and changes to the board packages. NCM or a third party will track the expiration dates of the provided identification documents to ensure continuous compliance

3. Administrative Fee:

• There will be an administration fee for managing this compliance process. We are currently receiving quotes ranging from $295 to $500 per year.

4. Insurance and Liability:

• We are in discussions with our insurance professionals to understand and mitigate the added liability associated with these new requirements.

5. Protections in Governing Documents:

• We need to consider updating the association's governing documents to include protections in case a new board member refuses to provide the required BOI. Failure to comply could result in significant fines, up to $591 per day, which the association would be responsible for paying. Without these protections, removing a non-compliant manager would be a lengthy process and could incur additional legal costs. Furthermore, non-compliance can even lead to imprisonment for severe cases.

Understanding HOA Compliance With The Corporate Transparency Act

Corporate Transparency Act (CTA)

The Corporate Transparency Act (CTA) is a piece of federal legislation designed to enhance transparency in corporate ownership in an effort to combat illicit activities such as money laundering, terrorism financing, and other forms of financial crime. The CTA requires certain entities to file Beneficial Ownership Information (BOI) with the Financial Crimes Enforcement Network (FinCEN).

Impact on HOAs

Under the Corporate Transparency Act (CTA), Homeowners Associations (HOAs) are classified as a “Reporting Party.” This means that HOAs are required to comply with the CTA’s mandates by filing Beneficial Ownership Information (BOI) with the Financial Crimes Enforcement Network (FinCEN). As a Reporting Party, each HOA must disclose detailed information about its beneficial owners to promote transparency and combat financial crimes. Compliance involves gathering and submitting specific data, including the full legal names, birth dates, addresses, and identification numbers of individuals who ultimately own or control the HOA.

What is Beneficial Ownership Information (BOI)?

Beneficial Ownership Information refers to detailed data about the individuals who ultimately directly or indirectly exercise substantial control over a reporting company or who own at least 25% of ownership interest. For the purposes of CTA compliance, this includes:

• Full legal name

• Date of birth

• Current residential or business address

• A unique identifying number from an acceptable identification document (e.g., passport, driver's license)

FinCen Exemptions

The Financial Crimes Enforcement Network (FinCEN) provides certain exemptions under the Corporate Transparency Act (CTA) to reduce the reporting burden on specific entities. These exemptions apply to entities already subject to substantial federal or state regulation, such as publicly traded companies, banks, and certain trusts. The industry is actively advocating for Homeowners Associations (HOAs) to be included in these exemptions, which would relieve them from the requirement to file Beneficial Ownership Information (BOI). Until such an exemption is granted, HOAs must prepare to comply with the CTA's reporting obligations.

What do HOAs need to do?

To comply with the Corporate Transparency Act (CTA), Homeowners Associations (HOAs) need to take several key steps. First, they must identify their beneficial owners, which involves determining the individuals who ultimately own or control the association. Next, HOAs must collect detailed information from these individuals, including their full legal names, dates of birth, addresses, and unique identification numbers from acceptable documents such as passports or driver's licenses. This information must then be filed with the Financial Crimes Enforcement Network (FinCEN). Additionally, HOAs should establish procedures for regularly updating these records to ensure ongoing compliance with the CTA.

Penalties For “willful” non compliance

Under the Corporate Transparency Act (CTA), "willful" non-compliance with the reporting requirements can result in severe penalties. Entities, including Homeowners Associations (HOAs), that fail to accurately file Beneficial Ownership Information (BOI) with the Financial Crimes Enforcement Network (FinCEN) may face civil penalties of $591 per day. Additionally, criminal penalties can include fines of up to $10,000 and imprisonment for up to two years.

Compliance and Monitoring

Ensuring compliance with the Corporate Transparency Act (CTA) requires diligent monitoring and accurate reporting of Beneficial Ownership Information (BOI). Homeowners Associations (HOAs) must establish robust procedures to collect and maintain up-to-date information on their beneficial owners. Regular audits and reviews should be conducted to verify the accuracy of the reported data and ensure ongoing compliance.

Changes & updates must be made within 30 days. Changes such as:

• Board Member Changes

• DL / Passport Expiration

• Residential Address Changes

• Name Changes

How To Update:

• Entire BOI Report Must Be Refiled

• There Is No “Update” Option

• Submitter Must Save PII (Personally Identifiable Information) Locally

deadline

Deadline to file the initial report is January 1, 2025.

who has access to boi report information

Access to this sensitive information is restricted to authorized government authorities, including law enforcement agencies and regulatory bodies.

Charting The Course For Success in Napa, CA

Last month, we had the incredible opportunity to attend the 2024 CACM Executive Leadership Summit in stunning Napa Valley, CA. It was an unforgettable experience filled with inspiring workshops, engaging keynote sessions, and invaluable networking with industry leaders. Amidst the lush vineyards, we not only honed our leadership skills but also indulged in the region's exquisite wines and gourmet cuisine. The serene beauty of Napa provided the perfect backdrop for our team to recharge and bring back fresh, innovative ideas. Our participation in this summit has undoubtedly elevated our professional journey, leaving us energized and inspired for the future!