Aside from financial reports, the annual report is one of the important documents that your homeowners association (HOA) has to prepare at the end of the year. This responsibility falls on the HOA board of directors, but the reality is that they tend to forget about it — and your HOA board could be one of them.
As a non-profit organization, the HOA is required to submit its annual report with the U.S. Secretary of State. If your HOA failed to file it last year, your association is at risk of being deemed delinquent. Fortunately, there are ways to restore your standing with the Secretary of State.
As a property investor, it should be in your best interests to stay up-to-date on your multi-family property’s annual deliverables. In this article, we will teach you how to create an annual report so that you don’t lose your good standing status with the Secretary of State.
What is an HOA Annual Report?
In a nutshell, an HOA annual report is a compilation of the association’s activities for the year. It may seem unnecessary but it’s the best way to keep members (i.e. homeowners) informed of the HOA’s financial health. Since members are required to pay their dues, they demand transparency in return. They want to be assured that the HOA board is using their dues for the right reasons.
In addition, an annual report prevents fraud within the association. Unless your HOA’s activities are being overseen by a property management company, the risk of embezzlement is always present.
Apart from that, an annual report summarizes the HOA’s achievements. HOAs are often criticized for their strict policies, however, it’s important to understand that they’re simply serving the community. If there are residents in your neighborhood that don’t support having an HOA, the annual report can show them that the HOA board did its job.
Should the HOA annual report be filed with the Secretary of State?
The annual report is usually filed with the Secretary of State annually. However, some states are required to file it biennially (every other year). Ask your property management company if you’re not sure about your state’s requirements.
The purpose of filing the HOA annual report is to update the state files regarding the association, such as:
- The names of officers of the association
- Whether or not taxes and fees have been fully paid
- Whether or not the association continues to be in “Good Standing” with the Secretary of State
It’s usually the HOA secretary’s responsibility to prepare and submit the annual report, but all members of the board should ensure that the information contained in the report is correct. If your HOA is having a hard time preparing the annual report, consider hiring an HOA management company.
What if you failed to submit the annual report?
Failing to file the HOA annual report with the Secretary of State has serious ramifications. Your HOA may face the following consequences:
- Fines, tax liens, and penalties
- Loss of “Service of Process” privilege
- Loss of naming rights
- Loss of funding
Fortunately, your HOA board of directors can restore your good standing status with the Secretary of State. To do this, they simply need to submit an updated report and pay any penalties.
What should be included in the HOA annual report?
State laws vary when it comes to the contents of the HOA annual report, so be sure to ask your association manager about this. In general, though, the annual report should include the following:
- Balance sheet
- Income statement
- Approved capital expenditures
- Total reserve funds
- Total outstanding dues
- Summary of the association’s insurance
- Summary of pending litigation/lawsuits
The HOA annual report should also highlight the board’s notable achievements. This can include community improvements (e.g. repaired signposts, newly painted pedestrian lanes) and events (e.g. bake-offs, barbecues, children’s activities). Putting the spotlight on these things lets homeowners see what the board is doing behind the scenes.
Should you include everything in the annual report?
Your HOA should be careful about what they put out there. Although the annual report is supposed to summarize the HOA’s finances and accomplishments, the HOA board should still practice confidentiality. This means that not everything needs to be included in the report.
As a rule of thumb, the HOA secretary should leave out sensitive information about the HOA and the homeowners. Additionally, you should not include information about pending lawsuits, but it is acceptable to state the status of the litigation.
If your HOA isn’t sure if certain details should be shared in the annual report, it would be wise to consult the association’s counsel or property management company’s attorney.
What is an HOA President’s Report?
If your state doesn’t require you to provide homeowners with an annual report, you can still create a president’s report. It’s not as detailed as an annual report, but it is a step towards transparency.
The president’s report has the same financial information found in the HOA annual report. It also narrates the significant accomplishments of the board of directors. What makes it different is that it is presented during the association’s annual meeting, which is usually held towards the end of the year.
The Bottom Line
An annual report is an important part of any association. Whether or not it’s required in your state, you should consider preparing an HOA annual report as it serves several purposes. Not only does it give your HOA a pat on the back for a job well done, but it also promotes transparency within the community.
Preparing an HOA annual report can be challenging especially if your board has a lot on its plate. That’s why many HOAs hire a property management company to help them with reporting. If you’re in the South Florida area, contact the property managers at Luxury Property Care. We will make your HOA’s life a lot easier.