Frequently Asked Questions and General Information

Question 1:
The developer established a property owners association, appointed directors and officers from the community and has left. Now what?

It can be a confusing time when the developer turns over the association with no additional guidance. Many new officers and directors do not know where to begin. Hopefully, when the developer turned over the association it left the directors with an association book that contains the organizational documents. If the association is incorporated, the association book should contain a Certificate of Formation (previously known as the Articles of Incorporation), a Company Agreement (previously known as Bylaws) and the Minutes from all of the director and officer meetings. If the association is not incorporated, then the developer should at a minimum set up documents to govern the association and establish officers.

As the new Directors and Officers, it is your duty to familiarize yourself with these organizational documents and the Restrictions on the property. You will need to determine answers to the following questions by reviewing the document(s) indicated after each question:

1. Have the annual meetings been held? You should have minutes from all meetings. If not, when are they supposed to be held? (Company Agreement)
2. Are the officers and directors required to meet more than once a year? (Company Agreement)
3. Have all of the director and officer positions been filled? (Certificate of Formation and Company Agreement)
4. If there is an Architectural Control Committee, have they been appointed? (Restrictions and Company Agreement)
5. What items are the directors responsible for and what items are the officers responsible for? (Company Agreement)
6. How much are the assessments and when are they due? (Company Agreement and Restrictions)
7. Are the assessments mandatory or voluntary? (Company Agreement and Restrictions)
8. Have all required tax returns been filed? (The tax returns that are due will depend on the type of entity that is established and whether all of the income comes from member assessments or if a portion of the income comes from something else, such as rent).

Once the above is established, the Directors and Officers will know their next step. It is a good idea for the Directors and Officers to meet no less than once a month, at least for the first few years. This gets the association on top of all of the issues and helps everyone stay involved. Minutes should be kept for each meeting. While there is no set form, an example set of minutes has been provided herein. After the first few years, when things are running smoothly, the Directors and Officers can meet less often, such as quarterly.

The Association members should hold meetings no less than once a year. The Company Agreement should state when those annual meetings are to be held. If there is no mention of the annual meeting, then the Directors and/or Officers should establish a written procedure stating the time and place the meetings are to be held, which procedure is then to be placed in the minutes.

If no officers or directors have been elected then the Association members should elect the officers and directors at the first annual meeting. Unless the association documents state otherwise, the members may want to elect the directors to staggered terms so that there will always be at least two directors who have been on the previous board and knows the business that was previously addressed. The law requires that there be no less than three directors elected. The Directors should set the policy while the officers should carry out the policy.

If the Restrictions or association documents indicate that an Architectural Control Committee is needed, the members of the committee can be elected (or appointed) at this same meeting.

If tax returns have been filed, obtain a copy for the association files. If they have not been filed, it is imperative that the officers file all returns from both previous years and the current year. Under federal law an association can only be a nonprofit entity if it allows the town (not just the subdivision) to use the common areas. Since most subdivisions are established with only the residents using the common areas, the association is considered “for profit” for federal tax purposes. In most instances the association would need to file either form 1120 or 1120H. The 1120 and the 1120H is due no later than March 15th of each year. Under Texas law most associations do qualify for nonprofit status. In order to qualify for nonprofit status the Association will need to fill out the Texas Application for State Tax Exemption for Homeowners’ Association. Nonprofit organizations are not required to file a franchise tax return (now also called the margin tax return) with the state of Texas. Further information about the franchise tax may be obtained by contacting the Texas comptroller of public accounts. AS AN OFFICER and DIRECTOR YOU ARE RESPONSIBLE TO INSURE THAT THE TAX RETURNS ARE FILED. IF NOT, THERE COULD BE PERSONAL LIABILITY.

Other items that the Directors and/or Officers must address is mailing out dues notices, collecting dues, mailing out violation of restriction notices, following up to make sure that the violations have been cured, establishing budgets, entering into contracts to insure that the common areas are maintained and other such items.

Under Texas law a Management Certificate is required for each property owners association. The developer should have filed such a certificate with the County Clerk in the Official Public Records where the property is located. If one has been filed, it will need to be updated to show who the new contact person is. If one has not been filed, the new officers are required to file one. A Management Certificates should be updated each time changes are made to the Restrictions or the subdivision management.

If the Property Owners Association is incorporated, then the Certificate of Formation (or, depending on what year formed, the Articles of Incorporation) will state the registered agent for the Association. This is the person who receives all of the notices from the Secretary of State and who is served if a lawsuit is filed. Check the Certificate of Formation to insure that a current officer is listed. If not, file a change of registered agent with the Secretary of State. The change of registered agent can be changed online with the Secretary of State. In addition, if the Certificate of Formation cannot be found, a new one can be obtained from the Texas Secretary of State so long as it has been filed as required.[Additional page content, links, and downloads are available to members only. Please login or join now to access them.]