By: Mitchell Drimmer, CAM

President, Axela Technologies

Starting next year, Community Associations (HOAs & Condos) in the U.S. will have to follow new rules. These rules are part of something called the Corporate Transparency Act (CTA). The CTA requires most Community Associations (HOAs & Condos) to share information about the people who own or control the association. This is called a beneficial ownership report. While some non-profit groups are exempt from this rule, most Community Associations (HOAs & Condos) are not.

Community Associations (HOAs & Condos) are groups that take care of neighborhoods. There is a lot of money flowing in and out of these associations and many boards of directors and even their management companies are not quite ready for this process. There are a lot of Community Associations (HOAs & Condos) in the U.S., more than 355,000 of them. They serve around 74 million people which is about 24% of the population of the United States.  Community Associations (HOAs & Condos) are not exempt as they may be the perfect place to engage in money laundering for the purposes of fraud (unjust enrichment), and terrorism. The CTA was specifically established to make money laundering more difficult.

The new rule says that Community Associations (HOAs & Condos) need to provide specific information about the people who own or control the association. This includes their names, addresses, and other details. This information will be collected by a government agency called FinCEN. The goal is to make sure this information is not available to the public, but it can be used by law enforcement. There remain some questions regarding owner access to association records but as we all know Federal law overrides State laws and an association’s by-laws.

Most Community Associations (HOAs & Condos) need to report. They are considered “reporting companies” under the CTA. This means they must file the beneficial ownership report. There are some exemptions, but most Community Associations (HOAs & Condos) won’t qualify for these exemptions. This will add costs to the management of community associations and naturally will be passed through to the owners making life more expensive for community associations. Adding this to structural inspections, increased insurance premiums, and rising costs, this is not good news.

Community Associations (HOAs & Condos) need to figure out who their beneficial owners are. These are people who have control over important decisions in the HOA. It could be board members or others who influence how the HOA operates. Community Associations (HOAs & Condos) need to collect specific information about these people and report it to FinCEN. They also need to update this information if anything changes. The Board of Directors will now be scrutinized more than ever before, making it even more difficult to enjoin volunteers to run for board positions.

The new rule starts on January 1, 2024.

Existing Community Associations (HOAs & Condos) have until January 1, 2025, to file their first report.

Community Associations (HOAs & Condos) formed after this date must file within 30 days of their formation.

Community Associations (HOAs & Condos) need to understand these new rules and make sure they follow them. It’s important to collect the right information and report it on time. If they need help, they can talk to community association specialists who have studied this matter. These rules are meant to increase transparency and prevent fraud, so following them is essential.