State HOA Registration Requirements--What You Should Know
Some states require HOAs to register with the state, and if your homeowners association fails to do so, it could lose certain rights. Could you even lose your lien rights and the ability to enforce recorded covenants? Here's a lowdown on state registration requirements and an answer to that all-important question.
The skinny on state HOA registration requirements
Your association may have to register with your state, for one reason or another. Here's a sampling of registration requirements in several states:
Florida--Associations must complete two registrations in Florida. "One is the registration that has to be done for all corporations," says Dennis J. Eisinger, a partner at Eisinger, Brown, Lewis & Frankel PA in Hollywood, Fla., who represents more than 500 condo associations and HOAs. "They'd register their corporate entity as a not-for profit every year, and it costs about $150.
"In addition for condos, there's a filing fee annually to the state regulatory agency," adds Eisinger. "It's something like $4 per unit, and if you don't fill out the paperwork, it's not a major penalty."
Michigan--"Nonprofit associations need to be registered with the Michigan Department of Labor and Economic Growth," explains Nathaniel Abbate Jr., a partner at Makower Abbate & Associates PLLC in Farmington Hills, Mich., who represents associations. "We often will do it. An association will give us the information, and it's pretty pro forma. There are some basic forms and generic recitations, along with some basic reporting requirements, like filing an annual report and filing your taxes if you're taxed on the common elements. It's not too onerous."
Minnesota--Like other nonprofit corporations, HOAs must register with the Minnesota secretary of state's office. "It's a simple filing, and the cost is less than $100," explains Matthew A. Drewes, a partner at Thomsen & Nybeck PA in Edina, Minn., who represents associations. "It's possible for a community association to lose its good standing with the secretary of state's office, become administratively inactive, and be dissolved if it doesn't keep up its corporation registration. So there's really no reason not to do it and every reason to do it. But even if your association has allowed your registration to lapse for a year or two, it's possible to reinstate your corporate good standing retroactively for the past several years."
What Happens If Your HOA Doesn't Register?
If you fail to register your HOA as required, what can happen? Technically, you can lose your ability to file and defend lawsuits, but that just about never happens.
"In Florida, if you let your corporation's registration lapse, you're not entitled to defend or initiate any lawsuits," explains Eisinger. "But you can reinstate your registration easily if you pay the back fees. It happens all the time that you go on the lapsed list for various reasons--because of a lack of continuity in board members or management--and we have to remind associations their registration has lapsed. But the fix is easy."
Minnesota associations aren't really at risk, either. "Minnesota doesn't have a requirement that you have to maintain certain registrations to preserve your enforcement remedies," says Drewes. "But I suppose an argument could be made."
That's also true in Michigan. "If your association is sued, depending on what court you're in, I could see somebody making some hay out of your lack of attention to the corporate form," says Abbate. "But it never has been fatal to an association's case. It's easily remedied with just a late or a corrective filing."
What's more important, however, is maintaining corporate formalities to protect board members. "Someone could make the argument that your association isn't a valid corporation, so it can't enforce any provisions in its governing documents," says Drewes. "But it's also important for boards to maintain the good standing of their corporation because if they don't have an active corporation that's conducting the association's business, there's the possibility of the argument for personal liability of owners or board members.
"Normally there would be an indemnification provision in the governing documents saying the corporation will indemnify a board member who incurs liability or is sued as a result of his actions on the association's behalf," Drewes explains. "But it could be argued the association isn't subject to that protection if there's no corporation to provide the indemnity. While the association should be maintaining directors and officers insurance, there's even the possibility the insurance company isn't bound to cover the individuals if there's no corporate insured.
"I'm not suggesting it's a great argument," says Drewes. "But it's within in the realm of possibility, at least in terms of the argument being made."