Through its Board of Directors (BOD), the HOA provides operation and maintenance of amenities. These amenities are originally paid for and constructed by the developer, and ultimately dedicated after construction and stabilization to the HOA.
The HOA regulates activities within the community, provides insurance, levies assessments, impose fines for noncompliance, and in extremely drastic circumstances, can even place liens on properties for non-payment of assessed dues and fines.
The specific power of the HOA is the ability to make sure property owners pay a share of expenses for the overall maintenance of the HOA and the Amenities. These expenses generally arise from the operation and maintenance of property and include management fees, repair cost, utility bills, and insurance premiums for facilities.
During the early phases of community build-out, the developer appointed BOD has financial models produced and creates budgets that take into account the expenses associated with the operation, maintenance and insurance of the full build-out amenity package to be dedicated to, and managed by, the HOA and the number of homeowners sharing this cost at the developer’s completion.
Even though the amenities are phased in over time and not all constructed when the community opens, this is required so that early homeowners don’t see continually rising dues each year as new amenities come online and since HOA dues are also considered by lending institutions during the mortgage approval process.
Due to the fact that HOA dues are based on the total number of homeowners at build-out of the community, during the early phases of community development, the dues collected each year by the HOA from individual homeowners only cover a portion of the actual yearly HOA budget. Developers of Master Planned Communities understands this yearly budget shortfall and may choose each year to supplement and plan each year to basically supplement the shortfall and cover the dues/expenses that would be paid by the future homeowners that have not yet been built. As an industry rule of thumb, and depending on the amount of assessed dues and total facilities the HOA ultimately manages, the HOA is usually not self-sufficient, or self-supported by dues paying members until the number of homeowner’s reaches approximately 80% to 85% of total homes in the community.
Dues collected by an HOA cover the ongoing maintenance expenses of the Association, including utilities, regular maintenance contracts, HOA insurance policies and normal operating maintenance for the facilities. HOA dues are not used to install or build new amenities, new landscaping or irrigation, or build roads or lots while the community is under development. That cost is part of the normal community construction built and paid for by the Developer.