If you want to improve your policies related to the storage of HOA documents, we have you covered. Read on because we've got six tips for you to use.
Legal requirements. The law specifies the length of time that you must retain legal records like the HOA's tax returns. Lawyers call this requirement records retention. The IRS/state taxing authority can generally audit your tax records for up to three years. That means the HOA should retain the corresponding backup material for tax filings for at least four years from the original beginning date of the particular tax year. If you want to stay conservative, keep them for five years from the original beginning date.
Board minute books provide a permanent record of actions taken by the Board so the Board should take steps to retain them forever.
Other legal documents include vendor contracts, insurance contracts, loan documents, HOA rules, and their interpretations. These the Board should keep under its four or five-year destruction policy.
Warranties and other informational purposes. The Board needs to retain some records as a historical record for proving the date for sale when it comes to warranties. As a business, it is also helpful to know when the last time the HOA replaced the roof or repainted the swimming pool, or repaired sidewalks. Maintenance history will prove important in determining when equipment or fencing or roofs need to be replaced.
Legal records. If the HOA has a history of any liability litigation, the Board will want to retain records for those decisions. Check with the HOA's attorney to see how long they recommend that you preserve whatever background materials are in HOA files with respect to the case. The same holds true of homeowner assessments and collections cases. A good rule of thumb would seem to recommend six years but check with your attorney for any local or state requirements.
If your HOA has ongoing issues or recurring issues with a particular homeowner that may lead to future litigation -- or if the HOA has construction and other structural defects that may pose future litigation with multiple homeowners -- the wise Board will retain all correspondence relating to these topics as a prudent policy -- or at least until the homeowner sells the unit.
Architectural Records. There are a reason homeowners wanting to make architectural changes must apply to the Board in writing for approval. These records are extremely important indicators of the Board's administration of HOA architectural policy. An HOA Board must retain records to show every architectural change the Board approved as well as each change the Board denied. The Board must keep records of all violations of the HOA's architectural code.
How and where to store records. The Board should require storage of HOA records in dry, safe areas preferably in a fireproof storage closet. Many times the professional management company will store its client's HOA permanent records, like the Board minutes, keeping current as well as historical records on their site.
Once the HOA's CPA produces the annual financial statement, the monthly statements are not needed, and the Board can order their destruction.
Records that the Board or administrative office retains offsite should fill special record storage boxes (also known as Bankers' Boxes), marked with the appropriate destruction date. A listing that contains each box, numbered in sequence, with a detailed description of the contents, should capture every item in every box that goes into storage -- offsite or on.
Maintain order. Organize the HOA files by category: legal, maintenance, and other. Take the time each year to clean out the files. Send the files with four-year retention to an off-site storage facility, clearly marked. Review last year's list to see if any boxes are due for destruction and then mark on the list the date the Board ordered the files destroyed. Destroy any documents that only needed retention for one year.
To learn more about record retention for HOAs, read the echo-ca.org article entitled "How Long Should We Keep HOA Records?" which was an inspiration for this post.
To talk more about this, or anything else, please contact us. We want to help your HOA prudently administer its HOA retention policy.
