Are HOAs Publicly Traded Corporations?

The title of this post raises the question of whether a homeowners association (HOA) is a form of a publicly traded corporation. If, like the HOA Detective, you believe that they are, then the question becomes why aren’t HOAs subjected to the same sort of public disclosure laws as other forms of publicly traded investments?

At the very least it seems reasonable to suggest that there should be some sort of public registry that is maintained at the state level so that the names and contact information of the officers of the corporation are accessible to the general public if, in fact, the general public is going to be allowed to “invest” in these corporations through the act of purchasing a home in an HOA.

Of course, the HOA Detective would argue that a much higher level of disclosure should be mandated by the same regulatory authorities that allow these legal entities to operate in the first place. When a for-profit corporation decides to sell stock to the general public there are all manner of forms, documents and legal procedures that must be filed and executed before the corporate entity is allowed to sell shares of ownership (common stock) to the public at large. On top of all that, the company’s request to “go public” must be approved by the federal (not state) government.

Once the company has been granted permission to sell shares of stock to the general public, it must forever after file an annual report with the federal government. This report, known as Form 10-K, is a financial report that must be filed with the Securities and Exchange Commission (SEC). Once Form 10-K has been filed it is entered into the SEC’s EDGAR database at which point it may be accessed by the general public, free of charge.

Publicly traded corporations are also required to file quarterly financial reports with the SEC for each quarterly period other than the period when the company’s fiscal year ends. With Form 10-K capturing the financial data for the final quarter of the company’s fiscal year and Form 10-Q capturing the data for the remaining three fiscal quarters, a steady stream of financial data is made available for shareholders, regulators and perhaps most importantly, prospective investors.

If we liken the prospective home buyer who is considering the purchase of a home in an HOA, to the prospective investor who is considering the purchase of stocks or bonds in a publicly traded corporation, then it seems logical to suggest that an HOA in which the general public is free to invest, should be subjected to some sort of systematic disclosure process with respect to its financial practices and the individuals who control the organization.

Considering that the purchase of a home is typically the largest, and in many cases, the only financial investment that the average American will ever make, it begs the question of why there isn’t a greater degree of regulatory oversight? Not only of HOAs but also of the people who govern them and the management companies that profit from these “not-for-profit” legal entities, otherwise known as homeowners associations.

Of course the industry, and in particular those elements whose job it is to advocate the best interests of the management sector, are loathe to consider any such proposition. Preferring instead the discredited strategy of “self-regulation” that has been one of the mainstays of the “less government, less regulation” crowd since the days of Ronald Reagan.

Some of these same naysayers would argue that the information is available to anyone who has the presence of mind and know-how to seek it out. The problem is that there is no systematic method for organizing and compiling data on HOAs, much less for providing the general public with ready access to the information.

It is for these and other reasons, that the HOA Detective and his partners created the CRC REPORT®, the nation’s first financial due diligence service for home buyers and it is why we say that “you are buying more than a home” when you purchase a home in an HOA. Because you are, in fact, making an investment in a not-for-profit corporation; an investment which could lead to your being financially liable for a portion of the organization’s debts and which could leave you and your investment at the mercy of unregulated managers and governance by untrained amateurs.