PROPERTY OWNERS’ ASSOCIATION MANAGERS

There is a lot of confusion regarding the management of property owners’ associations. Property owners’ associations are also known as homeowners’, community, condominium or commercial associations; we use the term property owners’ association (POA) here. 

Many brokers are aware POA management does not require a license in North Carolina. However, they are less aware of the fact that BROKERS who are managing property

 associations must do so in compliance with the North Carolina Real Estate Commission license law and rules. 

NC Real Estate Commission Rule A .0118 is specific to the management of property owners’ association trust money and requires the following: 

1. (a) The funds of a property owners’ association, when collected, maintained, disbursed or otherwise controlled by a broker, are trust money and shall be treated as such in the manner required by Rules .0116 and .0117 of this Section. Such trust money shall be deposited into and maintained in a trust or escrow account dedicated exclusively for trust money belonging to a single property owners’ association and shall not be commingled with funds belonging to other property owners’ associations or other persons or parties. A broker who undertakes to act as manager of a property owners’ association or as the custodian of trust money belonging to a property owners’ association shall provide the association with periodic statements that report the balance of association trust money in the broker’s possession or control and account for the trust money the broker has received and disbursed on behalf of the association. Such statements must be made in accordance with the broker’s agreement with the association, but not less frequently than every 90 days.

(b) A broker who receives trust money belonging to a property owners’ association in his or her capacity as an officer of the association in a residential development in which the broker is a property owner and for which the broker receives no compensation is exempt from the requirements of Rules .0116 and .0117 of this Section. However, the broker shall not convert trust money belonging to the association to his or her own use, apply such money or property to a purpose other than that for which it was intended or permit or assist any other person in the conversion or misapplication of such money or property.

Periodic Statements

Brokers must account for all trust money they receive and disburse.  In property owner association management, a periodic statement is used.  Although no specific form or format is required, the periodic statement must set forth in a clear and concise fashion a complete accounting of all funds received and paid out by the broker along with a balance of the trust money in the broker’s control.  The periodic statements must be provided by the broker to the property owners’ association in accordance with the property management agreement, but in no event less frequently than every ninety (90) days.  The property owners’ association balance sheet and income statement of the funds in the broker’s control is sufficient to account to the association as periodic statements.

Exception

The only exception as found under Rule A.0118 (b) is limited to a broker who is:

1. an officer of an association in a residential development in which the broker is a homeowner, and
2. receives no compensation. (i.e., a volunteer)

Other rules to be aware of in relation to managing POAs are Rules A .0117 and A .0104. Rule A .0117 requires that brokers retain certain records. In addition to bank statements, cancelled checks, and a journal or check register, brokers must maintain the following records specific to property owner associations:

1. For deposits of funds belonging to or collected on behalf of a property owner association, the deposit ticket or other evidence or memoranda of deposits or payments into the account whether by transfer between accounts, wire payments, or payments by electronic means. The documentation must identify the property or property interest for which the payment is made, the property or interest owner, the remitter, and the purpose of the deposit.

• A payment record for each property or interest for which funds are collected and deposited into a property owner association trust account.  Payment records shall identify the amount, date, remitter and purpose of payments received, the amount and nature of the obligation for which payments are made, and the amount of any balance due or delinquency. 

• Covenants, bylaws, meeting minutes, management agreements and periodic statements relating to the management of property owner associations, as well as copies of invoices, bills and contracts paid from the trust account and any other documents not otherwise described that are necessary to verify and explain recorded entries.

Licensees who undertake to manage a property owners’ association must enter into an agency agreement in accordance with Commission Rule A.0104 which reads in part, “…every agreement for services connected with the management of a property owners association shall be in writing and signed by the parties thereto.”  All the other requirements for agency agreements under rule A.0104 also apply to property owners’ association agreements, such as the requirement to have a definite ending period and including anti-discrimination language within the agreement.

Common questions we receive:

Can the association’s board of directors have access to the account? No, the trust account must be in the name of the firm with the POA identified.  It must be custodial; board members or people with an interest in the funds may not be signatories on the account.  You can set up the bank account in way that they can see the funds but not actually have the ability to make changes to the account.

Can the money be in a money market account or certificate of deposit (CD)? Possibly. It must be a demand account. If you have a reserve account that meets the balance requirements for a money market, then it is likely permissible. A CD may be allowed if it meets these criteria:

• Be held at a federal depository institution
• Be federally insured
• Permit withdrawal on demand
• Have no penalty that would reduce the principal amount