Guide to Iowa HOA Laws
HOA laws in Iowa are primarily governed under four separate Iowa laws: chapter 499A of the Iowa Code, the Nonprofit Corporation Act, chapter 504A of the Iowa Code, and chapter 499B of the Iowa Code.
The chapter 499A statutes regulates the sale of condominiums in Iowa. It also provides definitions of various commonly used terms within Iowa condominium law. At the federal level, the Federal National Mortgage Association (FannieMae) also regulates associations within its lending guidelines.
Chapter 504A of the Iowa Code contains the Iowa Condominium Act. The Iowa Condominium Act applies to all condominiums created within Iowa after July 1, 1989. It modifies the existing condominium laws regarding creation of a condominium and provides additional structure, including required disclosures to prospective purchasers, disclosure of common elements, unit characteristics, unit boundaries, total land area, limited common elements, and the status of construction of the project.
Chapter 499B of the Iowa Code is the Iowa Residential Landlord and Tenant Act. As the name suggests , this law applies to residential leases whether mobile home properties or apartments. Section 499B.1(15) however, excludes from this definition any HOA which has been incorporated in order to operate the common elements of a residential property. That means that associations will be virtually untouched by the Residential Landlord and Tenant Act. Associations subject to the Condominium Act are likewise excluded.
The nonprofit Corporation Act establishes requirements for the organization of an association. This means that an HOA organized as a not-for-profit will have certain requirements, including filing annual reports with the Secretary of State’s office. Careful attention should be paid to these requirements in order to avoid dissolution of the corporation which could become an issue if the association ever brings a lawsuit for collection of assessments under chapter 499A of the Iowa Code.
Associations will also be subject to the maintenance obligations and theories of liability under the tort laws of Iowa.
Formation and Structure of Iowa HOAs
In Iowa, the formation and structure of homeowners associations (HOAs) is largely governed by Iowa Code Chapter 489A, which outlines the requirements and obligations for planned communities. While the allocation of authority to regulate HOAs is vested in municipalities, the statute sets forth several articles and sections detailing requirements for the creation and operation of HOAs.
One of the first steps in creating an HOA in Iowa is the recording of a declaration of covenants, conditions, and restrictions (the "Declaration") upon the property. These restrictions are intended to protect the value of the designated real property. While planned community legislation offers a model declaration, common practice in Iowa is for developers to draft tailored, unrestricted declarations. Following the dedication of common elements, streets, landscaping, and other assets in the Declaration upon an association, the developer will then set forth the terms and conditions of ownership for the designated properties.
The Declaration will typically establish a board of directors or managers who will be responsible for the governance of the subscription community. In Iowa, board members may be members, co-owners, or non-members. The legislature allows for a membership structure that is not equal across units, and managing directors, if applicable, are not required to be members. Members of the board will often serve terms to prevent inactivity and complacency. The business and/or affairs of the community are delegated to the board of managers as a result of the selection of directors or managers.
Additionally, the Declaration will establish a system of governance for the association. The creation of committees is common, which act as extensions of the board to perform allocated duties essential to the day-to-day operations of the community. Members will often elect committee members, and committee members may also be on the board of directors or managers. Having working committees frees up time for directors and managers to focus on the broader issues without losing sight of the day-to-day operations of the community.
Iowa Code mandates certain procedural requirements. It requires the declaration to include a statement of purpose and specifies the percentage of owners that must agree to amendments prior to submission of the amendment to the court. It also requires notices to be delivered to all owners before voting upon the amendment.
Rights and Obligations of Iowa HOA Members
HOA members have certain rights pursuant to Iowa law and also have a number of responsibilities as well. This section will explore the primary rights and obligations of HOA members in Iowa.
Members of HOAs in Iowa have a right to participate in association meetings to discuss the operation of the association. Specifically, Iowa law entitles members the right to: attend meetings of the board, be given certain information upon request and, for common interest condominiums, the right to vote on certain matters. While it’s common for board to provide and members to expect a material level of transparency, Iowa law does protect an HOA from being forced to disclose privileged or confidential information.
HOA members also have a duty to operate their associations in accordance with Iowa law and any association governing documents, which include the Declaration, Articles of Incorporation, Bylaws, and rules and regulations. Members also have a number of procedural and substantive duties related to their responsibilities as owners of a lot within an HOA. Members of HOAs are required to be good neighbors, to respect the quiet enjoyment of other members and to keep their lots in reasonable maintenance and in accordance with the restrictions set forth in the governing documents. Iowa law protects a homeowner if a neighboring owner encroaches onto their property. Members of HOAs are also required to address issues of unruly guests and to not allow any unreasonable nuisances to occur on their property. Members are also required to pay assessments and fines that are properly assessed against them by their associations. Failure to pay assessment and other fines can result in a valid lien filed against their property, and potentially a foreclosure lawsuit.
One purpose of this blog is to help educate members of HOAs on their roles rights and responsibilities. That said, there may be a circumstance or situation where it would be beneficial to speak with an attorney familiar with HOA issues regarding your rights and obligations under Iowa law or your governing documents.
HOA Governance and Management in Iowa
HOA management in Iowa is overseen by a board of directors. Iowa requires all managers to have a real estate brokers license. Iowa allows managers to be licensed or unlicensed so long as they are required to use standard contracts.
The board of directors is a group of volunteers that runs the association and implements the rules that are adopted by the owners. The members of the board of directors are elected by a majority of the association members in a fair and open process either before or after the annual meeting of the owners.
Iowa law requires the board of directors to manage the business of the association "with the care that an ordinarily prudent person in a like position would exercise under similar circumstances." They are held to a fiduciary duty, which means that they must always act in the best interests of the association and to avoid any potential conflicts of interest. They must also keep all records of the association open for inspection by the owners at reasonable times and for a charge of up to twenty-five cents per page.
As a body, the board of directors is authorized to make decisions on almost any issue involving the association. There are three general types of decisions that the board must make. These are routine operational decisions, budgeting decisions and maintenance decisions.
Routine operational decisions typically include approval of payment of bills, expenditures of association funds and collection of delinquent assessments. Budgetary decisions are about the fiscal health of the association and affect its ability to meet its obligations. Typically they are made in the context of planning for capital and maintenance expenditures. In order to secure financing from lenders for future development, an association may need to demonstrate that it has earned sufficient assessments to meet future obligations. Maintenance decisions are those that directly impact the physical and financial condition of the property.
Rules and Enforcement for Iowa HOAs
Iowa law recognizes the need for homeowners associations (HOAs) to have rules, but also permits certain restrictions on the associations’ powers. On the one hand, an HOA can govern the use and appearance of properties in the community so long as no unreasonable limitations are placed on property owners. For example, under Iowa Code § 553.6, an HOA may require uniformity in color for house paint, fences, landscaping, mailboxes, doors, window coverings, patio surfaces or roof shingles, or in screening elements like fences, hedges or evergreens. But an HOA’s authority to impose and enforce such restrictions is limited to what is necessary for enforcement of restrictions in specific covenants in a recorded declaration. "[T]o be reasonable, a restriction must be tailored to further a legitimate purpose, concern[,] or goal of [an HOA]." Glanz v Riverside Trails Assn, 579 N.W.2d 635, (Iowa Ct. App. 1998).
Iowa Code § 553.3 defines the types of restrictions that an HOA may impose:
The association may adopt reasonable rules and regulations concerning the use of common property in the interest of maintaining a pleasing appearance of the real estate. However, the association shall not restrict the owner of a property from erecting a fence, not greater than six feet high, or planting trees, bushes, shrubbery, or hedges, on that owner’s property so long as those actions do not obstruct the view of vehicles traveling on a public road at the intersection of an alley and the road, do not obstruct the pedestrian view at the intersection of a public walkway and road, and do not otherwise unreasonably obstruct neighboring properties.
This statute sets out an association’s ability to adopt reasonable rules and regulations regarding the common property in order to protect the "pleasing appearance" and unique nature of the community it manages . Ordinarily, at least 90 days before implementing new or changed rules that affect common areas or the property of members, an association must provide each member with notice of the association’s intention to adopt the new or changed rule. Members may submit comments to the association during the notice period, and the association will "consider the comments, if any, that are timely submitted to it . . . ." Iowa Code § 553.5(2)(b).
Rules governing parking and vehicles are perhaps the most common rules found in Iowa HOAs, particularly now that many communities have certain restrictions regarding vehicles and where certain types of vehicles can be parked. Most restrictions provide clear guidelines on the types of vehicles that are prohibited, and the places where they are not permitted to park on a regular basis. Ordinarily, rules governing parking are controlled by a common theme or characteristic. For example, if the association allows pickup trucks to park on the road, but other vehicles must park in a driveway, the rule must be enforced in that manner. After all, an association cannot deny a property owner the right to park a full-sized SUV on the street when it allows a neighbor to park a pickup truck.
For the most part, association rules are reasonable, and do not become an issue for many communities. Generally, violations of association rules are handled through the association’s enforcement procedure. This may include providing notice of the violation with an opportunity to correct the violation, allowing an opportunity to be heard prior to enforcing the penalty, and setting the level of penalties and consequences for violations. The key is to have written rules and procedures for enforcement, and following those rules and procedures consistently.
While there are many benefits to living in a community that is governed by an association, the one negative is having to follow association rules and procedures. The key is to make sure that the rules are fair and applied fairly.
Iowa HOA Dispute Resolution Processes
Whenever possible, disputes should be resolved by the membership without having to resort to binding arbitration, court procedures or other drastic measures. Iowa law strongly encourages the use of alternative dispute resolution procedures, as opposed to litigation. It should be expected that, in normal circumstances, disputes will be resolved at the Board level, and the Board should be given the opportunity to attempt to resolve disputes before claiming a "stalemate" and referring the matter to a third party for litigation, mediation or arbitration.
The use of alternative dispute mechanism procedures is so strong in Iowa, that under the Iowa Uniform Arbitration Act (Iowa Code Chapter 679A), a written agreement to submit any existing or future controversy to the alternative dispute resolution procedure of arbitration is enforceable "whether or not specified amounts of damages are involved." 679A.3(3). Moreover, every motion or application for a hearing, and all correspondence with the arbitration organization, tribunal or neutral must contain a signed certification in "substantially the following form":
I hereby certify that I have complied with the requirements of Iowa Code chapter 679A with regard to actions commenced in the Iowa courts that may be subject to dispute resolution under that chapter in that action. I intend to seek to enforce an agreement to arbitrate the matters set forth in this action in accordance with the provisions of Iowa Code chapter 679A, and I hereby request the Clerk of Court to refer this action to the Director of the Iowa Department of Justice to give notice to the parties and others interested therein of their right to petition the Iowa District Court to determine whether the matters in controversy are subject to such an agreement or condition precedent to their filing and assessment.
The statute goes on to note that if a court determines that the action is subject to arbitration, it shall appoint an arbitrator upon application of one of the parties. 679A.5(1). If the court determines that the action is not subject to arbitration, it shall so order the action and dismiss the case. 679A.5(2). The "party seeking to compel arbitration" shall be entitled to reasonable attorneys’ fees and, if the "motion is sought to be avoided by reason of unreasonable conduct of the opposing party", the court may order payment of the costs and expenses of the "prevailing party". 679A.3(5).
In Sherman v. Assn., 496 N.W.2d 399, 400 (Iowa 1992), the Iowa Supreme Court held that the Iowa Uniform Arbitration Act does not require a party seeking a stay of proceedings pending arbitration to file an answer in the arbitration proceeding. The only requirement is that the party give notice of an intention to arbitrate the matter. The statute permits the court to require the "applicant" to join any person who may be "a necessary and proper party". (This phrase is not defined in the statute.) Thus, the court must determine if there is a compelling need to join the absent party in the pending action, or whether the absence of that party will avoid a multiplicity of suits. Sherman, 496 N.W.2d at 400.
As described below, Iowa law does allow for mediation as a method of resolving disputes between members and the HOA or among members.
Iowa HOA Financial Management
Financial management is an essential component in the governance of Iowa homeowners’ associations ("HOAs"). HOAs commonly incorporate detailed financial procedures into their bylaws or rules. Although the laws that govern Iowa HOAs do not provide a lot of information about financial matters, this does not alleviate your HOA from following sound financial practices. Moreover, the HOA’s bylaws and rules almost always provide specific instructions on how to handle financial matters.
Certain financial management procedures are likely important in your HOA. Your HOA should establish reasonable budgets, assess and collect fees, examine financial records periodically, and make appropriate disclosures. It will benefit your HOA if these and other financial procedures are set forth in your HOA’s bylaws, rules, and/or other documents. While the bylaws generally provide the framework for your HOA’s financial procedures, rules often have the heft of law and will govern financial practices when they are imposed as rules. Having these financial requirements clearly stated can help avoid many disputes down the road.
Procedures for Creating Budgets and Assessing Fees. The bylaws in some HOA’s provide that the board must create and submit a budget to the HOA members for approval. Others give the board the authority to set the budget from year to year without member approval. Regardless, the bylaws should specify how and when to assess fees, and how much those fees will be and when they will become effective.
Procedures for Collection. If the association assesses fees or otherwise collects money for the association, it is helpful to have rules that provide a reasonable process for collecting fees and an enforcement mechanism for nonpayment. For example, the bylaws may provide that, if a fee is not paid by a certain date, a late fee will be assessed. Likewise, here the bylaws provide for the appointment of an officer or committee to review potential violations and recommend taking action against members or sending notices.
Procedures for Independent Audits. Some bylaws require an independent audit of the HOA’s financial records during certain years. An independent audit costs extra money, but they also provide the HOA with additional assurances that the financial records are in order. If required by your bylaws, and unless they provide otherwise, an independent audit should occur in all years in which an election of directors occurs.
Transparency Requirements. In addition to the generally required disclosures of HOA financial information, transparency is also an important concept in the financial management of HOAs. Some states (e.g., Illinois and Pennsylvania) have laws that require certain HOAs to hold open meetings or allow owners to inspect association books and records. Iowa does not have such laws.
Iowa does require that all HOAs follow certain disclosure requirements outlined in Iowa Code Section 557B.3. These disclosure requirements require the property owner/developer to provide: The new owner must sign a copy of these disclosures for the common elements acknowledged by the owner to exist. These disclosures must be provided before the closing.
Delinquent Accounts. If a member owes fees, the HOA’s ability to collect the fees will depend on the procedures created in your HOA’s bylaws or rules, and the applicable law. The association also has a statutory mechanic’s lien against the unit or lot of a member in order to collect delinquent fees. In some jurisdictions, the association can enforce its lien by filing a lawsuit or even by holding a public sale of the unit or lot. Some associations can terminate a member’s interest in the property if the membership fee is not paid.
Recent Developments and Updates in Iowa HOA Law
While the core Iowa HOA laws have remained relatively stable in recent years, this tranquility has been punctuated by major shifts in case law. The most notable changes have come at the hands of the Iowa Supreme Court and Court of Appeals, which have issued landmark rulings in several key areas that were previously unresolved, leaving associations who rely solely on litigation to resolve nuances of Iowa HOA laws behind the 8-ball.
The biggest shifts in Iowa HOA laws over the last few years have directly related to governance and enforcement of restrictions. One such change involved a quasi-judicial hearing process that an association must use when competent authority has the potential for an arbitrary and capricious decision. Chiefly, the East Pasquayook Owners Association v. Bullis case involved an owner asked to install a 402-square-foot garage on a 2,500-square-foot lot.
Iowa courts have long made owners associations the primary arbiters of interpreting and enforcing restrictions. However, the courts drew a line in this case, determining that there comes a point where a decision to grant or deny permission may surface an arbitrary and capricious determination . To summarize the ruling, the court stated, "we expand our earlier holdings by deciding today that when a common interest community has made its initial determination on an easement dispute pursuant to its governing documents, and the records concerning that determination are ambiguous, the courts have an important role to play in maintaining the integrity of restrictive covenants."
The effect of this ruling impacts any dispute where an owner’s request would interact with a subjective standard set forth in the governing documents. Said another way, the owner will not always lose even where the board’s decision to grant or deny a request falls well within the bounds of reasonable discretion possessed by the homeowner association.
In addition, homeowners associations are now under increased scrutiny by the courts. In the case of Palmer v. City of Cedar Rapids, the Iowa Supreme Court determined that homeowner associations are subject to the Iowa Open Meetings law. This means any meetings held by the board of directors, except during Executive Session, must be open to members of the unit owners association. Furthermore, boards are required to post minutes of open meetings on the association website within five days. Failure to follow the letter of the law could expose the association to sanctions as determined by the court.