The Corporate Transparency Act (CTA), passed in 2021, aims to combat money laundering, terrorist financing, and other illicit activities by requiring certain businesses to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). When portions of the CTA go into effect this January, it will impact homeowners’ associations nationwide. According to the Community Associations Institute (CAI), the legislation was designed to help prevent money laundering, terrorist financing, and illicit activities by requiring corporations, LLCs, and other similar entities to disclose information about their ownership. However, the CAI notes that many community and homeowners’ association board members may be subject to the new law—and potentially face fines if they’re unaware of the requirements.

“It was an act put in place to reduce and prevent fraud; it was never really designed to apply to HOAs,” says Adena Mansback, Vice President of the BankUnited HOA and Property Management Group and a CAI volunteer.

The Community Association Institute (CAI) is a not-for-profit organization that has been advocating for the federal Financial Crimes Enforcement Network (FinCEN) to exempt HOAs from the law. But as of now, HOAs will need to file documentation with the federal agency by January 1, 2025.

CAI reports that a vital component of the law requires that companies doing business in the U.S. provide information about their beneficial owners or individuals who exercise substantial control over the reporting company.  This information includes name, date of birth, SSN, home address and driver’s license or passport number.  Since board members of an HOA or Community Association make decisions on behalf of the association, they are considered to be beneficial owners and therefore must file. 

Mansback notes that many of the people who serve on HOA boards are volunteers, and the added level of reporting could pose a burden. “It’s a lot of personal information and an onerous task to ask of volunteers,” she says. “In addition, it’s already hard to get people to serve in these positions—this may make it even more difficult.”

But even though many oppose it, the FinCEN Report notes that HOAs and their board members should be ready to comply. If not, they may face fines of up to $500 daily, criminal penalties and even prison.

For now, Mansback says HOAs should prepare to file the required information with FinCEN. HOA members, board members and management companies can also connect with their congressional representatives to voice their concerns about the issue. “People can help inform the lawmakers and FinCEN about the impact on HOAs and provide their support for finding a better solution,” she says.

The CTA was designed to prevent fraudulent and illegal financial activity. While it doesn’t have a financial reporting component for HOAs, it does highlight the need for HOAs to demonstrate transparency and accountability. This is where reserve studies can make a big difference.

A reserve study provides HOAs and community associations with an analysis of the organization’s current reserve fund and a capital expenditure plan. They show HOA members where money is being spent and the plans for the future. “In many places, they’re mandated by law to help ensure the organization's long-term financial health,” Mansback says.

That transparency is critical for creating a sustainable HOA. It allows members and regulators to understand the HOA's financial activities and easily locate the organization’s funds.

Banks can’t change the federal reporting requirements. However, Mansback notes that BankUnited’s HOA and Property Management Group can provide compliance guidance assistance and other services that help streamline HOA management and the reporting process.

“We can help provide guidance to the HOA board members about software and technology solutions that are available to support HOAs and community associations,” Mansback says.

The CTA reporting deadline for beneficial owners is rapidly approaching. By educating yourself now, you can ensure your HOA is prepared and ready to comply. Going forward, Mansback encourages HOAs to work with their banking partners to find technology solutions that streamline record-keeping, promote transparency and make life easier for property management companies and board members. 

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