Do Homeowners Associations (HOAs) Have to Report Beneficial Ownership?

The Financial Crimes Enforcement Network (FinCEN) recently provided clarification on whether homeowners associations (HOAs) are required to report beneficial ownership information under the Corporate Transparency Act (CTA). HOAs need to determine if they qualify as a “reporting company” under this act.

HOAs and Reporting Requirements

If an HOA qualifies as a reporting company, it must identify all its beneficial owners based on specific criteria and report this information to FinCEN within designated timeframes to avoid penalties. On April 18, 2024, FinCEN updated its guidance and clarified these reporting criteria, timeframes, and penalties.

The main question HOAs need to ask themselves is: Are we considered a reporting company? If an HOA is a reporting company, it must provide information about its beneficial owners. The CTA went into effect on January 1, 2024, and FinCEN’s updated FAQs provide insights into how this affects HOAs.

Understanding the Corporate Transparency Act (CTA)

The CTA is an anti-corruption law aimed at combating financial crime. It requires companies to disclose their beneficial owners—the individuals who ultimately own or control the entity. The goal is to ensure transparency in ownership structures, and every legal entity must determine if it is a reporting company under the CTA.

According to FinCEN guidance, any HOA that meets the definition of a reporting company and does not qualify for an exemption must identify and report its beneficial owners. The determination of whether an HOA is a reporting company depends on how the HOA was formed. HOAs created through the filing of documents with a secretary of state or a similar official body are typically considered reporting companies unless they fall under one of the 23 specific exemptions provided by the CTA.

Identifying Beneficial Owners of HOAs

If an HOA is considered a reporting company, it is required to report its beneficial owners to FinCEN. Even if no individual owns or controls at least 25% of the HOA, FinCEN expects that every reporting company will be able to identify at least one individual who has substantial control over the entity.

What Is “Substantial Control”?

An individual is considered to have substantial control over an HOA if they meet any of the following criteria:

• The individual is a senior officer, such as a president, CEO, CFO, or any officer performing similar functions.
• The individual has the power to appoint or remove officers or a majority of directors.
• The individual is a key decision-maker in the HOA.
• The individual holds significant authority over the HOA, such as control over equity, voting rights, or major financial decisions.

Each HOA must evaluate its leadership to determine which individuals meet these criteria.

Types of Common Interest Properties

To understand which entities fall under the CTA, it’s important to distinguish between different forms of common interest properties:

• Condominium Associations: These entities govern condominiums, where each unit is owned individually, but common areas are collectively managed by the association. In New York, most condominium associations are unincorporated and, therefore, not subject to CTA reporting.
• HOAs: These entities manage communities, owning and overseeing the common areas. Typically, HOA members are the individual owners of the units within the community.
• Co-ops: Cooperative apartment corporations (Co-ops) are corporate entities owned by shareholders. The Co-op owns the entire building, and shareholders receive proprietary leases for specific apartments.

Who Needs to Report?

If an HOA, condominium association, or Co-op is incorporated or was created through official state filings, it is likely considered a reporting company and will need to report its beneficial owners. On the other hand, unincorporated entities—like most condominium associations in New York—are generally not considered reporting companies under the CTA.

Practical Implications

In short, incorporated HOAs, incorporated condominium associations, and Co-ops are likely required to report under the CTA. However, unincorporated condominium associations and HOAs are likely exempt from these reporting requirements. It’s important for each HOA to review how it was formed and to understand whether it falls under the CTA’s scope.