California corporations, including homeowners' associations, must register with the Secretary of State. The Secretary of State assigns the organization a number and then they are required to file a Statement of Information every two years.
Additionally, corporations must file tax returns with the Franchise Tax Board and pay their taxes every year. Homeowners' associations are also required to file a Statement of Common Interest every two years with the Secretary of State.
If a corporation or homeowners' association fails to comply with all requirements the Secretary of State or California Franchise Tax Board can suspend the corporation or revoke their corporate powers. Unfortunately, as many as 10 percent of homeowners' associations have been suspended. Of the 40,000 associations, this means nearly 5,000 are suspended.
Will a suspension affect the HOA?
When a homeowners' association is subject to corporate suspension the law essentially is suspending or forfeiting the corporation's rights, powers and privileges to enter into a valid contract. If decisions were made during the period of suspension or forfeit, it could affect the HOA as follows:
- A maintenance contractor hired to work on roofing, siding, landscaping, etc., could void the contract if there is a disagreement with the HOA. The association would have no authority to enforce any provision of any contract entered into with the contractor because it is suspended.
- If the HOA is involved in any sort of litigation, including construction defects, the association would not be able to pursue legal remedies until they are no longer suspended.
- The HOA would not be able to collect delinquent assessments from homeowners, liens would not be enforceable and small claims could not be pursued which may result in lost assessments for the HOA.
- The HOA may not be able to enforce stipulations outlined in any of its governing documents.
- And, board members may be without immunities previously provided by the Davis-Sterling Act.
How do I know if my HOA is suspended?
You can check with the Secretary of State's website to conduct a business name search. When you find your HOA, click on the name and review the information provided. The Secretary of State's records will only show that the HOA is either in good standing or suspended, it will not show the date of suspension.
If you discover that your HOA is suspended, you may want to contact an attorney who is experienced with representing the homeowners to discuss your options and any remedies you may have.