Common Interest Realty Associations - Checklists and Illustrative Financial Statements

Description

    .01 In the 1960s, certain forms of real estate ownership gained popularity, particularly common interest communities (CICs). It was not until the beginning of that decade that the Federal Housing Administration (FHA) began providing mortgage insurance and Chicago Title and Trust began offering title insurance for condominiums. Other prevalent types of CICs include cooperatives, planned unit developments (PUD), and timeshare associations. A key feature of these forms of real estate ownership is the existence of an association of owners referred to as a common interest realty association (CIRA). A CIRA is responsible for maintaining certain property that all owners share or own in common, and providing certain services such as enforcing bylaws, covenants, conditions, and restrictions that apply to the property.

The Community Associations Institute in Alexandria, VA, estimates that currently, there are 59.5 million residents occupying CICs in the United States, representing approximately 20 percent of the value of all U.S. residential real estate. These common types of CIC ownership are described in more detail as follows:

• Condominium: Each owner has title to a defined interior space within a building or combination of buildings and an undivided ownership interest in common property within a development, such as the grounds, recreational facilities, and exteriors of buildings shared in common with all other owners. A condominium association generally owns no real property but is responsible for maintaining the common property and providing necessary services. In certain jurisdictions, condominiums may be established as condominium trusts; such entities may own the real estate and all the improvements. If they do, the accounting and reporting for condominium trusts are the same as for cooperatives.
• Cooperative: A form of ownership in which a corporation owns the common property, including all of the improvements, and is responsible for its maintenance, debt service, repairs, and so forth. The owners do not own any of the common property, but they own shares of stock of the corporation. Their ownership interests permit them only to lease from the cooperative, to occupy their individual units, or to sell their shares. Members are assessed carrying charges for units they occupy or lease. The corporation functions in the same way as a CIRA in maintaining common property and providing services.
• Planned Unit Development: A form of land development in which various residential and nonresidential structures are clustered to allow optimal use of the property and to provide certain open spaces and amenities not otherwise available in traditional forms of subdivision developments. In many PUDs, tracts of land are set aside for all owners to use for active or passive recreational purposes, parking areas, and streets. A PUD owner buys a lot and improvements on the lot. The title to common property is held by a CIRA, generally a Homeowners' Association (HOA), which has obtained it at no cost to the association. The CIRA assesses owners for funds needed to maintain common property and provide necessary services.
• Time-share Development: A form of ownership in which each owner has a time-share interest, commonly referred to as interval use, that represents a right to use a unit in a time-share development for a specified number of weeks during a year. Such interests may be in the form of (a) fee-simple ownership, evidenced by a deed that specifies the amount of time the deed holder is entitled to use the unit, or (b) a lease giving the owner the right to use a unit for a predetermined lease term. These types of entities may also be referred to as fractional ownership associations.

    .02 Regardless of the form of ownership of a CIRA, a CIRA member has a defined ownership interest that can be transferred to buyers of the units or shares. Additionally, the CIRA member is entitled to share in the distribution of resources in the event of a liquidation. Membership in a CIRA is generally mandatory for owners and is a condition in the agreement to purchase either shares in a cooperative, a unit in a condominium, or HOA.

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