HOA Lawyer Blog
The Corporate Transparency Act (“CTA”), enacted in December 2020, aims to increase corporate ownership transparency to combat money laundering, terrorism financing, and other illegal activities. The CTA requires many small businesses, classified as “reporting companies,” to submit beneficial ownership information (“BOI”) reports to the Financial Crimes Enforcement Network (“FinCEN”). This requirement extends to certain homeowners associations (“HOAs”) and involves disclosing personal details—such as names, addresses, and copies of driver’s licenses or passports—about individuals with “significant control” over the HOA (i.e., members of the HOA’s Board of Directors).
Not surprisingly, many reporting companies objected to the reporting requirements, citing government overreach and privacy concerns as the primary reasons for opposing the reporting requirements. These objections led the U.S. District Court for the Northern District of Alabama to grant the National Small Business Association’s request for a preliminary injunction, temporarily blocking enforcement of the Act. However, the court’s order was limited to the plaintiffs in that case and did not extend its protections to HOAs.
Encouraged by the District Court’s decision, the Community Associations Institute (“CAI”) filed a lawsuit in the U.S. District Court for the Eastern District of Virginia seeking a similar result for its member-HOAs. Such result would not be forthcoming, however, as the Judge in that case denied CAI’s motion for preliminary injunction. CAI has appealed that decision to the United States Court of Appeals for the Fourth Circuit.
Thinking all hope was lost, many HOAs started the process of filing BOI reports with FinCEN. But, in the eleventh hour, the United States District Court for the Eastern District of Texas issued a nationwide injunction blocking the enforcement of the CTA and its reporting requirements. (Texas Top Cop Shop, Inc. v. Garland (4:24-cv-00478-ALM).) This ruling applies to all entities previously required to submit BOI reports, including HOAs within the State of California.
Since this injunction was just issued on December 3, 2024, it is unclear whether the Government will appeal the Court’s decision. More information on this is to come…
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HOAs should monitor developments in this case and consult with their HOA legal counsel to stay informed of their CTA compliance and reporting obligations. |