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Ask the HOA Expert
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Budgeting Adequately Question: At our annual meeting, the board advised that the monthly condo fee was increasing by $30. Some argued that some services could be discontinued and that they would rather pay a special assessment to do a renovation project next year. What’s the answer? Answer: The Board is required to establish a budget adequate enough to pay the bills, current and future. The governing documents also stipulate that expenses be divided according to a prescribed formula. Special assessments almost always reallocate expenses to future owners that don't owe them because they weren't in ownership when the expenses were incurred. Changing the allocation of expenses takes a 100% approval vote of all members. That will never happen because who is willing to pay more than they already do? In addition, some of those called on to pay a special assessment (future owners) won’t have been given the chance to vote at all. If a member vote is required to increase the annual budget (usually not the case) and the owners vote to put off paying some expenses to the future, the matter is out of the board's hands. But the consequences will come back to haunt the entire HOA if some future owners refuse to pay the special assessment. The debt is simply not theirs to pay. Put another way, special assessments are the consequence of not reserving adequately in the past. The roof wears out over years as does the paint and other long life components the HOA maintains. If all owners over those years aren’t paying their fair share, special assessments result. Special assessments are an illegal reallocation of expenses. A fully funded reserve plan divides up those long range expenses fairly and eliminates the need for special assessments. For more, see the Reserve Planning section. BACK
Removing Trees Answer: As a general rule, the HOA and board have the authority to control landscape issues that impact neighbors. The problem with willow trees is that pruning will not address the problem you describe, only total removal. The bigger question is: Are you advocating removal of all trees? Trees do what trees do and wind does what wind does. All neighbors experience some degree of inconvenience because of tree debris. While it is reasonable to require owners to keep trees trimmed, removal is unreasonable unless there is a life/property damage threat or if the tree in question has clearly overgrown the location. BACK
Value of Landscape Answer: Developing such a percentage is impossible. That said, keeping the landscaping looking good will help maximize property values since curb appeal has much to do with value and landscaping has much to do with curb appeal. Invest in a professional landscape designer who can develop a comprehensive plan that will consider bush, plant and tree removals and additions. Modern designs combine larger planting beds, less grass and hardscape (like boulders, water features) so maintenance and water costs can be reduced. The art of xeriscaping selects low water need plants to reduce the need of irrigation. Hiring an arborist to do corrective pruning and selected removal of trees may satisfy the view needs. BACK
Circulating Draft Minutes Answer: Meeting minutes can, and should, be distributed in "draft" form within a week of the meeting so that all are informed what happened. The actual approval of those minutes doesn't happen until the following meeting. They should be previewed by the board for typos or discrepancies before distribution. BACK
Director Proxies Answer: Proxies are not appropriate for board meetings since directors are elected to perform HOA business. Elected officials are not entitled to have others stand in for them. Proxies, of course, are appropriate for votes that involve the general members who are having someone represent their personal interests. BACK
Shuffling Renovation Priorities Answer: Replacing roofs one building at a time is a very bad idea. It complicates the maintenance and warranty issues and provides some unit owners with an improvement that all do not enjoy. (Units with new roofs sell for more than those with old roofs.) The HOA cannot circumvent its maintenance responsibility by passing it off to owners. Besides contradicting the governing documents, individual owners simply will not do it properly. If money is lacking, a special assessment is called for and the board has a fiduciary duty to move forward with it. And reserves require an adequate funding plan so this problem doesn't continue. BACK Transfer Fees Question: My HOA recently passed a Transfer Fee of 2% of a condo’s sale price. Many of the unit owners are up in arms about this fee. Do you have any advice? Answer: All HOA governing documents define how expenses are to be allocated to the members. The norm is either equally or according to square footage where footage varies significantly. Charging a Transfer Fee changes the prescribed allocation formula and blackmails buyers to pay if they want to "join the club". Some HOAs justify the charge as newcomers contributing to the reserve fund just like current owners have. The problem is, newcomers don't owe the reserve fund a penny since they haven't benefited from the assets. Proper reserve funding requires that money is set aside as the assets deteriorate. That way, each member pays for assets they directly benefit from. No more, no less. Charging a future owner for reserves is morally wrong and contrary to the governing documents. The general rule (and often described in the HOA’s governing documents or state statute) is that changing the expense allocation structure requires approval from 100% of the owners (or the owners being affected) and often their lenders since the fee structure directly impacts the lenders' collateral. This will never happen because who will vote to pay more? From a practical standpoint, transfer fees inhibit sales by reducing the pool of buyers that are willing to pay them. Reducing the pool of buyers has an adverse affect on market values. Maybe your HOA is one of a select few that can charge with impunity but during a buyers’ market, this policy will cause values to fall and sales to fail. BACK
Loss Assessment
Coverage Answer: Loss assessment coverage only kicks in as the result of a covered claim. That means that if the HOA's insurance doesn't cover a claim in full and the HOA needs to special assess the members for the balance, loss assessment coverage would cover an owner’s share up to the limits of the coverage which is usually $1000 unless the owner has purchased extended coverage. Legal fees are generally not a covered claim. But insurance policies vary from company to company. Press your agent to explain your coverage in detail. BACK
Deal Breaker Answer: You did the right thing and would do the Board a big favor by passing on your reasons for backing out. More and more, informed real estate agents and buyers look closely at HOA reserve funding because lack of it always means special (and unpredictable) assessments and usually mean the property isn’t being maintained consistently. When reserves aren’t adequate, smart buyers move on to another property where they are adequate and often pay more money for a similar property. HOAs that lack adequate reserves will lose buyers and market value. BACK
Open Committee Meetings Answer: Committees are not under the same restraints as the Board to meet in open sessions which are accessible to members. Email is okay for the Design Review Committees when the answer is "Approved" but when there is a denial, the petitioner has the right of appeal and a face-to-face meeting with the Committee and, ultimately, with the Board if necessary. The Committee should report and summarize its actions to the Board at regularly scheduled meetings. BACK
Donating to Charity Answer: Charities are a wonderful thing but it's not appropriate to donate money out of the HOA budget. An great alternative has been developed by McNary Estates Homeowners in Oregon. Each year, McNary hosts the Mother of All garage sales. The HOA charges each garage sale host $10 to pay for advertising. Each visitor is required to bring a can of food for the local Food Bank. Result: McNary donates several tons of food each year, the event attracts volunteers from all over the city, the news media gives it high profile coverage, the Mayor publicly praises the HOA, the members make money and the HOA members have an enduring source of pride. This event is now an annual tradition. Another benefit is that McNary homes for sale get much more attention during the event. All do well by doing good. BACK
Legal Notice of Violation Answer: Legal notice requirements vary from state to state. But as long as the notice was delivered legally, it is binding whether it's accepted or not. It’s best to serve notice several ways (First Class Mail, Certified Mail and door posting) to defeat the "I didn’t know" defense. Another suggestion: The Committee clearly has no objection to the dog pen, just the look. Since the chainlink fence is already up, why not consider allowing him to add wood slats to it rather than have to rebuild the whole thing? If shielding the contents is the goal, it can be achieved without a total rebuild and will probably encourage quicker homeowner cooperation too. BACK
Handyman as Employee Answer: It is common for smaller HOAs to use handyman services provided by the management company on an as needed hourly basis. The management company then controls and assigns work to various HOA clients and keeps the individual fully employed while each HOA gets a good value from a part-time service. BACK
Disbanding an HOA Answer: Before wasting a lot of energy, contact the city and see if there is any truth to the rumor. Most cities and counties welcome HOAs because they can transfer maintenance responsibility to the HOA for parks, streets, street lighting and other things they traditionally supply. Even if it's true, you're still a long way from completing a dissolution of the HOA. It is a legal entity that impacts the title of every homeowner and lenders that have liens on that property. You need to consult with a knowledgeable HOA attorney in your location for what is required to accomplish this. It is usually very expensive and next to impossible. BACK
Are Roberts Rules Needed? Answer: If state statute or your governing documents require use of Robert's Rules, the board needs to use them in the board and member meetings. Otherwise, agreeing to something as you describe is okay as long as the minutes clearly describe what the board agreed to. However, a simplified version of Robert's Rules is highly recommended to keep the meeting organized and to ensure a balanced and meaningful discussion with a purposeful outcome. Without it, meetings can easily become bull sessions with little accomplished. BACK
Restricting Signs Answer: The main purpose of sign restrictions is to limit their number, size, theme and longevity. There should be provision for the other types of signs you mention since they are common activities. Holiday decorations and political signs should also be allowed as time honored traditions. Simply control the number, size, location and time limit. Flags can come in many forms but the US flag has federal protections. BACK It’s best to have a sign, flag and decoration philosophy rather than an extensive list of acceptable or unacceptable items. The philosophy should stress curb appeal and good taste. Since we all know that some lack taste, the board may need to intercede on a case by case basis. The board may need to compromise when confronted by an intractable resident rather than squander precious emotional and financial resources trying to enforce the rules. There is a sample Sign Policy available to Gold Subscribers of www.Regenesis.net
Owner Installed Sprinklers Answer: Anytime the board authorizes an owner installation, a legal document should be written that describes what is being done and that the owner is responsible for maintenance, repair and replacement of that installation. That document should be recorded against the owner’s title so that the obligation transfers to subsequent owners of the property. But in the case you describe, the board would be allowing a unit owner to irrigate common real estate. In a condominium, all unit owners own all real estate in an undivided interest. The board has no authority to grant any unit owner exclusive use to any of the real estate. BACK
Board Candidate Rules But what if only two nominations are submitted? Does the president declare their election by default or does someone need to make a motion to elect the two by acclamation? Answer: Your nomination procedure is illegal unless it is described in your governing documents (doubtful). Even single issue, self serving members have a right to run for the board. The nomination procedure could easily be interpreted as an attempt to suppress dissent. (You pretty much admit that already.) The election process should follow normal procedures which includes being nominated at the meeting and no requirement to be endorsed by others. If there are two positions and only two candidates, the president may ask for a motion to elect the candidates by acclamation. If he receives the motion, a second and a unanimous vote, there is no need to distribute ballots. However, if there is dissent, ballots should be distributed and counted. BACK
Renting Out the Clubhouse Answer: If many owners support classes in the clubhouse and are willing to pay the cost, the board should establish a criteria which allows such events. The events should not monopolize the clubhouse in a way where non-participating owners are overly restricted from using the facilities. BACK
President is Embezzling
Paying to Avoid
Self-Maintenance Answer: An underlying principle of owning property in an HOA is that the members get discounts through group buying power. But there is no obligation that any member has to do the work themselves. So, members cannot be surcharged for lack of participation. While it's nice that there are those that want to cut costs by doing the work, getting sustained cooperation and consistent results from all members is next to impossible. Encourage volunteers by asking each member to complete a small but meaningful task rather than volunteering for long term commitment. By year end, many small projects can be completed and, when combined, represent an impressive accomplishment. Recognize those that participate in the newsletter and board and annual meetings. Give awards and certificates. This will encourage others to step forward. BACK
Annual Meeting Motions Answer: While the Annual Meeting is the proper place to hold discussions, making and passing motions on the fly is inappropriate since absent owners are not able to weigh in and vote. Certain kinds of member motions may take a super majority or unanimous vote to pass which is rarely present at an Annual Meeting. All issues requiring a member vote must be noticed to the entire membership in advance of the meeting. The practice you describe should be stopped immediately. BACK
Required to Serve on Board? Answer: It sounds like your HOA is overdue for professional management which can provide this service and many others. Barring that, the board could appoint or hire anyone to do the secretary's job. The board can't force anyone to do anything. BACK
Conflict of Interest Statement Answer: Investor owners have the right to serve on the board if they can get elected. The current board members need to understand if they don't encourage conscientious and non-conflicted candidates and general members to vote for them, candidates with not-so-hidden agendas will get elected and do things that will negatively impact the value of the units. Signing a conflict of interest statement may be appropriate since it can be used to intercede when self serving board actions are being contemplated. You, as manager, need to be candid about what the board should and shouldn't be doing and the consequences. For example, filing inappropriate insurance claims against the HOA's policy could result in higher premiums or loss of the insurance altogether. If a board member proposes something at a board meeting that conflicts with the governing documents, good business practice or common sense, say so in no uncertain terms. If the board votes in favor of it anyway, insist that the minutes reflect that the manager advised otherwise. This tactic may cause the board to recant its foolish ways. The manager walks a fine line with changing boards. If the hidden agenda folks guys take over again, you will have a choice to make: quit or try to make it work. BACK
Reserve Balance in 30 Years Answer: There are different theories about funding reserves but the only fair way to do it is to follow a "fully funded" plan. A simple example is if a reserve component costs $10,000 to repair or replace and that component has a 10 year useful life, $1000/year should be set aside each year to accumulate the $10,000. If this is done, the reserves are fully funded each year of the 30 year plan. Repeat this process for all reserve components and each member of the HOA will pay a fair share of the reserve costs. Anything less and someone in the future will have to make up the shortfall (aka the US Congress funding approach: get something for free today and the expense gets foisted on future generations). BACK
Going Self Managed 2 Answer: It would be unwise for an HOA of this size to self manage. Professional management is recommended for even small HOAs because of the 24/7 responsibility. Most volunteers like to take vacations, don't like to get nasty phone calls at home and are reluctant to enforce rules and collections on their neighbors. While the issues with your current manager may be valid, that doesn't mean there aren't other solutions. Has the current board detailed the shortcomings and given the manager a reasonable opportunity to comply? This is only fair. Often boards expect things that aren't even included in the contract and then get angry or frustrated when they're not done. If the manager has been confronted and failed to comply, it’s time to develop a Request for Proposal (RFP) which can be sent to qualified companies. A sample RFP is available at www.Regenesis.net in the Manager Issues section to Gold Subscribers. Finally, to properly manage and plan for major expenses, your HOA should have a professional reserve study performed. See www.Regenesis.net Reserve Study Service for details. BACK
Garage Parking Policy Answer: Parking in many HOAs is very tight. But if there truly is a surplus, renting extra parking spaces is a common practice. The spaces should only be rented to residents and a rental agreement signed which requires auto insurance, no stored or junk cars and other reasonable provisions. The rental fee should be market value, otherwise it looks like someone is getting a "sweetheart" deal. A one year prepaid term is recommended to reduce additional bookkeeping and management costs. BACK
Replacing Sidewalks Answer: The board has no authority to summarily replace something that an owner is responsible for without reasonable prior notice and right of appeal, unless there is an emergency (downed power line, sink hole, etc.). For legitimate safety concern like a tripping hazard, the board has the duty to advise an owner and take action if the owner does not. However, from the facts you relate, the board president exceeded his authority and the owners have the right to dispute the charge. BACK
Small Claims Court Collections Answer: While state laws may vary, the board usually can use Small Claims Court to collect money. However, there are many practical reasons not to. The board typically has the right to place liens on owner property, garnish wages and other strong collection methods without going to Small Claims Court. If the Collection Policy is written correctly, collection and legal costs can be recovered from the debtor. Small Claims Court is limited to the amount that can be collected and may disallow other legitimate charges (like interest, late fees, attorney fees), the judge may rule in the defendant's favor or split the difference. And even if the HOA wins, there is still a judgment which may require an attorney to collect if the delinquent still refuses to pay it. So, there is simply no advantage to the HOA using Small Claims Court. To protect the HOA’s collection rights, it’s advisable to work with an attorney that specializes in HOA collections. Some collect their legal fees only when the balance is paid in full (HOA is paid first). BACK
Condo & Townhouse Difference Answer: The term "townhouse" is often used to describe side by side common wall units which may or may not be condominiums. The definition of a condominium is about how real estate is held: All condo owners own or lease an undivided interest in all real estate. In non-condo HOAs, owners share an undivided interest in common real estate plus an individual interest in real estate below their unit or home. Since the essence of a condominium is related to real estate and not the structure, a condo can be a single or multi-level unit, a house, commercial space or even an airplane hangar. The key legal difference between a townhouse and a condo is whether the owner owns land separately from commonly held land. You can't tell just by looking at it. You need to read the governing documents. This is extremely important when buying because it often affects maintenance and insurance responsibilities. Don’t count on your real estate agent to know the difference. BACK
Restricting Sauna Use Answer: What is the board's goal, health and safety or to reduce vandalism? Typically, young children (under 8) should not be in the sauna for health safety reasons. Ask the sauna manufacturers about health and safety guidelines and let the board post them. Coming up with some random policy may indeed get challenged under Fair Housing guidelines. If found guilty, the penalties are severe so the board should not do anything that would attract this kind of challenge or attention. Safety guidelines, though, are reasonable. BACK
Vehicle Logo Restrictions Historically, we have required magnetic flexible covers over logo signage, or vehicular covers, if the vehicle is not stored in the garage. Do you have any advice regarding logo signage? Answer: How about full body vehicle decals? Yes, this issue has gotten very complex. Parking restrictions are usually intended to control the number of commercial vehicles parking in the HOA like vans, trucks and delivery vehicles used strictly for business purposes. Since vehicle advertising has changed a lot, the board should be more lenient when a personal vehicle is being used (real estate agent, insurance agent, etc.) with a small decal or magnetic sign. Having to cover up all vestiges of signage large or small is a losing battle. Focus on strictly commercial vehicles. BACK
Financing Renovation Work Answer: The most expedient way to raise money is by special assessment, where each member pays a proportionate share of costs according to guidelines in the governing documents. But before you consider this, the board should order a professional reserve study which takes into consideration the cost and timing of all common element repairs, not just the ones you list. Reserve studies take into consideration all such repairs over a 30 year projection period. PRA (Professional Reserve Analyst) members of the Association of Professional Reserve Analysts carry the highest credential available to perform this work. See www.apra-usa.com for a list of PRA members. While borrowing money is an option, it carries a higher interest rate, short term pay-back and will significantly raise the monthly assessments to all member that participate. It is usually much more cost effective to have individual members fund their own share of the costs by whatever means available and leave the HOA out of the banking business. BACK
Manager as Rental Agent Answer: As long as the manager is providing leasing only services that comply with HOA guidelines and is careful to enforce all applicable HOA rules on the tenants, there is no conflict of interest. The role you describe is very common in HOAs where there are many second homes. It is important to have a local agent overseeing the rentals and the HOA manager is often the best fit. BACK
Voting for Bylaw Change Answer: Normally, the 75% approval requirement means that 30 of 40 members (in this case) must approve a bylaw change, not just 75% of those that show up to the meeting. This can be accomplished in person or by proxy. A proxy allows another person to vote on behalf of a member. Your treasurer could get many others to give him their proxy to control the vote outcome but this would take a lot of work to get them. BACK
Board Ratifying Directors Answer: This is a huge red flag. No board has the right to suspend elections or "ratify" (whatever that means) existing board members. HOAs are required to hold elections every year so that all members have the opportunity to run and serve on the board if they get enough votes. The current board could easily engineer the process you describe by failing to distribute proxies and agendas in advance so that other members are not informed or able to attend the meeting. This board needs to be called on its illegal maneuvering and now. BACK
Manager Voting Proxies Answer: While anyone can technically carry a proxy on behalf of a voting member, this particular arrangement is a huge conflict of interest since the property manager is also under contract to serve the HOA. This proxy arrangement would allow the manager to vote on the members of the board that supervise him. The board should make it clear that the property manager accepting proxies is not allowed. BACK
Commingling Reserves with
Operating Answer: The universally
accepted protocol (and IRS mandate) is that reserves need to be held in a
separate account for the very reasons you state. That means, at minimum, two
checking accounts. Reserve funds are typically invested in CDs, savings or
other federally insured investments to produce interest revenue. This one is a
no brainer. Open another checking account and move reserve funds there
today! Restrict check writing from that account to reserve related
expenses only and limit access to selected board members (property manager
excluded). BACK |
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