Ask the HOA Expert

Proxy Question
Question: At our annual meeting, the procedure for voting in person and voting by proxy was different. Those who attended the meeting registered by signing in. Proxies were only counted if the signature on the form matched the signature of record. Is this standard procedure?

Answer: Presumably, whoever was monitoring sign in recognized the owners who were signing in. Signatures on proxies could be forged by someone trying to manipulate the election. While this is not common, it is a good idea to verify the identity of both attendees and proxy signers to make sure there is no election fraud. BACK

President's Authority
Question: Does the board president have more authority than the other board members?

Answer: Yes, the president does have the authority to make decisions on behalf of the board as long as those decisions are in keeping with the approved budget, governing documents, established board policy/procedure and state statutes. BACK

Brainstorming Sessions
Question: Is it permissible for the board to convene a "brainstorming session" simply to talk as long as no decisions are being made?

Answer: Theoretically it sounds okay but brainstorming generally leads to decision making. And the board needs to be careful about perception. If these sessions happen too often, it will appear that they are merely being called something other than a meeting to circumvent being open to all members. BACK

Sub-Prime Mortgage Crisis
Question: Do you have any thoughts on how the sub-prime lending crisis, sky-rocketing foreclosures and general downturn in the economy will affect HOAs? In our community, houses are staying on the market a very long time. More people are falling behind on their HOA fees and a number of homes are on the verge of being foreclosed. As a board member I don't wish to add to their hardship but feel we need to be doing something.

Answer: Home related expenses should be at the top of the bill stack and the HOA has the legal authority to enforce payment. The board should have a fair and firm collection policy which is consistently and uniformly enforced.

Failure to enforce collection puts the financial burden on the paying members. While it’s fine to be personally compassionate, the HOA is not a bank or charity. If some members are in financial trouble, they need to take whatever action is necessary to reduce their debts. The board should protect the HOA’s interest by filing a lien and getting a judgment if necessary. Your attorney may have other suggestions to improve collections. BACK

Mold Remediation
Question: Our HOA has a resident owner that claims there is a mold condition which the HOA is responsible to remediate. The board wants to be proactive but is hesitant to incur costs just because an owner demands it. Whose responsibility is it to pay for testing?

Answer: It is possible that the mold problem could be the HOA’s responsibility to repair. It is also possible that the unit owner is creating the condition. But until qualified testing is done, the answer to that question will not be known. Get the owner to agree to pay for the testing if it proves to be something that the HOA is not responsible to repair. If it turns out to be the unit owner’s problem, seek reimbursement and if he doesn’t pay, process the account for collection just like you would for any other sums owed. BACK

Owner Deck Maintenance
Question: Our bylaws state that "Each unit owner shall maintain the unit deck in a clean and sanitary condition". Does this mean they should simply sweep their decks periodically or engage in pressure washing and other aggressive cleaning?

Answer: In defining what level of maintenance the unit owners should be required to do, the board must consider how likely it is that unit owners will do (or know how to do) what is being asked of them. The chance of many owners doing pressure washing is close to zero. Hiring a contractor to do all this work on all decks at the same time will result in a cost reduction, less mess and disruption. Have the owners perform regular sweeping and the HOA do more aggressive cleaning every couple of years. BACK

Developer Spending HOA Funds
Question: What is an appropriate use of HOA funds by the developer prior to turnover to an elected board of owners? Our developer spent nearly $20,000 on "lawn mowing maintenance" for his unsold lots.

Answer: Developers control the HOA board prior to turnover so wear two hats. If spending HOA money, the developer should follow the adopted HOA budget which often includes Landscape Maintenance. Unless the budget calls for mowing of all lots, this sounds like an inappropriate expenditure which should be reimbursed to the HOA’s bank account.

At turnover, it is a good idea to have an independent audit of the HOA accounts by a CPA to ensure that all expenses and receipts have been properly accounted for and that all members, including the developer, has paid all fees owed to the HOA. BACK

Dictator President
Question: At a recent board meeting, the president tried to pressure the management company to quit. He accused the manager of stealing and worse. None of this was announced to the other directors before hand and we were caught by surprise. Does the president have the authority to fire the manager?

Answer: No. Something as important as hiring and firing a management company should be decided by the entire board, possibly with input from the owners. It appears that your president is somewhat of a tyrant and not given to communicating or cooperation. I doubt much will change until there is a change on the board. BACK

Manager Overspending Budget
Question: Our finance committee, Board, and management company did a lot of work together to come up with the HOA budget last year. We made some tough decisions like eliminating services and cutting back on administrative expenses like office supplies so that we could control the assessment increase. However, so far this year, the management company is routinely spending more than we budgeted. Can the management company ignore the budget caps?

Answer: The management company works for the board. If the manager is ignoring directives from the board, there is a problem. But usually, the manager is simply responding to maintenance requests that need to be executed. To better control this, the board could pre-screen requests and decide which ones the manager should take care of. This is best done by email which can be moved along efficiently and quickly. BACK

Changing Fee Allocations
Question: It recently came to my attention that our governing documents state "The common expenses shall be charged to the unit owners according to a percentage formula based on unit square footage." We have four different size units but this policy has never been adhered to. All unit owners pay the same fees. When this matter was brought to the attention of the board they said the board decided years ago to change it.

Answer: Formulas for establishing how HOA fees are determined are found in the governing documents. And changing how the formula works takes a vote of the members. The board has no authority to make this change. Changing the formula may take 100% approval of the members and their mortgagees depending on how the governing documents or state statutes read. While the current board may have just been carrying on with what past boards have done, once the error has been pointed out to them, they need to revert to the formula prescribed in the governing documents immediately unless they can get a legal vote of the members to change it. BACK

Recording Amended Documents
Question: The board recently mailed out a ballot to amend our governing documents and received an overwhelming majority in favor. How do we now get the change legally recorded? We are unsure how to proceed, but can't afford much in the way of attorney fees. Can we get this done on our own?

Answer: While it’s possible to do this on your own, I would not recommend it. There is much to consider. Knowing the process for recording the documents properly is something lawyers do. Also, the older your HOA, the more likely the governing documents are out of compliance with current state and federal law. A knowledgeable HOA attorney should review all your governing documents and make recommendations for additions and deletions. Since the governing documents are the authority for how the HOA operates, you should not do this "on the cheap". Find an attorney that specializes in this form of law in your state to assist you. BACK

Capping Reserves
Question: Our HOA is in the process of adopting a reserve study policy which caps total reserves at 75% of the annual budget. What do you think about this approach?

Answer: The level of reserve funding has nothing to do with the annual budget and should not be tied to it. A properly done reserve study should reveal the "percent funded" and include a "funding plan" that will provide for adequate reserves to pay for the future events outlined in the reserve study (like painting, roofing, fencing, etc.). To share costs fairly, the reserve fund should be funded 100% each year. For example, if a roof costs $100,000 to replace and has a useful life of 20 years, $5,000 should be put into reserves every year to be 100% funded. If funded less than this, future owners will have to pay for a benefit they did not receive. Funding 100% ensures that all owners along the 30 year timeline pay their fair share.

Reserve funds should be placed in a special fund that is set apart from operating funds. Reserve funds can and should be invested to produce interest income, usually by way of Certificates of Deposit unless all HOA owners are comfortable with riskier investments. The board should not adopt an reserves investment policy without informing the owners of the details. BACK

Charging Transfer Fees
Question: What do you think of the practice of charging new owners with a "transfer" fee so the HOA can build its reserve funds?

Answer: The governing documents prescribe the formula of how expenses are allocated among the owners. The board has no authority to surcharge certain owners just because they happen to be new to the HOA. As a matter of fact, charging new owners to fund reserves is in my opinion morally wrong. Reserves are owed by those that enjoy the benefits of the common elements. New owners have not yet had that experience so charging a transfer fee essentially forces them to pay for something current or past owners should have paid for. It’s like a hotel tax. Local taxpayers vote for it because they don’t have to pay it.

That said, if the governing documents are amended by a vote of the members to require that all current and future members pay a one time fee to supplement reserves, it would probably be acceptable. Still, the best course of action is to follow a properly done reserve study with regular and adequate contributions to maintain reserves at or near a 100% level at all times. If this is done, transfer fees and special assessments would not be needed. BACK

Charges for Manager Time
Question: Our HOA has a member that frequently requests copies of information. Our management company has charged us for the time it takes to process these requests. We think the manager should provide these services for free.

Answer: The management company should not be expected to work for free because a member is badgering the board. Manager time, office supplies, postage and photocopy costs required to address member requests should be billed to the member. This will likely put a stop to the badgering soon enough. That said, the HOA should have a system for providing information to the members like newsletters, meeting minutes and financial statements. A website provides an ideal self help medium for this and costs very little. BACK