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Ask the HOA Expert
Q&A |
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Newsletter
Editorializing Answer: While homeowners are entitled to free speech, the association newsletter is not the proper forum to air grievances. A small group of owners (often 10-20%, but check your governing documents) have the right to call a special meeting to discuss issues of concern. BACK
Home
Based Business Answer: Neither the daycare operation or distributorship sound appropriate. This points out the need for a clear policy and uniform enforcement. A ban on all home businesses is unfair and unenforceable. Many people have home offices and may run their entire business from home. The issue is not whether or not businesses should be allowed but the impact on the community. If neighbors are not aware there is a business there, it's probably okay (unless the activity is illegal). Noise and traffic are the main concerns about daycare operations. And while the daycare operation may be low impact, it wouldn’t be if it grew. Maybe a conditional permit based on low impact and limit on children might work. I suggest this as a policy: "Home businesses are allowed as long as there is no traffic, signs, noise, offensive odors or parking impact on the community." BACK
Rudeness at Meetings Answer: Rude people generally don't acknowledge their rudeness nor respond to correction. However, you should send a letter to the Board President pointing out your observations of unacceptable behavior. Good leaders recognize the importance of letting others speak without intimidation. It’s in the board’s best interest. Stifling debate builds resentment while venting relieves pressure. Owners should be allowed a time limited forum at the start of every board meeting to speak, question and complain. From then on, they should be silent unless requested to speak so the Board can get on with the agenda. BACK
Special
Assessments at Closing Answer: Special assessments belong to whoever is in ownership at the time they are levied. Your client is certainly within her rights to ask why the budget was off by so much. Utility rate increases are usually planned many months in advance. Did the board ask the utility companies about proposed rate increases when preparing the previous year’s budget? It should have. Is the board in the habit of under budgeting? Is the budget increased by at least an inflation factor each year? If the budget has been unchanged for two years or more, the board has ignored reality. One of the biggest flaws in most association budgets is failure to reserve for future expenses. Is there a Reserve Study in place and is it being adequately funded? Depending on the answers to these questions, your client could be in for a series of special assessments bigger than this one. As a real estate agent, it's your duty to advise buyers and sellers of HOA property. There are many things that make HOA unique to single family homes. Get educated on the differences before you represent yourself as knowledgeable. BACK
Roof Related Damage: Who
Pays? Answer: The Board is responsible for stopping roof leaks one way or another and waiting for a contractor to get around to it, considering a forecast for rain, is unacceptable. The Board should arrange to have the roofs tarped off or otherwise protected from further leaking, by another contractor if necessary. You should contact your insurance agent immediately about the damage and, of course, let the Board know in writing that you expect them to take steps to curtail further damage to your unit. BACK
Avoiding Email Bombs Answer: Email "bombs" can do a lot of damage. In this case, the director's comments were both ill advised and ignorant. You have every right (and obligation) to express valid concerns to the Board. The director's injunction comment is nonsense since it could never happen. The Board should always encourage feedback, whether good or bad. Knowing what the owners think is important to shaping workable policy. BACK
Restarting a Defunct
HOA Answer: By definition, a "homeowner association" is a mandatory membership organization. If that's what yours is and the current board wants to charge assessments to fund association business, it has the power to do so. If the governing documents don’t prevent it, it is possible to deny voting rights to delinquent owners by enacting a Collection Policy that includes that provision as a penalty. Payment of the assessments is mandatory and the association typically has the right to enforce payment by placing a lien on an owner's property and other remedies provided in the governing documents and state statute. The Board should carefully review and understand the documents. The Board should also use the counsel of an attorney that specializes in HOA law. See our Attorney Databases section for assistance. BACK
Compensating Board
Members Answer: Most governing documents prohibit board members from receiving compensation and benefits. Even if they don't prohibit it, it’s a good idea due to conflict of interest. Reasonable out of pocket expenses and mileage should be reimbursed. If the board wants to hire a director to do work, the director should resign and be hired as an employee. But this is kind of like hiring your brother. It may work out but chances are pretty good it won't and then you have to fire a neighbor and maybe a friend. Better to hire an outsider. BACK
Naming Delinquents in the
Minutes Answer: No. Delinquency information should only include amounts and status of collection (payments being made, 10 day demand letter sent, lien being filed, etc.). Leave the names out for libel reasons. BACK
Unauthorized Minute
Editing Answer: If there are additions and corrections to be made, they should be done at a board meeting for all to hear and approve. You should discuss the matter with the President. Is the issue grammar, content or accuracy? All are important. Are the changes relevant or simply "fiddling"? If the President is adding nothing new, or worse, adding things that didn't happen, advise that it’s the your job to take minutes and the Board’s job to change them. (So there!) When taking minutes remember: "Minutes are minutes, not seconds or hours." Make sure there is enough there to explain what actually happened...not too little...not too much. Summarize discussions, include all approved motions and include relevant facts and circumstances. BACK
Smoking in the Common Area Answer: This is a tough one since smokers have been driven outdoors and believe it’s their last safe haven. Of course, smoke can migrate into common hallways, ducts and through windows. Bring the issue up to the smoker and hope for the best. If that doesn't work, a fan on your deck or window will help blow the smoke away and be a subtle reminder to the smoker. BACK
Restricting Road Speed Answer: The Board has the right to control speed limits on private streets. On the other hand, rent-a-cops are not cheap. Traffic "calming" devices like traffic circles, speed bumps and flashing signs will be much cheaper and effective. And they work 24/7. No amount of control can reign in scofflaws. Use the police for the hard cases. BACK
Resident Sex Offenders Answer: Each state has guidelines and statutes about reporting information on sex offenders. The Board should consult with a knowledgeable attorney on how to handle the issue if it applies. Because of libel and defamation of character issues, the Board wouldn't want to do anything that invites a lawsuit. On security issues in general, the Board should be VERY careful on how involved the association gets. If the association provides any significant level of security, virtually any crime could be blamed on the association’s failure to provide a safe and secure environment. Lawbreakers should be handled by law enforcement. The Board should make sure the "environment" is as secure as possible. This means that all common area lighting, locks, fences, gates and doors should be working properly. Landscaping should be properly trimmed to reduce hiding spots and undetected points of access. BACK
Security Company
Checklist Answer: Why not ask several security companies in your area what specific services they offer for residential properties like yours? After reviewing three or four company information proposals, you should be able to combine the features you want into a Bid Request Letter. How much security is needed? Hourly charges can add up in hurry. Will one guard do or are several required? How many hours is enough? Usually, the cost of guards can't be justified. Security is largely perception. If the bad guys think you're on to them, most won't mess with you. Posting surveillance signs is a cheap deterrent. BACK
Limiting Assessment
Increases
Is this amendment advisable? Answer: This amendment is ill advised. The intent is to keep pace with inflation while limiting increases. However, it may lock the current assessment at a level that is already too low and perpetuate a serious budgetary shortfall. The Board is elected to make decisions based on the association’s need. The sense of this amendment is that the Board is not to be trusted. Boards are rarely guilty of spending too much because each director has to pay a share of any increase. If anything, most Boards are too conservative and the budget inadequate to accomplish the level of services the association needs. BACK
Embezzlement Answer: You have legitimate concerns and have the right to reasonable answers to those concerns. Make a written request for access to financial information (checking accounts, financial reports, etc.). If you are ignored or don't receive reasonable answers, you have the right to call a special owners meeting usually with a small percentage of owners requesting it to discuss the concerns. Also, convince the other owners to vote for you in the next election and ask them to give you their proxy if they aren't attending the annual meeting. Ask other concerned owners to run as well. Only if you displace this individual will you have chance for change. BACK
Surcharging
for Nonparticipation Answer: An underlying principle of owning property in an HOA is that owners get service discounts through group buying power. But there is no obligation by any owner to do the work themselves. So, owners 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 members is next to impossible and is bound to create resentment in those that are carrying the load for others and those being pressed to work. Encourage volunteers by asking each owner 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. Hand out awards and certificates. This will entice others to step forward. Better to use a carrot than a stick. BACK
Christmas Decorations Answer: Christmas decorations are often a deeply felt expression of faith and tradition. And, in general, they help to liven up the routine. Instead of restricting them, why not sponsor a contest and award "Best Display" and other creative endeavors. This "carrot" method is fun, encourages tasteful and creative displays, builds community and gives the Board an opportunity to honor stand outs. BACK
Recording Rental Restrictions Answer: Since the ability to rent one’s property is considered a basic right, informing prospective buyers of the policy through recorded bylaws is essential. A Rental Restriction Policy is considered a major change in ownership rights and should always be handled as an amendment to the bylaws. As such, the appropriate number of members (as defined by the governing documents) must vote to approve the policy. The appropriate number may be a super majority (more than two thirds) or even 100% of all members, not just those that show up to a meeting. Amendments must be noticed to all owners in advance of a special meeting, Annual Meeting or special ballot. The issue cannot simply be raised as a motion from the floor of a meeting. Whenever bylaws are being amended, all members must be advised in advance so they have an opportunity to vote. Check with a knowledgeable HOA attorney to make sure this policy is enacted properly. If the majority feel that a rental restriction policy is desirable, it is highly recommend that the policy should apply to all members with no exceptions. Allowing some members to have a privilege that others don’t is bound to create conflict and an administrative nightmare. All rental restriction policies should have a hardship provision for military deployment (owner is away temporarily), down real estate market (few buyers or selling at a substantial loss) and other reasonable exceptions approved by the board. To qualify as "owner occupied", an owner on the title must occupy the unit. A cousin or daughter may also occupy the unit but they do not qualify as owners. If an owner is not actually living in the unit, it is not owner occupied. BACK Question: How soon after a meeting should minutes be written and distributed for member review? Answer: Minutes should be written and distributed in DRAFT form within one week after the meeting. While they may be amended at the next board or annual meeting, there is usually information in the minutes that members need to know sooner than that. BACK Question: At our annual meeting the ballot indicated there were four board positions open. There were only three names listed and two spaces for write-ins. The votes were tallied and only the three people printed on the ballot were announced as winners. Apparently, there were many write-ins and none of them had a majority. Answer: Write-in candidates are valid candidates as long as they actually agree to stand for election. If they have not agreed or are not even at the meeting to know they are being considered, they should not be write-ins. If there were many write-ins at this election, it doesn’t surprise that many only received a couple of votes each and none elected by a proper majority. What should have happened is that instead of accepting random write-in names, nominations should have been accepted from the floor of the meeting so that those in attendance knew who actually wanted to run for office. To accept a nomination, the candidate would either have to be at the meeting or provide a written acceptance of a nomination if unable to attend. All such candidates are then written on every ballot prior to the vote. In real life when it becomes clear that there are way more candidates than positions, many nominated candidates refuse the nomination which makes achieving a majority vote easier. But that’s not what happened at your meeting and there is still a board position to fill. One option is for the board to appoint one of the write-in candidates. Or, a run-off election could have been held which includes only the write-in candidates. The two candidates that receive the majority of the votes are then candidates for a third run-off election which determines who fills the fourth board position. BACK Committees with Hidden Agendas Question: We have just formed a number of committees. There is a concern that some committee appointees have hidden agendas and will try to impose their agendas on changes to the governing documents and rules. Answer: All committees should have specific direction (marching orders) from the board. Otherwise, the board will get something it didn’t want. While it’s fine for a committee to make recommendations, ultimately it’s up to the board to decide if the recommendations are worthy and legal. Committee members serve at the pleasure of the board and can be unappointed if they are not adhering to the board’s marching orders. BACK
Assessing for Volunteer
Fire Protection Answer: Forced donations are not permitted under any governing documents or state statutes. If individual members want to contribute to a particular cause outside the HOA's responsibility, that's up to them. The HOA has no authority to force participation. However, if the volunteer fire department protects the homeowner association property, the answer is different. Volunteer fire departments cost money to run. If their budget is inadequate and contributions must be raised, the HOA should include the cost in the annual budget. Fire protection is not a luxury and most volunteer fire departments are a bargain because of the "volunteer" aspect. Just because the cost is characterized as a donation doesn’t change the result of a necessary service. BACK
Voting on Improvements Answer: No, the " additions, alterations or improvements" language pertains only to things that weren’t there before. While the board has the authority and duty to reserve for common element repair and replacements, discretionary spending exceeding the indicated dollar amount should be approved by the members. BACK
Dealing with NSF Checks Answer: You need a Collection Policy which complies with your governing documents and that details the specific collection steps that will be taken in the event of non-payment. Typically, those steps should start when a payment is no more than 30 days late. After several written notices, the matter should be turned over to an attorney who specializes in HOA collections. Attorneys can file liens against the property and get personal judgments against the creditor. But often, an attorney’s letter outlining the possible penalties is enough to prompt payment. There is a sample Collection Policy in the Policy Samples section. BACK
Move In/Move Out Fees Answer: While the board can impose certain use fees and rule penalty fees when they apply, Move-in/Move-out fees that only affect rentals can and should be challenged by landlords. If the HOA actually incurs costs when a resident moves, all residents, whether owner or renter, should pay the charge. But too often Move-in/Move-out fees are a not-so-subtle way of penalizing landlords. On the one hand, the member majority (as defined by the governing documents) can restrict or eliminate rentals with a proper vote. But the board’s singling out landlords for special fees is discriminatory. Further, the board does not have the authority to modify the fee/dues structure defined in the governing documents by invoking a special fee on certain classes of owners. BACK
Management Fee Formula Answer: HOA management companies generally charge a base monthly fee which is expressed as a "charge per door" (the fee divided by the number of units). However, that charge varies a lot depending on the number of units and the scope of management work. The base fee takes care of routine tasks like managing the HOA’s money, responding to member requests, managing maintenance and contractors, attending regular meetings, etc. Non-routine tasks like writing a newsletter, transcribing meeting minutes, billing and collecting a special assessment, managing a renovation project and processing insurance claims often carry an additional charge which varies depending on who is executing the task (manager, bookkeeper or clerical). Condominiums and other common wall communities usually pay substantially more for management than non-common wall communities that contain single family homes with very little common area. In the latter, bookkeeping is the primary task with relatively little time needed to maintain common areas. BACK
Changing Number of Directors Answer: The number of directors that serve on a board is typically odd like 3, 5 or 7 so that voting ties can be more easily broken. The prescribed number of directors that serve on a board is usually related to the total number of owner members. It’s common to see three member boards in small HOAs with, say, up to 20 members. For larger HOAs, five and seven directors is more common. It all has to do with the size of the pool from which candidates can be drawn. The larger the pool, the greater the potential for candidates. Whatever the magic number, the directors that serve need to be available to attend board meetings. It makes little sense to increase the size of the board unless all directors are ready, willing. Without a quorum (majority of directors), business cannot be legally conducted. Some governing documents allow flexibility in the number of directors, say, "up to seven" which would allow fewer if candidates were few and more if they were plentiful. If your governing document set the number of directors, then a vote of the members is required to raise or lower that number. BACK
Complying with Government Regs Answer: If the board or HOA has been given specific direction from the local government in this regard, the board is obligated to follow it. Waiting for a citation to force compliance is not good business and it’s every citizen’s duty to help manage and protect the water supply. BACK
Controlling Speeders Answer: In general, the board should take reasonable action when confronted with a controllable issue in the common area, particularly when safety is involved. I suggest the board engage a traffic control consultant to study the issue and to make recommendations which the board can consider. Start with your county government which should have a department in charge of roads and road safety. You might also consider moveable or permanent radar speed signs like those sold by www.alltrafficsolutions.com and a series of speed humps in areas prone to speeders. Installing roundabouts at intersections is also an effective speed deterrent. Camera systems can be employed to identify offenders although violation enforcement could only work on HOA owners. BACK
Reserve Fund Formula Answer: To arrive at the answer requires performing a reserve study that identifies the HOA’s common element components that have a 1 to 30 year useful life. Each component is then measured, assessed for current condition, a useful life assigned to it and a current cost of repair or replacement given to it. This information is then projected over a 30 year time frame along with the current inflation rate and rate of return on invested funds. The result is the amount of money that must be contributed each year by the owners to ensure that adequate funds are there when the various events come due. For example, if a roof has a 20 year life and a current replacement cost of $100,000, $5,000 should be reserved each year. The same process is used for all components. If reserves are funded each year following this example, they are 100% funded. Since inflation, return on investment and cost of repairs and replacement are a moving target, this reserve study needs to be updated every year and a site inspection of the components is recommended at least every three years to keep the projections accurate. The goal should be 100% funding which is fairest to all members. If reserves are less than 100% funded, the annual contribution needs to be increased to bring it back in line. That is why the annual update is so critical to keeping the study accurate. BACK
Replacing Owner Owned Windows The governing documents indicate that the individual unit owners are responsible for unit windows. A motion was proposed at the annual meeting that all windows be replaced as recommended with costs to be assessed to each owner according to the usual HOA fee formula. Those that voted against the motion said the vote carried no authority since the governing documents said unit windows were a unit owner’s responsibility. Is this correct? Answer: There are several issues to consider when the homeowner association involves itself in a repair or replacement of windows that is a unit owner’s responsibility: 1. Where the HOA pays for heating and old windows waste heat and increase energy cost for all owners, there is a compelling reason to reduce an unnecessary expense. Moreover, the energy savings of installing new windows often produces a quick payback of 5-10 years. The payback period could be even shorter if your state offers rebates or tax credits that the individual owners can take advantage of. If those rebates or credits do exist, make sure that the contractor structures the project properly so that the unit owners can receive the benefits since the HOA itself cannot qualify. 2. As long as the vote was done properly (all unit owners received advance notice of the proposed motion) and the required number of votes was received as described in the governing documents, the HOA indeed has the authority to organize and oversee a full window replacement project on behalf of the unit owners. 3. Replacing all the windows as one project could save up to half the cost of what individual unit owners would pay. 4. With proper project specifications and oversight, the HOA can better ensure that a licensed, bonded and ensured contractor is used, that the installation is done according to manufacturer’s specification and that a manufacturer’s and contractor’s warranty are received. 5. Since windows are a unit owner’s responsibility, replacement costs should be assessed according to each unit’s actual window cost and not according to an HOA fee formula which is usually windows. If all units have exactly the same number or square footage of window, distributing cost equally is okay. Otherwise, costs assessed to each owner should be based on the window benefit received. This is a wonderful example of win-win-win-win. The HOA can reduce project costs, energy costs will be significantly reduced, all owners will benefit in the future and prospective buyers will perceive greater value in their purchase. BACK
What Constitutes "Unsightly"? Answer: Usually, the governing documents are a bit more specific about things like this. If they aren’t, the board should enact a policy that interprets what "unsightly articles" means. This interpretation does not need to provide an exhaustive list but it should give the owners the types of things that qualify. This policy should clarify 90% of the enforcement issues and the board can then focus only on the 10% of those issues that raise their "unsightly" heads. As with all rules, the board should circulate the proposal to the members for a 30 day review and comment period before making a formal decision. That way, there is a presumptive buy-in. BACK
Voting on a Non-Agenda Item Answer: There are several issues to consider when voting at an annual meeting: 1. If there was not a legal quorum at the meeting, no business of any kind can be conducted and that includes election of directors. 2. Any motion to be voted upon at an annual meeting needs to be noticed to all members in advance of the meeting so that they have an opportunity to vote. 3. The president allowing the motion to be made does not make the matter acceptable or legal. Any member, whether they attended the meeting or not, can demand that this vote and any other business transacted at this meeting be nullified immediately. If the demand is not acknowledged by the board, an attorney letter may help. Neither the president or the board is above the requirements of governing documents. BACK
Overriding a Special
Assessment Vote Answer: The answer depends on requirements of the governing documents. It is not uncommon for the governing documents to require a vote of the members to authorize a special assessment but not to approve the annual budget. The advantage of using a special assessment to pay for renovation is that it does not impact the regular HOA fees. But if the members fail to approve the special assessment, the board has little choice but to gather the funds by way of the HOA fees. But there is another problem. Special assessments are triggered by the lack of reserve funds. HOAs that routinely get renovation money by way of special assessments fail to recognize that they are unfair to those that have to pay them and difficult to collect from those in financial straits. Since renovations can be predicted many years in advance, the funds to pay for them should be paid by all members in a monthly way (usual way for condominiums) along a 30 year time line (usual projection period) so that the money is there when needed. It sounds like your HOA lacks a reserve plan and fails to put money in reserves systematically so it leaves the board with the two alternatives you describe, neither of them appealing. There are other compelling reasons to reserve. Underwriters of many condominium loans (FHA, Fannie Mae and Freddie Mac) require a current reserve study and proof that at least 10% of the annual budget is going into reserves. (The average condominium should be reserving 25-35% of the annual budget.) Those that fail to comply lose critical financing options. Your homeowner association needs to break this boom or bust approach to major renovation projects. The board needs to order a reserve study from a qualified reserve study provider. Members of Association of Professional Reserve Analysts www.apra-usa.com carrying the Professional Reserve Analyst (PRA) credential demonstrates the experience and proficiency to provide what you need. BACK |
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