HOA Q & A: Answers to Your Most Asked Questions

HOA Q & A: Answers to Your Most Asked Questions

Posted by Misty Liu | Apr 11, 2016 The Summit recently sat down with the President of HOA Solutions, a local HOA Management Company, to see if she could answer some of our most pressing questions about Homeowner’s Associations. With over 20 years of experience, Shelley Grover has worked with some of the top builders in the nation, and has worked with many communities to insure that HOAs function as they should. Shelley has also been recognized at the pinnacle of community association management with the designation of Professional Community Association Manager® since 2002, so basically, she knows her stuff. The Summit: Who decides whether or not a community will be managed by an HOA? Shelley: A lot of the time it is the city by virtue of refusing to maintain any parks/open space required in the development. If the city will not maintain these areas, an HOA has to be formed to do it. Sometimes a developer will form one anyway because they want to see the properties maintained and built a certain way. If there will be private roads an HOA is required. The Summit: Many people don’t really know how their fees are managed. Can you tell us a little bit about that? Shelley: I can only speak for how it works on new communities I manage. If the developer has hired a professional management company, the money should be going into the HOA’s own accounts and there should be separate financials and so on. I have seen where developers handle this in-house and I’ve seen comingled funds, which is not okay. It is also not okay for a management company to comingle funds – each HOA should have its own bank accounts. An HOA should be providing the income/expense report and balance sheet to any owner who asks for it. There should be nothing to hide and this should be readily available. HOA Solutions publishes these to the HOA’s website monthly. The Summit: What are HOAs responsible for in the community? Shelley: Every HOA has CC&R’s – governing documents that specify what they are responsible for. There is usually an area that will say “HOA Maintenance Responsibility, and Owner Maintenance Responsibility” The wording sometimes changes. These sections also do not seem to ever capture all the possible questions of who maintains what so sometimes legal opinions are needed to figure that out. In general, if an HOA is single family homes, the homeowner is usually responsible for everything to do with their own property. The HOA fees don’t cover maintenance or insurance of a single family home. This is not always the case as there are some CC&Rs that call out the HOA to maintain the front yards, and/or back yards. It just all depends on what the documents say. Also – If you are going to buy in an HOA and they tell you yard maintenance is included, and your dues are only $30 a month – be scared. That is impossible. Same thing with internet and other bulk services. The economies of scale do not get you that huge of a discount. You need to ask for a budget and look at it line item by line item. And if something seems out of whack, ask questions, especially in new developments where the developer might be subsidizing to keep dues lower. Ask for a reserve study. A reserve study is an outline of all long term replacement items the HOA is responsible for (such as roofs, if in an attached unit building, or roads if the HOA owns the roads), how long each item is expected to last and how much money it will cost to replace that item. It then tells the HOA how much money to save each month so that the funds will be there when it is time to replace the item. The reserve study also tells you how well funded the HOA is. Ideally, the HOA should be funded as close to 100% as possible. If it isn’t close to 100%, the next thing you look for is how much the HOA is recommended to put into reserves (AKA savings) and compare that number to the budget. Those numbers should match, ideally, or be super close. The only time the numbers shouldn’t match is if the HOA is planning on funding reserves via reinvestment fees (which used to be called transfer fees), and even then it should be a conservative number. An HOA should be 100% funded and have 3 months of operating expenses in cash funds on their balance sheet. This is ideal. An HOA should be 100% funded and have 3 months of operating expenses in cash funds on their balance sheet. This is ideal. If you are in a condo/townhome community, reserves (AKA savings) is very important. If you are in a neighborhood that doesn’t have maintenance responsibility outside of landscape maintenance of parks/open space, then it isn’t as a big of deal. Just think ‘what am I buying into that might need replaced in the future (roofs, park equipment, roads, etc) and if the HOA is responsible for that, they should have a method of saving for that. The Summit: Snow removal? Shelley: Private road = HOA maintained. The plat map will specify. Public roads = city maintained. CC&Rs also should specify. The Summit: Cleaning my gutters? Shelley: Maybe in a condo or townhome this might be covered. But – if it isn’t in the budget, don’t count on it. ASK if you are not sure. And be prepared to pay for this on your own if the budget didn’t cover this service. Just because you have an HOA, doesn’t mean that every possible thing is covered in the budget. Your dues would be super high if it did. The Summit: Fixing my plumbing? Shelley: If the plumbing doesn’t service more than one unit – almost always is the homeowners responsibility. The CC&R’s should specify in the owner vs. HOA maintenance responsibility. The Summit: Making my neighbors turn down their radio? Shelley: Call the police. The Summit: Towing cars that are in violation? Shelley: An HOA cannot tow from a public road. It has to own the road to be able to tow. A sign is required at each entrance of the community stating the parking regulations that will result in a tow. The Summit: Who manages the money? Shelley: The Board of Directors is ultimately responsible to manage the money. They can hire a company to do it, but they must be reviewing the financial records regularly for any issues. If the HOA is self-managed, financial records should be done on Quickbooks or an HOA management software. It shouldn’t be a spreadsheet unless you have someone really savvy with spreadsheets that can do it. That would be a primitive way to do it. The board should be approving all expenses each month. The management company dispensing funds as board approves. The board should be reviewing the monthly financial statement and bank statements to be sure all transactions are legitimate. The Summit: Why do some yards look terrible and others get letters who have barely done anything wrong? Why does the HOA allow some properties to continue looking rundown and in violation? Shelley: 99% of the time everyone is getting a notice (if management/board is being proactive about inspections and notices). Those that look terrible probably have gotten multiple notices and fines, but the owner chooses to do nothing. Those with smaller issues are getting notices so that hopefully they don’t turn into the bigger issues. An owner should be able to call/email about a property and ask if the HOA knows and is addressing the concerns. The HOA can say yes or no, but cannot elaborate in detail on what’s been done to address something. There could be HOAs that selectively enforce, but hopefully that is a rare exception. An HOA can’t force anyone to do anything unless they want to take it as far as a lawsuit and obtain a court order. Most HOAs won’t do that. Most HOAs are also advised not to go onto property and fix it themselves, even though the CC&R’s sometimes give that authority to the HOA. There is a lot of liability associated with that. Thus fines accrue and liens are put on homes and action might not happen till the owner tries to refinance or sell. And even then, they sometimes just pay the fines and let their property look bad. The Summit: Can an HOA be dissolved? How would a community go about dissolving one? Shelley: The CC&R’s will specify how to dissolve the HOA. It is usually 67% required Yes votes of each household PLUS lender approval. The board has to work with the HOA attorney to work through that process. It isn’t easy and it isn’t cheap. It would be very hard to get that kind of approval. Additionally, if there are common areas (private streets/parks) that the HOA maintains, they can’t just get rid of the HOA and then no one be responsible to maintain them. This has to be worked out with another entity (such as the city) to take those over. If there is no plan for taking care of the parks and streets, getting rid of the HOA will hurt everyone in the long run. The Summit: How much power does the HOA Board have? If we don’t like the board, how do we change it? Shelley: The Bylaws specify how an owner group can recall a board. It is usually started by a petition. Most Bylaws require 20% of the membership (each household counts as one vote only) to sign a petition to require the board to hold a meeting for the purpose of a recall and new election. It is a complicated process, but not impossible. I’ve seen it happen three times in my 20 years of managing HOAs. If a petition were submitted, the board should be consulting with HOA legal counsel to take the next steps in holding the meeting within the required time frames, etc. The Bylaws also specify how many votes are sometimes required to do this. The Summit: If the HOA is being managed poorly, what do we do? Shelley: The board hires the management company. Only the board can terminate a management company. If you can’t get change from going to meetings and communicating with the board (and not just once or twice) then you try and get people on the board that will. Many owners have no idea what it takes to be on the board and make hard decisions. Owners need to be involved, and going to meetings regularly if they are serious about wanting change and helping make that happen. Some members on the board are not there because they really want to be – it’s because they were talked into it. They can burn out easily if they are faced with constant criticism. That isn’t to say that sometimes a board member deserves to be criticized, but it really isn’t an easy job, and if you haven’t experienced it, you should be careful to look at all sides and get involved before judging. The Summit: Can an HOA really put a lien on my home? Shelley: Yes – the CC&R’s are specific in allowing this. Pay the assessments – and do not ignore notices! The lien can be for any unpaid assessment, whether that is a fine or a regular assessment. Late fees/interest/collections costs add up quick. And most HOAs send those on to an attorney who then files a lawsuit against the owner, which is almost always an automatic judgement against the owner. Why? Because the CC&R’s are binding against the property and it requires the owner to pay. Period. The Summit: What would you suggest to people who are not happy with their HOA? Shelley: If you really can’t get involved and don’t like it, you should consider a move to a community that is not an HOA. If you like to maintain your property, have pride of ownership that reflects this and you want everyone to follow the rules, an HOA is perfect for you. If you do not want someone telling you what to do – and can’t handle that at all – then don’t live in an HOA. I personally moved to a non-HOA area because when I did live in one, I hated it – – didn’t want anyone telling me what to do, and at the same time, was mad that my neighbors wouldn’t follow the rules. HOAs serve a purpose and are a perfect match for some. The key is to educate yourself and make the decision, hopefully before you buy a home! Author: Misty Liu Misty Liu moved to Eagle Mountain in 2008. she spent one of the best decades of her life living in Eagle Mountain and now resides in Orlando, Florida. She was first published in high school, and continues to be published in magazines, textbooks, online journals and blogs, and has been featured in Utah’s Deseret News. She currently chronicles her life at her blog, “When She Wakes“.