New HOA Member needs advice

We have lived in our MD condo community for 6+ years, and have had enough with our hands-off board. I am now officially on the board. After trying to immerse myself in the mountains of data availabe and the legal jargon, I find myself getting more confused by the day. Here is my situation.

As stated earlier, or board has sucked and been extremely hands off. They have abdicated most of the decision making to our property mgt company. In doing so, over the last 5 years, nearly 100k was transferred from our capital reserves to supplement our operating budget. According to the last board, no one on the board voted for this and no one (Board or residents) even knew it was going on.

So my question is, where do I begin to look for who (if anyone) is responsible for this and do we as a community have any recourse? I personally hold both parties responsible, but that isn't bringing the money back and we are a 20year old community beginning to show it's age.

Any advise to this newbie is appreciated!!

Maybe I am missing the problem here? Sounds like your normal operating budget is extremely underfunded. So instead of raising dues or doing a special assessment, the MGT company chose to take the money from the other available resource to compensate.

A HOA is ONLY funded by it's members for it's members. If the Board was sooo hands off, the MGT company probably had to do what they had to do to get the bills paid. Now that the board is more active in the decision makings, it sounds like your HOA can make better decisions and be more pro-active in knowing where the money is going.

If you ask me what your HOA should do? I'd recommend looking closely at your dues and collection rates. Sounds like there may be a need for a dues increase if you don't want to use your "savings/reserves".

And you're forgetting the apathetic owners who allowed it to happen on THEIR WATCH.

Joe:
First, join Maryland Homeowners' Association; see marylandhomeownersassociation.info. Then, go to the CAI bookstore and order some inexpensive books on running an HOA. https://cai.caionline.org/eWeb/DynamicPage.aspx?site=CAI&WebCode=storeHome
It's up to you to get the information needed to turn your community around.
Jeanne

Joe:

More important than finding who to blame it would be better to find out exactly what happened, how and why.

How long have you served on the board?

How many board members are there?

Is this a new board or are there some members of the previous boards that you claim were bad?

How many units are there?
What is your property's annual budget?
Annual operating expenses?
What is the monthly CC?

When was the last time that amount was raised?

Do you have reserves? How much?

Has the property done a reserve study?

Has the property been in the red or black at the end of each of the last five years?

What purpose was there or projects were done over the last five years for which this transferred money was used?

Including the unnecessary ones you cited?

And as you were not on the board for the previous 5 years where are you getting your information?

I find it hard to imagine $100,000 was moved without the board knowing or without their consent.
Based on what would occur on our property this could not happen.
Do you not have an annual audit?
Is there a financial report provided?

IF this in fact occured than the board, the property owners and the MC are each responsible.

Some boards fail to oversee the MC but rather turn the property's operations over entirely to their control.

This is a failure to do their job. Illegal? Unethical? Probably not. Lazy, and taking the easy way out YES!

If in fact the board allowed this to happen and the MC took some kind of advantage of this authority by performing unnecessary and overprices work well the board needs to change that and if required change the MC.

On the other hand IF the property had shortfalls in its budget and needed to perform maintenance projects for which they did not have the funds we what choice did they have?

IMO laws, rules, and requirements are of less importance than the actual affect the behavior had had on your property.

With these tough economic times and the age of your property it would be important to set up a system for the most efficient use of the property'sm funds going forward.

I would begin by learning the actual facts and circumstances from the past and work on a plan to improve the role of the board if needed and figure out IF the MC can operate under this new plan.

IF your version is accurate where were the owners? How was this allowed to occur?

People do what you allow them to do good or in some cases bad.

Good luck

Aren't you given fiancial reports?
Surely the "transfer" of funds would have been shown on the Balance Sheet at some time.

Also, you can simply ASK the MC when and why they transfered funds from one account to another.

What about your bidding process? Is that a board job procedure or does it hand it over to the MC?

You are making a lot of accusations that may have explanations in the minutes or financial reports.

Joe:

Thanks for the information this helps to provide a clear picture.

3 months serving IMO does not give you the time to understand completly the operations of the property over the last 5 years.

You really need to give yourself some time to get the facts, learn who the people involved were and are. Then and only then can you form an opinion.

The bad news is, like many properties, seems yours has had some level of mismanagement. A nearly 20 year old property with no reserve is certainly headed for trouble down the road. With 144 units to maintain.

The other side of this story would be with the decline in real estate values and poor economy many properties have used funds set aside in reserve to fund operating costs. This sounds like it might have been the case in your property. How it was done or with who's knowledge IMO is less important than what will be done going forward.

Your budget at $200,000 would need to run over by just 10% to fall $20,000 short just to break even. In today's world with raising costs and falling revenue 10% is not a lot of wiggle room year to year.

Do you have any units not paying CCs? How many and for how long?

Foreclosures? How many???

Just what has the value of your units done in the last 5 years?

Itr just might have been the case the MC and board did what they had to do to keep the property operating. Was it done in the best way possible? You need to determine that. Did moving that money represent the only solution? The other being a increase in CCs or assessment. Maybe the board or MC were not willing to do that.

IMO what took place is over. You need to plan forward. IF the increased CCs now cover the shortfall in the operating costs
that is fine. But just hwat should be and will be done about then lack of a reserve?

How was the recent increase arrived at? IMO this may have to be the first of more increases to get the property on the right track.

You have two options increase income and or lower costs. Work both ends see where your money is coming from and where it is being spent.

As Treasurer you should with time have all the information you need to determine what changes can be and should be made.

Now getting the other board members and owners to agree with you is another story completly.

Many people can't handle or manage their own finances so explaining the needs of the community and their portion to cover is in many cases quite a battle.

You can't borrow more money from the capital reserves if that account is empty. That goose is dead. Time to deal with what is and what needs to be done.

One word of advice. Perhaps you might consider toning down the attacks on those who served formerly on your board.
As sucking and hands off. IMO this serves no postive purpose. They just may have been hands off and turned things over to the MC. But in fact at least they made the time to serve. The other 142 owners were just as responsible. When you give up your role in the management of your property to anyone for any reason youm leave yourself open to problems.

Some people just do the best they can with the abilities they have. Was their behavior intentionally bad for the property?
At this point does it really even matter.

Perhaps after a little more time serving you might understand when done right serving on almost any board can be consuming.

Many people might tell you what should have been done, what they would have done, and how things were mishandled while they themselves sat by and did nothing. Don't become one of those people. We have enough.

Find out where you are. Figure out where you need to go. Come up with a plan to get you there. That will be the EASY part.

The hard part is explaining what needs to be done and convincing the owners to do their part.

Good luck.............