Use of Funds

Started by MattD9 • 12 replies • 1425 views

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MattD9 (Louisiana)
Posts: 6

Posted:

Hello all! first time poster here. Quick question: Is there anything that prevents a HOA from using funds from dues for capital improvemennts for the subdivision, assuming the funds are available? Our By-Laws make allowances for special assessments, but that could be a hard sale to members when they see moneys avilable in the HOA account. The By-laws also state that the use of funds is for the benefit of the community. Thoughts and thanks in advance.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Matt

Welcome.

Generally ones CC&R's, Bylaws, etc. may have a set spending level for new improvements and/or additional spending above and beyond what is budgeted before requiring member approval.

Look there first.

MattD9 (Louisiana)
Posts: 6

Posted:

thanks john! i'll look at those documents, and report back!

FredB4 (Ohio)
Posts: 375

Posted:

Matt,
Your HOA should have a seperate acount (reserve account) for capital expenses seperate from your operational account. The whole purpose of that account is to ensure that your members don't get a "special assesment".

Banks and other lenders now take a very dim view of associations who have not planned their finances properly and need special assesments and who have not made plans to cover all future capital expenses. They will turn down mortgage loans and refinancing based on that or at the very least want higher downpayments and larger interest rates.

Your bylaws or state laws governing HOA's may also require seperate accounts.

Most bylaws allow special assesments but they are considered a bad thing. Associations are legally required to spread the cost of running the association over their members ... past, present and future. A special assesment takes the financial responsibility/ burden of past members and unfairly loads it on the present members. Not planning for future capital expenses in the monthly fees takes the financial burden from present and past members and places it on future owners.
In todays economy, lenders view that as high risk behavior.

MattD9 (Louisiana)
Posts: 6

Posted:

Sounds good! I've reviewed all documents and none of them limit the use of revenue from dues to be spent ONLY on yearly operating cost.That being said, I will recommend at our next Board meeting the setting up of a reserve account. We are lucky enough to have a cash reserve to accomplish improvements w/o asking for special assessments. I think it's a good idea anyway to seperate the operations account and have a laignappe(reserve) account.

TomW10 (Wisconsin)
Posts: 4

Posted:

I believe a distinction needs to be made between capital expenditures for the repair and/or replacement of existing facilities and the construction of new/additional facilities. I believe a HOA's reserve funds are clearly intended for the former and an HOA reserve study supports this. As pointed out earlier, HOA members who have used and enjoyed the facilities should help pay for their repair/replacement and that's why they contribute towards the reserve fund each year so money is there when the time comes. However, if a HOA desires to construct new/additional facilities (e.g. another pool, more tennis courts, more golf holes, etc.), then I believe the special assessment should be used so that the members have the opportunity to vote on whether or not they want to pay not only for the construction (via special assessment), but also the ongoing maintenance of the new facilities via future higher dues. CC&R's are not always written as clearly as they could be on this point, but I truly believe this is the intent.

MattD9 (Louisiana)
Posts: 6

Posted:

These potential improvements are on a much smaller scale. We are talking about decorative street signs, traffic calming devices, and/or additional street lighting. These are things that the HOA has asked for and are in favor of. We are a small subdivision consisting of 44 lots with no pools, tennis courts, etc... As I said before we are lucky enough to have a surplus each year and I wanted to be able to have some projects taken care of while we had the funds to do so w/o going to the residents to ask for extra money through special assesments.

JanetB2 (Colorado)
Posts: 4,219

Posted:

Hi Matt:

May I ask what you are considering? Is it repairs or updates to existing items or installing new amenities?

Depending not only on the governing documents, but you would also need to consider any potential state statutes. I agree with Tom’s statement and depending on the circumstance you need to be sure you do not start WWIII in the HOA, by not potentially getting the membership behind the locomotive.

JanetB2 (Colorado)
Posts: 4,219

Posted:

LOL ... I guess we hit the submit at virtually the same time.

JanetB2 (Colorado)
Posts: 4,219

Posted:

Are your streets owned by the Association or the local government entity?

MattD9 (Louisiana)
Posts: 6

Posted:

the streets are owned by the city. we'll have to send in a request to the director's office stating what we are wanting to do
(replace existing signs w/ decorative ones). once approved they will contact us to explain what we are responsible for and vice versa.

JanetB2 (Colorado)
Posts: 4,219

Posted:

Nice that they will allow ... I would recommend to CYA and get everything in writing or via city council resolution.

MattD9 (Louisiana)
Posts: 6

Posted:

thanks for the tip! will do..

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