Justifying dues increases

I know that there are probably at least 6,390 posts on this topic, but I also know that you guys like people to start new topics rather than resurrect old ones, so I want to pick all of your brains. You usually give me great ideas, and I know you have probably all dealt with this.

Our community's oldest units are eight years. There are four phases, the first was built in 2004/2005 and the last was built in 2010. After those ones were finished, the builder handed us the keys and got out of dodge. There were supposed to be six phases (about 350 units) but the last two were never finished, and because I live at the edge of the community it wouldn't break my heart if they're never built. But this means we actually have 236 units.

Regardless, we all know builders charge the lowest assessments they can to get people to buy their properties. So, after the HOA took over, we found out there was only 13,000 in the reserve fund after 4 or so years. (I think they were putting $7/month -- out of $85 in there.) We did a reserve study and found out this was very, very bad. The folks doing the study indicated several repairs that we would need to make in the next several years (including starting to repair roofs for normal wear and tear in about eight years) and told us that we needed about a half million bucks in the fund.

Basically, they gave us a few options. One was to raise dues about 10% annually until we had adequate reserves. Another was to raise dues 10% and charge a one-time special assessment of $1050 per unit (which would generate around $250,000). The last option was to levy two special assessments over the next two years of $1050/per year/per unit, which would generate the entire $500,000 shortfall.

Our board at the time chose to raise dues, with the understanding that if there were any major repairs not covered by insurance, we would all be responsible for the assessment. After about two years, we have $90,000 in the reserves and we have put the entire amount of the last three increases in reserves, so we're up to $25 to catch up, plus whatever we were putting in. We are getting there, slowly but surely.

We've gotten a lot of complaints about the $10/month, but we just keep assuring them that it's better than an assessment. I think some of them think we are bluffing on the assessment.

I sent out a reminder yesterday that dues had increased because I noticed some folks were still paying the old amount, and told them if they had questions to contact me. One person did email me, and she basically said that she had heard all about the reserves, but basically she thinks we are mismanaging the money and she didn't want to have to pay for that. Even after I reminded her that all this money goes into the reserves and not into the operating fund, she didn't really budge. I know she's probably not the only person who feels this way.

I want to put something in the next newsletter that spells it all out in non-technical terms. Of course, they can look at the financials or the reserve study any time, but I doubt any of them have done it.

How have you approached this issue with your neighbors? Any suggestions would be appreciated.

Tim is right. It is good to let the people know the report. However, I also think you need to be prepared if you do that people are going to have their own ideas on how the money is to be spent regardless of the expert's opinion. I like to give this example of the HOA's finances. It is like putting your checkbook on the dining room table for your whole family to see it. You can imagine the kids are going to want an Xbox and the spouse whatever they want. It's kind of ignored the fact that the money has to pay bills and be put toward savings.

So my advice is to take the approach as if you have left the HOA checkbook out in the open. Everyone will tell you the HOA MUST do this anyways. Except for collections. That is still a gray area with keeping it private between the individual and the HOA. The HOA members just need to know the general collection amount coming in or the % of owners in good standing. I would say collections would be like that extra part-time job on the side or what you sold on EBAY. You don't want everyone to know about that in specific terms.

I find that the hardest part is giving up what seems like control on the HOA's money. It's the most difficult. That's because the HOA's money is NOT your money but EVERYONE's money. You and your fellow board members were elected to manage it for them on an everyday basis. Which causes many people a bit of heartburn. Even if you publish the report and you should. Expect people to come up with a bunch of similar excuses this person gave you. Which does NOT hold up any water. A HOA is ONLY funded by it's members FOR it's members. So you ALL have to pay equally and NOT pick and choose what you want your money to go for.

Laura:

While I understand your desire to bring people around easily, the reality is some people won't understand no matter what you might provide them. To that point many people in their own lives have no savings or assets set aside for what they have to know are future expenses coming down the raod at them.

I just have to ask what is your Board's policy about people not paying their CCs? Is there a policy in place? Do you impose late fees or fines?
Just how long has this person not paid the full amount and will they be allowed to continue to do so?

I see this from another side that being all the opwners that have been payting their share in full. Just how is this fair to them? Reality is you don't pay what you "feel" is warranted or proper you pay what the elected Board determines is necessary. Many owners who have issues with increases even fail to understand the Board too pays these increases.

I would explain it to your satisfaction but prepare for the possibility more information will NOT change the minds of some.

Every property has a few. Those who believe they get to make the rules.
The Board's job is to enforce the rules and part of that would be collecting the full amount of dues from every owner.

Good luck.

I am guessing that the folks that paid last year's amount will be reminded to pay the extra and that they wouldn't get a penalty if they took care of it promptly. Everyone has until the 15th before late fees are levied anyhow.

Our dues are due the first and are late after the 15th. The late fee is only $20, but that will most likely be changing next year. And while we have all kinds of policies about paying and collection, we're going to have to address that as a board because we have serious delinquency issues with some residents. There are some people who ALWAYS run with a balance on their accounts and some people who have been in collections almost the entire time they've lived there. We do have one lady that we gave her until the end of the year to avoid foreclosure. I haven't checked in to see where that is.

I am relatively new so I don't know if everyone has seen the reserve study. I asked the girl who did the newsletter before me, but I haven't heard back from her yet. I would like to get that info out there somehow if they haven't seen it.

I started a policy when I took over for collections. We placed a lien at 6 months behind. Let that be known to everyone and did it. After a year depending on the situation we would then discuss foreclosure. It really depended on the situation overall for ALL members. I found having the 6 month cut off allowed for stting up payment plans for those in temporary crisis. I would allow them to pay Half their dues and avoid late fees as long as they could start paying double to catch up before the 6 months was up or year.

Having this policy changed everything. It helped so much. People made effort to pay before we took action. I did have to foreclose on one person. Although a foreclosure stops as soon as they pay what is owed. Just do NOT want to own the property. It is just a stop bleeding measure.

Be careful on the higher late fees. There may be state laws against that. We charged $20 on ous too. I would not charge more than what a bank charges for a returned check. Which is the legal lythmus test I would apply to changing the late fee. The banks know the law.

I don't contacting the lender is possible in all cases. That is a little hard to do and useless. A lien being filed should be enough. If they need to foreclose the lien should pop up. If someone owns the house with no lender then what do you do?

No rock is being unturned when we have about 20 percent of our homeowners not paying in a timely manner. We can't operate at that level of income. And while I do believe some people have a hardship, I also know there are other people who take their time paying because the consequences aren't enough to compel them to pay.

Melissa,

Kuddos to you. I like that idea and with most folks, they do have intent to pay but as we all know, life happens. You said it in that each situation is unique and having a board that tries to understand and work with their neighbors makes an unpleasant task go easier on all involved. The timelines are nice and the policy to catch up on payments is nice. I would like to suggest this to my board. Not that the current policy is broken or not working, but this would be a nice tune up or improvement.

Thanks for sharing it.

I am sure we'll do our next newsletter after our board meeting next month, so I am going to prepare a summary on the reserves study to put in the next issue.

I've also told the president that I plan to list (without naming names) how many units are paying dues late, including those in collections, so that people understand that part of our issue is that people are simply not paying and we're shouldering the burden for them.

We do try to collect and we are stepping up those efforts with this new board. We were always told we ran at about 12 percent delinquency, so when we got our first reports as board members, we just about passed out. Our old president made it known that she "wasn't in the real estate business" and had no plans to foreclose on anyone, and I think that sent a message to people that wasn't a consequence of non-payment. But realistically, we intend to take any means necessary to recoup our funds. In fact, I read the sheriff's sale notices and contact our HOA attorney to make sure that any property up for sheriff's sale for back taxes has a lien if necessary so we get our money too. We are being more proactive, but I am not sure how many people even know what happens if you don't pay.

I think telling folks where we are financially is the first step to getting us back on track with getting assessments paid. I want them all to understand that we can't continue to operate at this level, and there will be consequences going forward more than late fees, if necessary.

Unfortunately, we don't have any common areas to take away. We have a playground, but I'm not sure anyone uses it, and the only things we really pay for are some private streets, lawncare, lights and trash services. Hard to cut those "amenities" out.

Although good advice from your attorney, he failed to tell you how many properties are typically sold for a lack of paying taxes with no mortgage. Its likely "0". Its much more common that they failed to pay their mortgage, which in this case, you would pay the lawyer to draw up and file a lien, and then get "$0" dollars. He is scamming you.

And I don't know how other folks' attorneys work, but we have two that work on our collections. One is a salaried employee of our management company and her fees are included in our management fees. The other is a collections attorney who takes a percentage of what is collected. He can file liens all day, but if no one pays then he doesn't get a dime. Obviously there is money for him to make in this arrangement, or I can't believe he'd do business that way.

We do have an attorney that we pay by the hour, but he is a real estate attorney and just deals with other association business when needed.

Without getting into details (because I'm pretty sure I can't), our association is currently in some legal wranglings (not of our own making, but as I said not at liberty to divulge details unfortunately). That's what I mean about our attorney that deals with association business. So he is the person we deal with on lawsuit related stuff. And that stuff sucks, so I am fine with him dealing with it.

The management company provides the other attorney, so why not take advantage of that when we need her.

As for violation letters and such, the board deals with all that with our property manager and his assistant. Honestly, we're all neighbors and it would take something beyond major for me to get an attorney involved as far as someone breaking the rules.

On the other hand, if folks don't pay, I have no problem filing a lien against their property or garnishing their wages if they are several months behind on their dues. When you buy a house in a development, you know you have to pay the monthly fee. No excuses there.