Advise needed in struggling HOA

Started by HeathA • 16 replies • 1518 views

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HeathA
Posts: 9

Posted:

I bought into a small townhouse community (18 units) 2 years ago as a first time home buyer. Had no clue what I was getting into but the CCR's looked ok and all outside maintenance was covered by the HOA for a relatively small monthly HOA fee ($84). Over the past two years I figured out the HOA board was doing absolutely nothing for the community. No meetings, no notices, no clue what we were paying for (other than garbage collection and minimal landscaping), and the residents on the board did not want the positions but would not call a meeting to elect new officers. Summer of 2013 myself along with another resident pushed the issue and forced the current board to hold a meeting. Out of the 18 residents 5 people showed up (2 current board members, myself, and 2 other residents). The two people resigned and the three of us that came to the meeting volunteered and became what is now the current board.

What I have been doing since then is trying to digitize all the accounting documents to find out what residents are behind on dues. This was all done by hand before. Previous treasurers made copies of all deposits and checks so I had a good base but there was a lot of documentation missing, so I worked with our bank and was able to obtain copies of every check deposited as far back as 2007. What I have found is majority of the residents are behind in some way, whether it be one month or many. We have about 3-4 residents that are severely behind (I'm talking $3k to almost $5k past due). I've also found that the previous treasurer was working the books in her favor and is one of the highest past due. The non-payment of dues has caused the reserve fund to slowly disappear because that money is being used to cover the bills.

Also, sometime before I purchased my house the homeowners got together and voted to exclude exterior maintenance from the CCR but never had the CCR amended or rewritten. This needs to occur b/c the CCR's were put in place by the developer when the community was built in the late 80's and is very generic.

If you were in this situation what would be your primary concern? I want to tackle getting a strict collection process in place but not sure how effective it is going to be. Also getting the CCR's rewritten would be nice but that requires money (which we don't have) and resident involvement (which we don't have).

Any suggestions?

GlenL (Ohio)
Posts: 5,491

Posted:

Quote:

Posted By HeathA on 01/23/2014 12:55 PM
If you were in this situation what would be your primary concern? I want to tackle getting a strict collection process in place but not sure how effective it is going to be. Also getting the CCR's rewritten would be nice but that requires money (which we don't have) and resident involvement (which we don't have).

Any suggestions?

Just as important as getting the collection policy in place is enforcing it, when the HOA begins to lien and foreclose, people often have a AH-HA moment. The important thing to realize is that the HOA didn't get in the shape it's in overnight and it won't be fixed overnight.

BTW We hired a attorney who specializes in collections so all of the filing fees and attorney costs are paid by the attorney and recouped by him when the homeowner pays up.

Studies show that 5 out of 4 people have problems with fractions

SheliaH (Indiana)
Posts: 6,964

Posted:

Well, without resident cooperation, you’ll never get anything else started, so you may want to have a major “come to Jesus” meeting with the residents – one way to get them all to show up is to say a special assessment will be discussed! It’s not a lie because if your financial situation is as bad as it sounds, that’s exactly what’s in store for everyone if the Association doesn’t get its house in order.
But before you get together, your board needs to meet with an attorney specializing in collections, as Glen has suggested. It may be helpful if that attorney also specializes in HOAs because as you can see they’re quirky creatures, and you’ll need help with the CCRS and collections. Collections are the first priority because without money, nothing happens.
The attorney can help you develop a collection procedure to deal with the delinquencies. Write the policy in plain English, make copies and distribute it at the meeting. Tell everyone that from THIS MOMENT ON, the board will be enforcing this policy, so those who owe need to need to either figure out a way to pay or prepare to move out.
Better yet, you may want to have the attorney attend so he or she can drive home the point. When that part is over with, address the CCRs. The homeowners need to know they weren’t amended properly so this nonsense about excluding exterior maintenance won’t fly. Besides, how do they propose the lawn will get cut or the roof replaced if it’s not clear as to who will be responsible? I’m sure whoever came up with the exclusion did so because they thought it would be cheaper. (As someone else has said on this website – you can’t fix stupid!!!)
Begin and end the meeting with telling everyone what’s at stake if this doesn’t get fixed RIGHT NOW. If you can’t get your finances in order, the Association can’t provide services. If services aren’t provided, the place will look run down and certain components (like the roof) won’t function properly for lack of regular maintenance. If they think they can just sell and get out, they may not be able to because banks are paying closer attention to HOA finances and won’t underwrite a loan in a community where there isn’t much of a budget and what’s there is completely f***ed up. If the place already looks run down for lack of maintenance (because there’s no money) who would buy anyway? Because of their shortsightedness, the Association is now at risk for a special assessment (or two or three and maybe more) to pay for repairs because there’s not enough money in the budget and special assessments have to be paid in addition to monthly assessments.
Another way to get everyone to show up would be to send them an individual summary of their account and tell them the Board is having a meeting to inform everyone of the new collection policy and they need to attend so they’ll know what to expect. No individual accounts will be discussed or disclosed at the meeting (unless these dumdums open their yap for all to hear)
You have a long, hard road ahead of you, but stick with it and I wish you luck (you’ll need it!)

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By HeathA on 01/23/2014 12:55 PM

If you were in this situation what would be your primary concern? I want to tackle getting a strict collection process in place but not sure how effective it is going to be. Also getting the CCR's rewritten would be nice but that requires money (which we don't have) and resident involvement (which we don't have).

Any suggestions?

My primary concern would be the collection of assessments and properly recording the CC&Rs. Remember to take note that any properties that were sold during the time frame of your review as the new owner isn't responsible for any assessments prior to their purchase.

This is how I would proceed.

1) Make sure you publicize what you have learned with the members but in a positive light. Don't blame anyone, simple state the facts. For example:

a) The Board has recently done an internal review of the accounting records and noticed some discrepancies like data entry and math errors that are being addressed. If any of these discrepancies affected your account, you will be contacted individually by the Board.

b) In reviewing past minutes, the Board discovered an amendment to the CC&Rs that was approved by the membership at a meeting held on mm/dd/yyyy has not yet been recorded. The Board is taking steps to properly record this approved amendment. Attached is a copy of the amendment.

2) Obtain permission from the Board to waive all late charges if the past due fees are paid by x date or, for those that are severely behind (1K or more), a payment plan is entered into and kept.

3) Send a letter to every owner with a copy of their accounts (I actually prefer to type the accounting into the letter rather than provide a copy of the actual ledger). I've included a copy of one of our letters as an example.

Include the following paragraph in each letter:

"There are many reasons why your account balance could be incorrect, including an error on our part. We ask that you please check your records to determine if you have made the payment. If your records do indicate that you have paid these assessments, please contact me and arrange to provide a copy of proof of payment."

This approach may soften the blow to owners who thought they were up to date on assessments.

4) If you can, the Board should create a calendar of events that need to be complied with. This way, you can be sure that things are not missed. I've attached a copy of ours as an example.

5) Continue what you have been doing, reviewing records and organizing files. Once you know where you are, you can move forward from there.

I have more suggestions that I'm not willing to take the time and sanitize to put on this forum. If you want additional suggestions (since we are both in VA) feel free to contact me via e-mail: [email protected]

Hope this helps,

Tim

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HeathA
Posts: 9

Posted:

Thanks everybody for the suggestions. We sent out a notice after the changeover meeting to inform the residents that didn't attend what happened, gather contact information, as well as how to now pay monthly dues.

During this time it was apparent one of the new board members was only in it to further her own agenda, and when she realized she wasn't going to get her way all the time she dropped off. So our board is now two people.

We sent out a notice at the beginning of December reinforcing the fact that we were doing an internal review and preliminary findings were there were discrepancies. Once the review was finalized notices would be sent out to individual residents with what is owed. Both of us (the new board) agreed that since late fees weren't enforced in the past we would not start doing it now with the past due amounts if residents either paid up or at least contacted us to make payment arrangements. We also increased the monthly amount by 5% starting with the January 2014 (the maximum we can increase each year without a vote) because with all residents paying we are only covering our bills by $2 each month. Also in this notice was that the board would strictly enforce late fees going forward. There have been no issues so far.

My next step was to get the notices out by the end of this month, and contact somebody that could help us collect. We have a contact already for this (our landscapers wife works in real estate collections and has offered her assistance). Sounds like I'm on the right track.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Heath,

Typical governing documents require a minimum of 3 directors. Some have a higher minimum and some give a varying range. If your governing documents require a minimum of 3 Directors, you must appoint another Director. Otherwise, even if you have a quorum with the two of you, you need to comply with your governing documents.

This language is typically contained either in your Articles of Incorporation and/or your Bylaws. Sometimes, but not normally, it may be in your CC&Rs.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By TimB4 on 01/23/2014 4:34 PM

feel free to contact me via e-mail: [email protected]

If you don't want to use your normal e-mail address, you can create a new e-mail from one of the many e-mail providers (gmail, hotmail, yahoo, etc.) and use that address.

JohnB26 (South Carolina)
Posts: 1,569

Posted:

HeathA,

consider petitioning the appropriate court for a receiver

expensive

but

it WILL get your HOA 'on the right track'

NO ONE will pay severely delinquent back assessments on your say-so / there is also a 'statute of limitations' for debts which SHOULD have been 'dunned' but weren't

not sure of the legal terminology, but 'if you knew OR SHOULD HAVE KNOWN of the delinquency'

evidently the previous BOD did not adhere to it's Fiduciary Responsibility

or

RUN

RodgerG1 (Missouri)
Posts: 10

Posted:

TLDR

TimB4 (Tennessee)
Posts: 21,059

Posted:

Heath,

You're on the Board. This is where the decisions are made.
It may take time, so choose what you want to get done wisely.

Receivership should be your last, well your very last resort.
Receivers answer to the court, not the membership.
Receivers are paid by the membership at a price set by the court.
Receivers, with the courts permission, may bypass procedures outlined in your governing documents (which means assessments can be raised and special assessments assessed as deemed required by the court).

You are on the right track.

Oh, as far as the statute of limitations go, VA's is 5 years.
However, you can still lien for the whole amount and, if it's not contested, likely still collect. It's up to the member to raise the issue of statute of limitations.

As I said earlier, attempt to collect what is owed, forgiving late charges if paid by a certain date.

Start the lien process after that date (there are specific procedures that must be followed and specific notices sent prior to the lien being filed).

As for a strict collection policy, contact me and I'm willing to share our written policy. You can use that as a starting point to write yours if you want.

Tim

JohnB26 (South Carolina)
Posts: 1,569

Posted:

Receivers answer to the court, not the membership.
Receivers are paid by the membership at a price set by the court.
Receivers, with the courts permission, may bypass procedures outlined in your governing documents (which means assessments can be raised and special assessments assessed as deemed required by the court).

PRECISELY

that is why I suggested one

since the governing docs have ALREADY been ignored

you need 'law and order' to get you back on track

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By JohnB26 on 01/26/2014 5:49 AM

PRECISELY

that is why I suggested one

since the governing docs have ALREADY been ignored

you need 'law and order' to get you back on track

I disagree.

Based on Heaths posts, the Board that was ignoring the governing documents has been replaced. The new Board has reviewed the records and found issues. They are addressing those issues.

The new Board should try everything they can first (which is what it sounds like they are doing) prior to petitioning the court for receivership.

HeathA
Posts: 9

Posted:

Thanks guys. Tim is right: the previous board was ignoring the bylaws and working only to keep the bills paid but not enforcing late fees or even sending collection letters.

We've sent two notices so far letting the community know we are in the process of reconciling the books and if turns out that anybody is past due those notices would be forthcoming. We also increased the monthly dues as much as we could (without a vote) and put all residents on notice that late fees would be strictly enforced going forward.

So far so good. I've heard nothing yet as far as disapproval, but the normal people have not paid yet (first increased fee was due on 1/15).

Late letters for the past due amount will go out by the end of the month, and I'm working to get a process in place so late letters can be sent out monthly when dues are not received by the due date, along with working with an HOA attorney/collections rep. I've never heard of receivership; not sure that would be good for our community.

Ultimately what I want to accomplish is getting the HOA back on track so when I decide to get out of here I won't have trouble selling.

Tim, I'll be sending you an email shortly.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By HeathA on 01/26/2014 2:42 PM

Tim, I'll be sending you an email shortly.

I'll be looking for it.

e-mail: [email protected]

JohnB26 (South Carolina)
Posts: 1,569

Posted:

.... is getting the HOA back on track so when I decide to get out of here I won't have trouble selling.

...I decide to get out of there...

...I won't have trouble...

TimB; get the actual picyure?

HeathA
Posts: 9

Posted:

If you are implying I'm doing this for my own personal gain you aren't entirely wrong. I would think any homeowner would want to protect their investment so when the time comes to move on their isn't a financial loss. Also, wouldn't you want to leave any situation in a better place than when you entered it?

The fact is the HOA is owed more than $15k in past due HOA dues and we are living month to month in getting the bills paid. The reserve account is almost depleted because this money has to be used to keep the bills paid. The previous board didn't care. Most of the residents have lived in the community since it was built over 20 years ago, have served on the board at some point and do not want to do it again. Which leaves only a handful of people to actually do the work.

TimB: shot you an email last night.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Heath,

I'll respond tonight when I get to work.

Tim

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