Financing Infrastructure Improvements

Yes, you should put this up for a vote. Remember this money is NOT your money. It is EVERYBODY's money!!! If you think this will hold or improve home values. You are wrong. It just makes it more ATTRACTIVE to potential buyers to have these improvements.

Making this decision is the board's job. It is why you have a board and it is what you were elected to do. My guess is that very few owners attend meetings and even fewer have done the research and analysis your board has done. If it will make you sleep any easier, put the item on your next agenda and open the discussion to those two or three owners who show up. Then do your job and vote.

A good rule of thumb is if you implement anything which can attach to or affect other owners Property Titles then you need to be sure to have MAJORITY of owners approve. This is one reason most states require owners to approve each years budget for their association, because in essence you do not attach any liability to their property without their prior authorization.

This should be presented to and voted upon by the membership as many have commented already.

Bill

My first line of recourse would be to the builder as the why the facilities were not built large enough to accommodate 420 homes.

This also make me wonder if larger facilities are really needed versus more wanted by some.

I would put it up for a vote to the membership. If you did not, I would believe a recall would be a possibility on a BOD spending this amount of money without owner agreement.

To all who disagreed with me:

The OP stated that repaying the loan could be done without a special assessment. Unless there is a requirement in his declaration to seek member approval, it is within the board's sole discretion whether to undertake this project or not.

Those who purchased homes in this subdivision did so with the knowledge that there was a clubhouse, pool, and playgrounds. Implicit in that is the knowledge that it will cost money to maintain and improve those facilities, so this is not an unforeseen expense. It is within the lawful authority of the board to determine how and when improvements will be made and how to finance them. The expenses are reasonable and the plan to finance the improvements appears to be sound. Since there is no new expense to the members there is little reason to pass the buck to the members.

The expenses that the OP speaks of would cost each owner about $150 per year out of the assessment that he already pays. This is hardly an unbearable burden.

To the person who said they would sue their board, I would be interested in your legal theory for doing so. The board has the authority unless the declaration restricts it. No judge is going to interfere with the board's exercise of its lawful discretion to carry out the business of the association simply because one member does not like it. It is precisely this kind of irrational response that makes me recommend not seeking member approval where it is not required.

The same person who wants to sue also claims that somehow the title to their home would be encumbered by the HOA's loan. The HOA can only obligate itself to repay and can only encumber title to its own property. Members of an incorporated association are not personally liable for its debts.

Bill wrote: "The collateral most banks require under HOA loans is the assignment of the Associations rights to collect regular or special assessments along with rights to collect other accounts receivable to the bank.

Essentially, the HOA, in assigning these rights, gives the bank the ability to increase assessments or apply special assessments in order to ensure the loan gets paid should something unexpected go wrong. All in all, it still comes down to the homeowners being responsible for the loan payments, although their homes cannot be leveraged or mortgaged as collateral for the loan."

This is how a $900,000 emergency loan we needed was handled. Individual lots were NOT encumbered.

We did seek a vote from the owners with the choices of a special assessment or a loan (which was paid off 18 months later with construction defect settlement funds).

In CA, btw, owners do not vote on approval or ratification of the budget. While Janet makes owner vote/ratification of the budget common to most states, I'm not so sure that it is.

That's a judgment call, not a guarantee. As Bill notes in his response, the HOA would be assigning its right to assessments collected over to the lender.


Maintain and improve - Yes. Enlarge - It depends. "No new expense" is a mis-characterization. The funds to pay off the loans have to come from somewhere.


Which raises the question, why there an extra $42,000 (280 x $150) being collected now.


But see my prior post re restrictions on assessments. I believe that a judge could decide that such a restriction prevents the HOA from borrowing funds without HO approval. If not, then and board could get around any restrictions on special assessments by taking out loans - That to me could lead to some scary consequences.


True. But if the lender exercises assignment of assessments, then HOs will have to come up with the money to pay the shortfall.

Mark and Amanda

To answer your questions:

The developer does not pay Association assessments until after construction is complete.

We will be able to fund the loan payments at our present 280 homes. Any new homes will add to association assets. We are not relying on the developers projections to be able to fund the project, although we do believe there will be a modest continuation of new construction due to the locally improving housing market and new local infrastructure. Construction of our new infrastructure should in itself be a great sales tool to prospective new buyers. Our reserves are fully funded based on our Reserve Study in 2014 and continuing contributions to our reserves has been accounted for in our financial analysis. The only unknown is the unknown, the unexpected event which could throw the whole thing out of whack. But planning based on the unknown would result in never doing anything.

Fred

Our governing documents under "Purpose of Assessments" states in part that assessments shall be used for the common good of the Members including, but not limited to, the acquisition, construction, improvement, maintenance and equipping the Common Property.

I don't think the size of playgrounds and pools falls under zoning. There is generally no requirement that a HOA supply a pool for it's members.

Mark perhaps it is not done in WA and indeed in perhaps not in the OP's state but here every facet of the infrastructure is approved by the ZB.

Just for general info, our CC&Rs state that the Board on its own or acting on a petition signed by 2/3rds of Owners may install capital improvements. We also may borrow up to 5% of our budgeted gross expenses. If more that 5%, 51% of Members must approve it. This latter point is replicated in CA statutes.

I don't know what, if anything, SC statutes say about this topic.

In your case, Bill, I agree with those who advise letting the Owners guide you. Hold one or more meetings, get input, etc. One reason to do this is that boards can become very insular. Directors THINK they know what the majority of owners want & need, but can be mistaken. I've seen that happen in my HOA, where I've been a director for 8 years.

Here's a current example: our urban twin high rises of 211 residences have a lounge for parties in each tower. The larger kitchen has a microwave, small fridge, toaster oven and plenty of counter space. Our social committee chair wants a larger kitchen with full size fridge and cooktop range. This would be a capital improvement even though our reserves could help a little bit. Because of the need to vent through two concrete walls for a hood for the cooktop and some other structural changes, this would be very costly. Perhaps $50,000. This comm. chair thinks that all owners want this even though only (the same) 15% of units' occupants attend our social events.

Owners may rent these rooms and about 6 rented the larger one in 2014. These private parties almost all are catered given our location in the center of about 50 restaurants. They don't use a range or need a big fridge. Even our social committee only has about three events in the lounge a year (the others are poolside, which is far from this kitchen).

37% of our owners are absentee.

My point is that when a committee or a board gets one another ginned up and excited about adding such amenities, they might lose sight of what the majority of owners in the HOA want & need.

Another good reason for some sort of owner input is is that overused word, transparency. But it does matter that all owners see the drawings, etc.

SC doesn't have many of the Homeowner Assoc. laws, like some other states do. We fall back on SC Non-profit Act for incorporated associations, and general state laws concerning contracts and property, when conflicts can't be resolved by reading the governing documents. (Condo's are governed by SC Horizontal property ACT.)

Bill

Why does it seem to me you are searching for ways to push this through without owner agreement? Are you assuming the BOD knows best?

Kelly

I did not use the word wrong. It is just that there are things that make me leery of this deal. The first thing being is why the amenities were not built large enough from the get go? Why has there not been more in depth discussions with the new Declarant/developer about them contributing?

Having the power to do something does not mean doing do makes it right. One has to be balance needs, desires, ability to pay for such, etc. not just do it as they can, especially a BOD. Sorry but as described, this deal/plan does not pass my sniff test.

I could be wrong.

Responding to several recent posts.

As stated previously our finances are very strong. We can fund the loan payments, continue our reserves contributions ($33,000 to $55,000 per year over the next ten years) at our current level of 280 homes with no increase in assessments or applying any special assessments. As more homes are built, that financial position becomes stronger. Please read this entire thread.

We tried to do our homework as best we could. Our infrastructure task force surveyed the entire community. An overwhelming majority agreed that our present infrastructure is inadequate. They responded (in the survey) with the things they would like to have as we plan for future infrastructure improvements. The top 5 things have been included in our planning which generated the estimated cost of approximately $600,000.

I am the President of our BOD and not trying to push this through. Our governing documents allow the BOD to make this type of loan for infrastructure improvements. Our task force has unanimously recommended that the BOD proceed with the loan and construction of the new infrastructure. My concern in all of this is that this will be the largest undertaking for our HOA since control was turned over to the Membership in 2010. While homeowner approval is not required, I was seeking input from other experienced HOA and HOA Board members to benefit me as we go through this process.

We need to get beyond the question of why these amenities were not built large enough from the get go! The present amenities were built in 2005 by the original developer/declarant. Why they were so built is irrelevant at this time.

Bill,
How many on your Board? What are their feelings as far as making this big decision without membership vote? What's the reason you don't want owners to vote? Do you think they won't approve it? If you involve them in this decision, as I feel they should be anyway, then your fairly young HOA will be viewed as one that is transparent and truly cares about the people living in it. If you eliminate their input you send a different message. Honestly, I can't see any downsides in a vote. If they don't want it right now, then so be it. You haven't stated this is an addition any laws say you must make. So present it to the membership, explain why it's needed, explain all benefits. Then decide as a community. That's how HOA's should function, whenever possible.

Bill

As you said:

My concern in all of this is that this will be the largest undertaking for our HOA since control was turned over to the Membership in 2010. While homeowner approval is not required, I was seeking input from other experienced HOA and HOA Board members to benefit me as we go through this process.

You want experience? I have lived in 6 HOA's in 3 states including two in SC. My last HOA in MA did a $25 to $35K per unit (townhouses and single homes), one time assessment (2002). They needed 66% to approve. 89% approved it. Took them one year from idea to finalization with tons of information/meetings/fights/arguing, etc. in between. They worked with a local bank to underwrite it and had various payments plans but no payment plan exceeded 5 years. Another subject for another time based on your proposal.

It is not like things are crumbling down around you, as they were in MA. You just want/predict bigger and better.

I could go around my HOA and put together an advisory committee. With proper selection, I know they would reach the decision I want. This is not an accusation but it is a real life fact.

You can justify what and how you did it all day and night, but my bottom line is (and I am VP/Treasurer of our HOA), I would want and ask for an owner vote.

Glen

I would ask, the county made them or allowed them to do such? I would lean toward they asked the county to reduce the size as a cost saving measure. Like reducing parking spaces for whatever size something.

I'm glad you've now added that TF surveyed the owners and they're in favor on the additions. I did not know that.

IMO, though, a second quick advisory vote should be sought. It might, for instance, have been awhile since the initial survey. And it's a good thing to show owners that their opinions matter.

It really does sound like your board & TF has done its homework. I'm curious, though. When you write that your current amenities are "inadequate," do you mean they do not serve enough residents? Or that they're not well-equipped enough??

and I agree, Bill why these things are inadequate matters not at all. Developers make mistakes. Here's one our made.

We are 211 high rise condos. Nice pool off of which is a sizable well equipped gym, off of which are two HUGE locker rooms. Three showers in each, including one handicapped shower in each. Two water closets in each (probably needed). There are long benches to use while changing clothes. There's a bank in each of about 40 gym lockers. The ladies Locker room has a long counter and mirror with three sinks.

These rooms are rarely used as residents prefer simply riding the elevators to their unit to shower, change, apply make-up, etc. Our board has tried to figure out a different way to use much of this wasted (windowless) sf. Plumbing and such make it very difficult to get some other use out them. So there they are...

What about the insurance on these expanded infrastructures? That is a factor. You have to consider replacement costs and if it will be adequate if needs replaced. Also, how often are these existing facilities used? Are they over crowded or booked a lot?

I ask because we have a 107 HOA. Our clubhouse is used mostly for meetings. Owners in good standing can rent it out for $25 and a $100 damage deposit. It's connected next to the pool and contains the bathrooms for the pool. It's not overly large. Probably 1500 square feet with an open floor plan. It is rarely ever booked. Maybe just 2 times a month. It pretty much stays empty most of the year.

I would evaluate if it is really an issue use than aesthetics. Does an empty large building look good? You have to account for increase in traffic and parking. Will that be an issue? Will you be charging a rental fee? If so, it has to be at a rate to cover operational costs while rented.

Your a non-profit. Which means you are to spend as much as you collect on the operations/maintenance and adequate Reserve fund. If your collecting as money as you say you are to cover a loan payment, then why not just collect that amount instead in a savings account that collects interest than pays it? By the time you save up, you can pay for the project straight out than worry about funding for 10 years. Each year always having to factor that cost into your dues.

Glen is not the one who does not understand the facts. Before you and your dog utilized a backhoe to dig a hole for your triple-Olympic sized hot tub you most likely would need:

1. Apply for a building permit.

2. If the local planning determined that your triple-Olympic sized hot tub would put a strain on the local government owned Sanitary or Storm System and Wastewater Treatment Facility, then they would tell you and your dog NO or make you reduce the size of pool you want to build.

If I had a pool in my yard and I wanted to drain it I would have to coordinate with both the entity who owned the drainage system AND the Wastewater Treatment Facility so they could prep for the excessive water and chemicals through the system.

Glen's point to the OP is there may have been a reason the facility is a certain size and to check with their local planning and zoning. Possibly the original developer was not allowed and denied having a larger facility for a valid reason. Glen has a good point so I am not sure why you have had an issue with his suggestion.

If your job as a Director is to make decisions best for the community, then you should go to the community to get feedback. I would consider it very bad form if BOD made this deal without getting the opinions etc of the HOA. How would you feel if you got that letter in your mailbox without even knowing it was happening?