contribution to reserves when new home is purchased

Started by JimR24 • 22 replies • 6671 views

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JimR24 (Texas)
Posts: 399

Posted:

Hey everybody - here in Texas, there appears to be an option (on the tranfer certificate) for an association to collect a financial contribution to reserves when a new homeowner purchases a home in a hoa.

I was wondering if any of your associations have such a requirement (i.e. to collect a contribution to reserves at closing). What do u think?

oljim, in texas

Lovin' life with my honey!
and, President of HOA in Texas

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By JimR24 on 08/27/2015 9:00 AM
Hey everybody - here in Texas, there appears to be an option (on the tranfer certificate) for an association to collect a financial contribution to reserves when a new homeowner purchases a home in a hoa.

I was wondering if any of your associations have such a requirement (i.e. to collect a contribution to reserves at closing). What do u think?

oljim, in texas

We collect a $750 Capital Improvement Fee on every non-family ownership transfer. Funds go into a separate reserve account. We use that fund first instead of our ordinary reserves if we are enhancing something instead of just replacing or fixing a reserve component.

Sikubali jukumu. Read all posts at your own risk.

DavidW5 (North Carolina)
Posts: 565

Posted:

In my former HOA we collected a $500 "New Member Fee" at each settlement. Those funds were treated as operating income. At my current HOA the "Resale Fee" is 1/3 of 1% of the purchase price. Those funds are treated as operating income. In reality having those funds for operations frees up an equivalent amount for contribution to the reserve fund so the net effect is that the fee is contributed to reserves.

DouglasK1 (Florida)
Posts: 2,046

Posted:

We don't do it here, and personally I would be against that. I don't really see the rationale for charging lots that have had a change of ownership more than other lots. If there is some actual cost to the association, such as the MC charging $100 to create a new file, I'd certainly pass that along, but otherwise it just seems punitive and could even potentially hamper sales.

Escaped former treasurer and director of a self managed association.

GenoS (Florida)
Posts: 4,276

Posted:

We don't do it but it seems to be common. I wonder what the tax situation is with those payments.

GeorgeR8 (Arizona)
Posts: 182

Posted:

Quote:

Posted By DouglasK1 on 08/27/2015 11:01 AM
We don't do it here, and personally I would be against that. I don't really see the rationale for charging lots that have had a change of ownership more than other lots. If there is some actual cost to the association, such as the MC charging $100 to create a new file, I'd certainly pass that along, but otherwise it just seems punitive and could even potentially hamper sales.

It wouldn't hamper sales for that small of an amount.

Where I live we had to pay $3000(soon to be $3500) when we moved here for the Preservation and Improvement Fund. It goes to the I guess you would say the governing body of where we live, not to an HOA. It is money well spent. We have great facilities and no debt. People say it hampers sales but it doesn't. It may eliminate some people but someone else will buy it. Lately we average 5 to 8 home sales a day, 365 days a year (out of about 27,000 homes). It adds up quickly so they can spend $20,000,000 on a new rec center, and millions more on rec center (7)and gold course(8) improvements.

People may complain about the amount but these places keep selling so I really don't think an amount that small would hamper sales. My condo association has a $300 transfer fee and I have never heard a complaint about that.

FredS7 (Arizona)
Posts: 927

Posted:

As GeorgeR8 said, this is common in AZ in some over-55 communities with lots of amenities.

We don't have such a thing- but- I see real advantages in that it provides cash tkeep facilities up to date AND provides a minor deterrent to frequent turnover.

If you are thinking of buying- seriously- just add it mentally to the house price, and THEN decide if you are interested.

BillH10 (Texas)
Posts: 1,217

Posted:

We are aware of such charges, it is in place in the Association we manage and others nearby. When implemented in 2009, the intent of the Board was it would be paid by the buyer and collected at closing. The Board and MC have learned over the years the parties to the sale often make a side agreement as to who is responsible, or they may split it.

In the instructions to the title company and in a letter to the seller when we first notice the sale listing, we basically state what I wrote above, saying the Board has no objections to an agreement between the parties regarding the fee, but that it must be collected by the title company at closing and remitted to the Association on a title company account. We ask the seller to ensure their agent, any buyers agent, and any potential buyer are all aware of this fee well in advance of closing.

It is further disclosed on the Resale Certificate which is typically requested by the title company a few days after the contract of sale is signed. The Resale Certificate, and a number of other documents, must be given a potential buyer within a statutory period so the buyer can review the documents and back out of the purchase, generally within a 10 day period, with no penalty.

The funds received are deposited in the reserve account.

SheliaH (Indiana)
Posts: 6,964

Posted:

We don't do it, but it sounds like a good idea. I think I'd go a step further and collect all assessments for the year, starting from when the owner takes possession of the unit, so it would be a pro-rated thing.

Right now, 12% of our monthly fee goes into reserves, so if someone took possession in, say September, the owner would pay September - December fees at closing with 12% of that going into reserves. This way there's no issue with fees being paid (for that year, anyway) and the owner can tell our property manager whether assessments will be paid via coupon or electronic payments and he/she can start in January.

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

CharlesB23 (Kentucky)
Posts: 4

Posted:

If the Declaration (the CC&Rs) stipulate that a Capital Improvement fee (a/k/a Working Fund) be collected at closing, then the association collects that fee. It is not an optional thing that an executive board may choose to implement--- If the governing documents require the fee be collected, then it is collected.

Some Declarations require that a Working Fund contribution be collected only when the developer sells the unit to the first owner. Other Declarations specify that a contribution be collected every time a property changes ownership. Yet other Declarations make no requirement at all for a Working Fund contribution. If an association wishes to begin collecting contributions to a Working Fund, then the Declaration would first have to be amended to include such a provision, and the amendment then would have to be recorded in order to take effect.

BillH10 (Texas)
Posts: 1,217

Posted:

Charles, I disagree with you with respect to the fee being mandatory or not mandatory. It depends on the language in the Governing Documents. The Bylaws of an association in which we previously resided stated:

"ARTTCLE, V FEES AND ASSESSMENTS
5.1 INITIATION FEE. The Board of Directors may at any time it deems necessary or appropriate, charge an Association Initiation Fee (the "Initiation Fee"). At any time an Initiation Fee is required, each Owner, upon becoming a Member of the Association at any time after the Initiation Fee shall have been implemented by the Board of Directors, shall pay to the Association, at the address and in the manner designated by the Board of Directors, if so directed by the Board, the Initiation Fee as may then be effective by vote of the Board of Directors pursuant to Section 5.8 below. Each Initiation Fee shall be used by the Association for the construction of capital improvements or operating expenses of the Association.

In the above situation, no amendment or modification to the Governing Documents was required, implementation began as the result of a simple resolution passed by a majority of the Board as a New Business agenda item during a properly noticed and convened meeting. The Section 5.8 mentioned in the quote contains the usual verbiage regarding how often the BOD may the amount of Initiation Fees and Regular and Special Assessments.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By GeorgeR8 on 08/27/2015 11:52 AM
Where I live we had to pay $3000(soon to be $3500) when we moved here for the Preservation and Improvement Fund.

Those numbers are amazing George. If my math is right you'll soon be bringing in over $8 Million a year just from these fees.

Sikubali jukumu. Read all posts at your own risk.

RichardP13 (California)
Posts: 3,868

Posted:

Quote:

Posted By BillH10 on 08/28/2015 8:33 AM
Charles, I disagree with you with respect to the fee being mandatory or not mandatory. It depends on the language in the Governing Documents. The Bylaws of an association in which we previously resided stated:

"ARTTCLE, V FEES AND ASSESSMENTS
5.1 INITIATION FEE. The Board of Directors may at any time it deems necessary or appropriate, charge an Association Initiation Fee (the "Initiation Fee"). At any time an Initiation Fee is required, each Owner, upon becoming a Member of the Association at any time after the Initiation Fee shall have been implemented by the Board of Directors, shall pay to the Association, at the address and in the manner designated by the Board of Directors, if so directed by the Board, the Initiation Fee as may then be effective by vote of the Board of Directors pursuant to Section 5.8 below. Each Initiation Fee shall be used by the Association for the construction of capital improvements or operating expenses of the Association.

In the above situation, no amendment or modification to the Governing Documents was required, implementation began as the result of a simple resolution passed by a majority of the Board as a New Business agenda item during a properly noticed and convened meeting. The Section 5.8 mentioned in the quote contains the usual verbiage regarding how often the BOD may the amount of Initiation Fees and Regular and Special Assessments.

In my opinion, that type of amendment is why associations have problems. It's vague. It doesn't say "shall". It would give Boards the ability, to not collect if they so choose, which means it would be an uneven tax.

BillH10 (Texas)
Posts: 1,217

Posted:

Richard, I agree with you. In the case of the Association in which we resided, all homes which changed ownership after January 1, 2010 (other than for administrative reasons, such as death, divorce, placing the property in a trust, etc.) were subject to the initiation fee. However, given human nature, I can see how a less than honorable board could apply the initiation fee on a pick and choose basis. Our Board took the high road.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

One HOA I was in tired to initiate (asked owners to vote on) a 1% of sale price fee. It failed.

In a neighboring association a 1% fee was in the original covenants. It is alive and well.

FredS7 (Arizona)
Posts: 927

Posted:

Quote:

Posted By JohnC46 on 08/29/2015 9:47 AM
One HOA I was in tired to initiate (asked owners to vote on) a 1% of sale price fee. It failed.

In a neighboring association a 1% fee was in the original covenants. It is alive and well.

It would be interesting to know what the threshold was for acceptance.

In general, when the threshold is "pretty high" it's tough to get ANYTHING adopted. Because the easy decision is to not vote at all or to vote no.

With a threshold of, say, 75% I think it would still require a major lobbying effort most places to accept a chunk of free money.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Fred

I forget the threshold but I can only assume 2/3rds. I voted for it. Many said it would hurt them in selling but my belief was if 1% is stopping a house sale then 1% is not the issue. The deal has bigger problems then 1%.

JerryH6 (Arizona)
Posts: 1

Posted:

In our HOA in Phoenix, we charge $750 reserve fee on any newly purchased home. This money is put in the reserve fund to provide for large common area improvements. To date, we have had no problems with acceptance. The new owners are aware that it is aprt of the closing costs on their purchase. BTW, the State of Arizona allows a max of $750 for reserve fee.

TimD3 (Texas)
Posts: 4

Posted:

In my condominium in Texas, our bylaws stipulated that original buyers paid two months of assessments as a Working Capital Contribution (i.e. WCC or Reserves) while the condo was under Developer control. After the Developer turned over control to the HOA several years ago, new buyers have paid one month assessment as a WCC. This is collected at closing and we have not had any condo unit sale which did not go through because the owner balked at paying this WCC.

Note that this language must be included in your condo bylaws. After all, your bylaws pretty much dictate everything you can and cannot do. Personally, I wish that our language called for two months, but changing that means a resolution is needed and it will be quite difficult and time-consuming. Two months is pretty common in Texas, according to friends of mine who live in other condos.

DuaneR (Washington)
Posts: 35

Posted:

The authority is in the Documents, if there are no Documents there is no authority to do so!

LarryD13 (Texas)
Posts: 25

Posted:

We are in Texas. The builder still controls the HOA and contributes half of the budget as building is not complete.
Each house that is sold must contribute $150 "capital money" which merely goes into the builder's pocket and, presumably, is used to defray the builder's budget contribution.

LarryD13 (Texas)
Posts: 25

Posted:

BobD4 (up north)
Posts: 1,002

Posted:

a.k.a. "transfer fees". Quite an argument in favour of shared ownership communities.

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