New Treasurer of a tiny Association

I live in an association of 4 townhouses. I've recently become the treasurer, which is the only job or role we have. There is no board, our bylaws saw we're supposed to have a meeting every June, and we haven't done so in the two years I've lived here. Generally, whomever is the treasurer will send an email when a cost comes up ("Hey guys, we need to repair the fence, is everyone okay with using the same guy as last time.")

Our dues are low - they mostly just cover master insurance and snow plowing in the winter. We only have about 4K in the bank and as I'm finally starting to look into the numbers for the past year or two more closely, it's becoming apparent that we're basically running a deficit.

We each pay $150/mo in dues, for a total of $7200/year.

In 2015 (the only year I have full data for) we spent:

Master Insurance 2,616.60
Landscaping 725.00
Plowing 3,100.00
Handeyman 715.27
Taxes 566.50
Electric 178.68

Total 7902.05

We did have an atrocious winter in New England last winter so the plowing bills are much higher than normal, but that's still $700 more than we brought in.

I don't even know where to begin to turn this around. We're obviously going to need to increase HOA fees, but how do I do that? I can probably get everyone to agree (though we have someone closing on a unit tomorrow - so they definitely won't be happy to hear this news) , but do I need to get a Lawyer to add it to our bylaws? We probably should get a Reserve Assessment too?

Help!

The HOA is responsible for all "common elements" - and common elements are defined to include the exterior of the building. So painting the exterior (though the material of our exterior is some sort of cement material, so no painting necessary) would be the responsibility of the HOA.

Here's the section of our trust relating to dues and special assessments. It doesn't appear there's a limit to how much dues can increase each year, they're based solely on the expected budget for the year. It appears we can also make special assessments as necessary. The board of trustees mentioned is one member from each unit.

http://i.imgur.com/L94gIVX.png

OK, so it sounds like it's a comfortable relationship and everyone knows that things need to be funded. They're probably happy that someone is finally paying attention to things.

Here are a few thoughts:

1. You should probably do a special snow assessment for the amount that you think was "more than usual." That should fix the deficit issue and add a bit of cash.

2. Start thinking about having an Operating Fund bank account (for normal expenditures) and a Reserve Fund bank account (only used for capital expenditures). No need to do anything about it immediately, but you should get that dialog going. (Depends of course on the age of you community and current condition of what may need to be replaced.)

3. Good to keep enough cash in the operating account to pay around 3 months of expected expenses.

4. Not sure why you're paying $566 in taxes. From what I see, almost all of your income should be tax exempt.

5. You might want to talk with the other owners about doing the Master Insurance plus all of the individual unit insurance policies with the same company. You might be able to negotiate a better arrangement.

6. When you've had a bit of time to settle in to this new role, probably a good idea to investigate who has the skills to do a reserve study for you and at what cost.

The taxes are what we pay to get our tax return done every year. Not taxes we pay. It seems pretty high, it doesn't seem like a very complicated return.

It would be quite unusual to have to change the bylaws to changes the dues amount. In my HOA docs, the procedure is that (annually) the board creates the budget, determines the dues amount based on the budget, and has to inform the homeowners 30 days in advance of the new dues amount taking effect. Since our fiscal year is the calendar year, we have to let the owners know by Dec 1 for the coming year.

Yes, I can see that now. Since you can place liens on someone's house I wasn't sure how formal it had to be.

That's apparently the same process we have according to our CCR. 30 days before the start of the fiscal (calendar) year. We've just never done any of that in the time I've lived there, but I'll make sure to put together a budget and recommendation for dues this year.

Our board is supposed to be one member from every household, so we'll have to get everyone to agree.

Thanks for the recommendation, I will definitely take a look at that site!

I have the ledger going back to 2012 and I've looked through all of the expenses. The only time the association paid for anything outside of fixing a fence (we have a parking lot on the other side of us and they tend to get wrecked by plows in the winter) or other expected expenses was an incident in my unit in 2013 prior to my living there. I don't know the details of that incident, but I know it cost the association about $4500. So as far as I can tell, there has been nothing out of the ordinary - all common area things that are the HOA's responsibility.

The previous treasurer has only been treasurer for a year or so and I took over because he's moving. Other than him, only one tenant has lived there longer than 3 years and the new owners literally close on his unit today - so he's gone.

I also have no idea when fees were last raised. They definitely haven't since the ledger started in 2012, and it looks like our insurance has increased at least $600 in that time. Other costs like plowing have as well. Basically I don't think anyone has really wanted the task of running the HOA and has made no effort to do anything other than collect dues and pay bills.

Thanks for the recommendation on talking to the insurance company about getting a risk assessment plan, I hadn't thought of that.

Ashley,

I just became treasurer of our small HOA (16 units). As others have suggested, I found it useful to go back through the last several years and get an estimate (average) of your operating expenses. Also I would suggest that you do a Reserve Study. For your small environment, you should be able to get a general idea of your common area responsibilities. This is the biggest reason I have found to increase dues on some regular basis. We used to pay someone to do our taxes, but are doing it ourselves now. $556 seems pretty steep. Would be happy to talk about any specifics.

I have been treasurer of a 22 unit condo bldg for 10+ years (no one else will do it) Our taxes only
cost $150 to be prepared. I can't imagine why you should be charged as much as you are-shop around.
Re: Reserve study- have you checked out how much it would cost you? I don't think that you can afford it.
Just put a certain amount in a separate account each month-same regular account only named Reserve. Do you
have by-laws? If not, to protect yourself it might be worth consulting a lawyer and get some basic ones
drawn up. I could go on and on re treasurer responsibilities of a small association but-????

My understanding is if you pay any non-corporation for services over $600, you need to send a 1099 as they are considered an independent contractor.

I plan to shop around, or I might just do them myself.

I have no idea how much a reserve study costs, it wouldn't surprise me in the least if we couldn't afford one right now.

Do you recommend having two saving accounts? We currently have a checking and savings, but I'd rather not keep a year's budget in the checking account.

Our ByLaws require that the Operating Fund and the Reserve Fund be in separate account. it also states that the Reserve Fund has to be in an interest bearing account. Like you, our Operating Fund money is in a checking account and our reserves are in a savings account. I recommend to keep them separate and do not allow Reserve Funds to be used for Operating Costs. The reserve fund is forward looking. That is where our problem is now. In the past, they were kept in one account, and everyone thought we had "lot of money" However, when I split them and did a reserve study (we did an informal one ourselves), I discovered that there is not enough funds to fix two things that need repair now. At least I can clearly explain the need for assessment increases to the members now

I'm pretty sure an HOA has to send 1099s - just google "Does an HOA have to send out 1099s".

In any case, I'm going to keep sending them and assume that the accountant was correct about it.

Per the IRS Form 1099-MISC web page:

File this form for each person to whom you have paid during the year:

at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest;
at least $600 in rents, services (including parts and materials), prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish, or, generally, the cash paid from a notional principal contract to an individual, partnership, or estate;
any fishing boat proceeds,
gross proceeds of $600, or more paid to an attorney during the year, or
withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.

Per 1099-misc Instructions:

File Form 1099-MISC, Miscellaneous Income, for each
person to whom you have paid during the year:
At least $10 in royalties (see the instructions for box 2) or
broker payments in lieu of dividends or tax-exempt interest
(see the instructions for box 8);
At least $600 in:
1.rents (box 1);
2.services performed by someone who is not your employee (including parts and materials), box 7;
3.prizes and awards (see instructions for boxes 3 and 7);
4.other income payments (box 3);
5.medical and health care payments (box 6);
6.crop insurance proceeds (box 10);
7.cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 7);
8.generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3);
9.Payments to an attorney. See Payments to attorneys, later; or
10.Any fishing boat proceeds (box 5).

In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment (box 9). You must also file Form 1099-MISC for each person from whom you have withheld any federal income tax (report in
box 4) under the backup withholding rules regardless of the amount of the payment.

Per IRS General Instructions

A. Who Must File
See the separate specific instructions for each form

Also see:

Every Association Must Complete and File 1099-MISC Forms from Ohio Condo/HOA legal blog

Quackit homepage

Knowing When to File 1099′s for HOA Contractors from HOA Management.com

Penalties for Not Filing a 1099-Misc IRS Form

Quackit homepage

Quackit homepage

Thanks everyone for the clarifications! I'll be busy clicking through all the links.