Declarant transfers reserve with insufficient funds

VytasR (Utah)
Posts: 3

Posted:

We are about to have the HOA transferred from the declarant to the home owners. The reserve funds are inadequate per the reserve study. We can either increase the HOA dues for everyone, seek a special assessment or increase the funds gradually. If we seek a special assessment how do we do this fairly? Some owners have been here for three years, while other are just buying in. I would think the one's that have been the longest should bear a greater portion of the assessment. What are our options and what do you recommend?

PitA
Posts: 1,416

Posted:

Our opinion does not matter, nor does our recommendation.

YOUR Covenants and Restrictions determine how to charge assessments.

Your ? has been accurately answered.

All further talk is ka-ka.

GenoS (Florida)
Posts: 4,276

Posted:

Vytas, I think all owners should pay equally regardless of how long they've been homeowners. Typically special assessments are the responsibility of every owner of record on the date it is levied. Is it fair? Probably not but if your governing documents don't provide for a "fair" allocation of a special assessment based on each member's length of ownership then there's not much you can do.

Maybe the owners who have been there for 3 years should have warned the new arrivals that the reserves were being underfunded. That would have been fair.

PitA
Posts: 1,416

Posted:

Vytas, I think all owners should.....

Matters NOT what 'I think', the documents prevail.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

A HOA is ONLY funded by it's members for it's members. If you have to raise funds then that process is in your documents on how to do so. Typically the board can raise dues about 5% annually amongst a board vote. However, special assessments take majority OWNERS/MEMBER's vote. They are divided equally amongst ALL owners despite how long one has lived there. Some HOA's it's done by size of the home.

A HOA is a non-profit too. So it is to collect as much as it spends with some capital fund savings for capital maintenance expenses. The question is what are you raising the funds for? To make sure there is enough savings for capital expenses or for proper operational costs? If it's operational expenses, then raising the dues may work. If it's capital expense savings, then special assessment may make sense once it's established what is needed to replace a capital expense. If it's a long term capital expense like roof replacement in 10 years (example) then raising the dues may work as long as determined to be put aside for that.

It's more important to understand the way raising funds works in a HOA. Board doesn't always make that decision. It's often amongst the entire HOA to decide.

Former HOA President

GenoS (Florida)
Posts: 4,276

Posted:

Typically the board can raise assessments as they see fit without limitation. Some associations may have an annual cap for how much they can be raised, but not necessarily.

The same goes for special assessments. SOME associations have to go to the members for approval, but not all.

Most of the associations' governing documents in my county, and I've reviewed dozens in the past year, give the board complete and total discretion on regular and special assessments.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Vytas

Have you all considered not going through with the turnover until the Reserves are properly funded?

AugustinD
Posts: 5,144

Posted:

Quote:

Posted By VytasR on 06/09/2017 12:11 PM
We are about to have the HOA transferred from the declarant to the home owners. The reserve funds are inadequate per the reserve study. We can either increase the HOA dues for everyone, seek a special assessment or increase the funds gradually. If we seek a special assessment how do we do this fairly? Some owners have been here for three years, while other are just buying in. I would think the one's that have been the longest should bear a greater portion of the assessment. What are our options and what do you recommend?

You are arguing that, if a special assessment is imposed, then you want to compute how much each owner owes based on how long they have owned. Using this reasoning, the HOA should go after those who previously owned and have since sold their home. But the HOA has no authority over previous owners on such a matter.

It is hard to be exactly fair when building a Reserve Fund. I recommend your HOA run the numbers for capital assets and compute what the regular assessment should be each year. Then raise the regular assessment appropriately. I feel a reserve study is highly advisable. They're not exact but they are an excellent guide. If your HOA has few capital assets, then every year or so a volunteer might be able to revise the original reserve study.

I always keep in mind that the goal of reserve fund planning is to spread costs evenly over owners over the years, so all owners over all times pay as equally as possible for the enjoyment of capital assets. Special assessments are to be avoided, because they tend to force present owners to pay for benefits that previous owners enjoyed.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By AugustinD on 06/11/2017 6:53 AM

Posted By VytasR on 06/09/2017 12:11 PM
We are about to have the HOA transferred from the declarant to the home owners. The reserve funds are inadequate per the reserve study. We can either increase the HOA dues for everyone, seek a special assessment or increase the funds gradually. If we seek a special assessment how do we do this fairly? Some owners have been here for three years, while other are just buying in. I would think the one's that have been the longest should bear a greater portion of the assessment. What are our options and what do you recommend?

You are arguing that, if a special assessment is imposed, then you want to compute how much each owner owes based on how long they have owned. Using this reasoning, the HOA should go after those who previously owned and have since sold their home. But the HOA has no authority over previous owners on such a matter.

It is hard to be exactly fair when building a Reserve Fund. I recommend your HOA run the numbers for capital assets and compute what the regular assessment should be each year. Then raise the regular assessment appropriately. I feel a reserve study is highly advisable. They're not exact but they are an excellent guide. If your HOA has few capital assets, then every year or so a volunteer might be able to revise the original reserve study.

I always keep in mind that the goal of reserve fund planning is to spread costs evenly over owners over the years, so all owners over all times pay as equally as possible for the enjoyment of capital assets. Special assessments are to be avoided, because they tend to force present owners to pay for benefits that previous owners enjoyed.

Sound advice.

MarkM19 (Texas)
Posts: 1,459

Posted:

When I read the original note you mention that the reserves are not funded properly. What exactly are you saying. A properly funded reserve fund would be at 100%. Almost all HOA are not near this level of funding. If you are saying that your HOA is only funded to 5% of what the Reserve Study shows and the builder/Declarant has not met their responsibility to the association then maybe that is a legal issue and he should pay for the under funding.

When our HOA turned over we were funded at about 40% and it was way before my time on the board. What our builder did was subsidize our HOA dues to make it look like it was so cheap to live in our community. Once they left the dues were raised by $35.00 times 438 homes to make up for that subsidy.

LetA (Nevada)
Posts: 2,679

Posted:

DON'T sign the handover papers until that reserve is properly funded. Your CAM if you have one should be on this.

LetA (Nevada)
Posts: 2,679

Posted:

Does California have a reserve percentage like Nevada? I believe ours is at the low end of 70%

RichardP13 (California)
Posts: 3,868

Posted:

California does not have any reserve requirement other than if there is a reserve account it must be separate and funds withdrawn must be with two signatures. There are also borrowing restrictions.

To the best of my knowledge, there is no funding percentage requirement. What type of assessment you choose is going to be based on the size of the HOA and the assets that need to be funded. The smaller the Association, the more difficult and painful the plan.

In California, each developer must submit a RE623, Budget Worksheet. This will have a operating budget and reserve budget.

JanetB2 (Colorado)
Posts: 4,219

Posted:

Quote:

Posted By VytasR on 06/09/2017 12:11 PM
We are about to have the HOA transferred from the declarant to the home owners. The reserve funds are inadequate per the reserve study. We can either increase the HOA dues for everyone, seek a special assessment or increase the funds gradually. If we seek a special assessment how do we do this fairly? Some owners have been here for three years, while other are just buying in. I would think the one's that have been the longest should bear a greater portion of the assessment. What are our options and what do you recommend?

Questions:
1. When were your original CCR's filed?
2. Are you single family homes or condo?

The date can make a difference because when I read UT HOA Statute for single family homes: https://le.utah.gov/xcode/Title57/Chapter8A/57-8a-S211.html?v=C57-8a-S211_2015051220150512

It states:

(10) Subsections (2) through (9) do not apply to an association during the period of administrative control.
(11) For a project whose initial declaration of covenants, conditions, and restrictions is recorded on or after May 12, 2015, during the period of administrative control, for any property that the declarant sells to a third party, the declarant shall give the third party:
(a) a copy of the association's governing documents; and
(b) a copy of the association's most recent financial statement that includes any reserve funds held by the association or by a subsidiary of the association.
(12) Except as otherwise provided in this section, this section applies to each association, regardless of when the association was created.

It appears that "administrative control" is when the developer has had control of the property. If the CCR's were recorded prior to date noted above potentially the developer did not at that time have to implement Reserve Fund, but after that date they must in future include. Possibly the same can be found in UT Condo Laws also and why I asked what type HOA you belong.

PitA
Posts: 1,416

Posted:

The bull, evidently, ingested a LOT of chocolate.

JanetB2 (Colorado)
Posts: 4,219

Posted:

Quote:

Posted By PitA on 06/14/2017 8:02 AM
The bull, evidently, ingested a LOT of chocolate.

Really??? What chocolate?

JanetB2 (Colorado)
Posts: 4,219

Posted:

Quote:

Posted By VytasR on 06/09/2017 12:11 PM
We are about to have the HOA transferred from the declarant to the home owners. The reserve funds are inadequate per the reserve study. We can either increase the HOA dues for everyone, seek a special assessment or increase the funds gradually. If we seek a special assessment how do we do this fairly? Some owners have been here for three years, while other are just buying in. I would think the one's that have been the longest should bear a greater portion of the assessment. What are our options and what do you recommend?

Because you are a new subdivision recently transferred from Declarant you should increase the funds gradually in order to meet the needs at appropriate times for various items in future as designated by the Reserve Study. Special Assessments should be avoided if possible and used if needed for emergencies. When you implement assessments they need to be equally applied moving forward not back.

PitA
Posts: 1,416

Posted:

Quote:

Posted By JanetB2 on 06/14/2017 9:36 AM

Posted By PitA on 06/14/2017 8:02 AM
The bull, evidently, ingested a LOT of chocolate.

Really??? What chocolate?

Excessive chocolate consumption causes diarrhea in most mammals.

Therefore:

LARGE amounts of Tauric Ka-Ka

or

to reference another post

a closing of the pool.

ps. yes, I do