repay past hoa fee shortage

Our HOA consists of two groups of membership - residential and commercial. The previous board made the decision to have the commercial members paid substantial lower HOA fee than residential members. It resulted in deficit in commercial building operations and had made the residential members to subsidize the commercial for over the course of 10 years. The old board was finally replaced by a new board last year.
Since then the new board has separated the budget and financial statement and try very hard to correct the situation. At this time, besides short paying 80k in HOA fee, the commercial members did not pay any amount into the reserve fund.
Does the new board have any legal ground to ask commercial owner to repay the shortage? if so, how many years can we go back? Would appreciate inputs and advise on this manner.

We're a mixed-use HOA too, Sue, and there were billing errors in the past that stemmed form errors in the original DRE (now BRE) dues assumptions & calculations.

Richard's questions are good ones!

I'm confused: if whoever (it was property management co in our case) filled out the forms for the DRE didn't put in any amounts, how do you know what the correct amounts owed by the commercial owner(s) are?

Don't your CC&Rs say how the dues should be split?

What size is your board and how many commercial directors are there? This probably is determined in your bylaws.

What % of the entire HOA sq. ft. is the Commercial sq. feet? Ours, for instance, is 5%, but the Commercial Owner doesn't pay 5% of, for instance, of electricity because they may not use the recreational amenities and elevators that're in the residential twin towers. If you don't know, your Condominium Plan (if you're a condo) might help.

I'm not in the legal professions so don't know the SOL on this topic. When did the building(s) open? When was the actual error confirmed? You may need an HOA attorney for this question. I know of no "rules" about how to pursue reimbursement because they didn't pay enough. Do you have a property manager who can help?

After 9+ years as a property mgr., Richard, our HOA must be the first you've heard of whose DRE budget was prepared by a property management company. One DRE Budget page says, for instance: Budget Preparer followed by two names. One is Vice President and Budget Consultant of XX Association Services. The 2nd name has the title of Management & Budget Consultant., dated 2000. The XXX Association Services was the MC of our condo project until 2002, when the Owners took over and hired a different firm. I wrote this because in the past you've questioned whether our DRE Budget really was prepared by a MC.

Sue along with the company that Richard suggests, there are professionals called designated by CCIM. I don't remember what that stands for, but Google it. Our HOA eventually had to hire such a professional to review our DRE Budget, Condominium Plan and other materials. Our HOA actually has three different dues payers. One area pays %5 of most dues, another 20% and the last 75%. Two of these also have their won "special" operating and reserves budgets. The CCIM confirmed that our Board had figured out the correct contributions for most budget items (v. the orig. DRE Budget) And he advised us how to calculate the rest. His own major calculation was the amount & cost of electricity used by & billed to the 75% for the elevators in our towers.

Both our current MC and our HOA attorneys say we have one of the most complicated HOA budget structures they've ever seen.

But I now know it really week and might be able to help with your situation. Meantime, as both Richard & I suggested, you'll probably need to have your HOA attorney involved in seeking reimbursement form the commercial owner(s).

I still would like to know, Sue, how your board arrived at the "correct" amount of what the commercial owners should contribute. Did any other professionals help you?

Thank for input on this subject.

The new BOD did an audit on cost of operations and budget. They concluded that in order to break even plus reasonable reserve, commercial units had short paid the HOA fee more than 50% for the past 10 years. To stop the bleeding, the new BOD first separated the financial statements between residential and commercial. With the study on the actual cost of operations with past few years data, the new board also made adjustment on commercial HOA fee and made clear to commercial owners that since there is no reserve fund set aside with their short pay, any extra expense on commercial building will be done through special assessment. Now the residential are demanding commercial side to pay back the subsidized amount.

After some research, I discovered that California civil code 337 allows us to pursue the payback up to 4 years. The challenge now is how to implement this....

We are thinking of collecting their shortpay by adding to their HOA fee for a period of time until the shortage are paid off?

Let me know of your thoughts on these approach. thanks in advance

Have the homeowner sign a release.

If as you stated the code allows you to pursue up to 4 years then you need to calculate the amount due for each Commercial and I would send a letter to each with the amount due and noting the law section allowing you to go back 4 years. If it has been 10 years of shortpay then the HOA will per your statements need to eat 6 years and chalk it up as lesson learned. You might even potentially note in the letter that they actually owed X for past 10 years of not paying proper assessments; however, the HOA will only be collecting the past 4 years per XXX Statute. They might then better understand they are getting a good deal in only having to pay for 4 years. Again, I would run your idea past your HOA attorney to make sure everything is above board and legal for what you propose and does not violate any collection statutes.

Are you keeping the residential and commercial area and assessment monies in separate accounts or line items? Potentially in future due to 6 years of shortfall the Commercial properties may need a future special assessment.

however, this is hoa, cc&r says it is the owner's duty to pay hoa fee to cover all the cost plus reasonable reserve fee. this is the "contractual responsibility", not like you go to buy a car. CCP337 deal with this specifically regardless fraud, or by error, as long as there are accounting record to support this.

I will run this approach and method of collection with our hoa attorney next week.

thank you for everyone's input.

1. try to get money from the members that was misleaded by previous Board to pay lower fee (105 vs residential need to pay 200), no matter what the approach you take, is not going to be easy!
2. However, in this case, the residential owner actually subsidy the 6 commercial owners for past 10 years. that means commerical owners own money to the residential.
3. if the choose is forgiving, near 90 residential will be much unhappy.
4. I think in this cases, it is really just like a "special assessement" was assessed 10 years ago, later found out through accounting records/audit, that the assessment is NOT enough, therefore the owner need to pay back. However, the law specifically only can go back for 4 years.
5. therefore another make up special assessment is required for this amount.

Let me knkow if this "theory" make sense to explain or describe this case.

thanks

A CCIM is a Certified Commercial Investment Member with certain coursework completed. Our specialist mainly helps large scale mixed use urban projects set up their budgets & reserves. He, along with our current & previous HOA attorneys and our current very large and well-staffed MC's lead accountant, our budgets are very complicated. Our 1st MC also was very large, but no longer operates using that name they had when working for us. Under their newer name, they still are very large. Anyway, Richard, I don't see how your reply is of any help to Sue.

I agree, Sue, with those who say it's going to be tough persuading the Commercial Owners to reimburse your HOA for underpayment. So it will be your HOA attorney who'll advise you if you should proceed and how. He'll no doubt need that section of your CC&Rs and maybe the DRE budget too.

Meantime, the good news is that the residential owners didn't contribute to the Commercial Owners reserves since "Comm" didn't have a reserve study or account. The Comm rep, maybe with help from one or more residential (Res) directors, need to pay for a certified reserves analyst to determine what their own Reserves study should contain and how much they should contribute to it to, ideally, be 70%-100 funded. This may require a special assessment to Comm, but let their directors talk with the Comm owners about that and figure it out.

But Comm, of course, also needs to contribute to the Base (overall) operating budget for things that it uses or might use. As suggested above, this might be a % based on their overall s.f. or some other criteria. Comm also must contribute to the Base's reserves to repair & replace any component that Comm uses or might use. And, yes, there would be a monthly statement about every line time in reserves and in the operating budget that Comm contributes to.

I'm still very curious about what your CC&Rs say about who pays for what & how much. The way the costs are divvied up is is called the "splits." Our CC&Rs, sadly, directed us to the DRE Budget, which was, as noted, based on flawed assumptions. It did specify the 5% for Comm., but not the line items in reserves or the operating budget.

In our case, once we confirmed the splits, we only could raise Comm's dues by 20% per our docs & state law, for '16 and the remaining 8% or so was added to their dues for '17. Their own "special benefit area" reserves account was very well funded and not an issue.