Raising assessments to keep dues low

Started by DavidF22 • 27 replies • 1374 views

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DavidF22 (New York)
Posts: 91

Posted:

I was wondering if anyone has had experience with increasing or imposing special annual assessments to help pay for operating expenses and, thus, keep monthly dues artificially low so they look better in real estate ads. With costs rising and a current Board that likes to sign no-bid contracts, our community will likely see extreme pressure to hold dues at the current $775/mo. On top of this, we pay annual assessments between $2,850 and $3,500 to cover major expenses such as roof replacement, painting, road repairs, etc. thanks to some prior Boards that never set aside any reserves. The real estate agents are expert at not revealing these extra costs to potential buyers.

It’s already 12/19 and we have heard nothing from the current Board on next year’s fees. But it seems to me that to maintain level dues that look competitive, they’ll have to cover more operating expenses with assessments. This sounds like a bad practice to me, although maybe it doesn’t matter since all the money come from the same place.

SheliaH (Indiana)
Posts: 6,964

Posted:

Special assessments should be RARE and used to pay for extraordinary expenses - usually repairs or replacement to the common area when there isn't enough money in reserves or the operating budget to pay for the work. It may also occur if an insurance payout won't be enough to cover damages.

You can avoid special assessments or keep them RARE by getting a reserve study that will help the Board set annual budgets so they'll have enough money for operating expenses (routine monthly payments) and fund reserves. This should be done at least every 5 years.

To be blunt, you have a bunch of yahoos for a Board and need to get them out - all of them, because they are not acting in the best interests of the association and will cost you a helluva lot of money in the end. It's is not the association's problem if people see assessments for association A vs. Association B and choose Association B because it has "lower" assessments. The board's job is to manage assessments so that the homeowners get the biggest bang for the buck and part of that means getting at least 3 bids for maintenance or repairs - paying more doesn't necessarily guarantee high quality work, but one way or another you do get what you pay for. In my experience, the cheapest isn't always the best.

I'm sure the realtors don't talk a lot about assessments because many don't really understand them and how they should be managed. A lot of them don't care either - instead they'll downplay the cost because they're more interested in getting the house sold and that commission. So what if the new owner gets hit with a special assessment or two three years in because - the HOA board didn't set aside reserves or increase assessments to keep up with inflation? If you have a bunch of people living in your community who really can't afford to be there to begin with, all of you are in for a bad time financially when major repairs have to be made and you have no choice but to go to a special assessment.

So...I suggest you talk to your neighbors and see what they think. If you find some who are just as concerned about underfunding (a BIG problem among HOAs) all of you need to begin attending meetings, reviewing the numbers and demanding answers. You may also want to think about voting these people out at the next annual meeting, if not sooner. If/when you get rid of them, start taking a long hard look at the numbers, come up with a plan and let the homeowners know what's going on and why. You will get some people to squawk, but they'll just have to deal with it or come up with a better idea.

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

BenA2 (Texas)
Posts: 1,273

Posted:

Special assessments can be a sign of financial mismanagement. As mentioned above, they should only be used for unforseen extraordinary circumstances. I have heard of boards using the ability to have special assessments as an excuse to not adequately fund reserves.

TimB4 (Tennessee)
Posts: 21,061

Posted:

I know that when I was looking to purchase, if the annual assessments seemed low or if there was a special assessment in place, I wouldn't purchase. I prefer an Association who actually manages their money.

New developments often keep assessments artificially low to attract buyers. Then when the development is turned over to the membership, there is uproar on the need to raise assessments.

Paying now or paying later is always going to be a question members will have to ask themselves.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Why so concerned about Realtors? They really don't play a role in the HOA at all other than selling or buying of homes. They aren't responsible for explaining the rules, supplying the rules, or providing budget information. Some don't even know if it's in a HOA or not. The CC&R's and Articles of Incorporation are Public documents. Some states require the seller to supply them at closing. Otherwise Realtors are just salespeople.

I've read a few of your posts about your HOA. Not sure if you know enough about how HOA's operate to judge your HOA operations. Noticed a few assumptions here and there. Non-competitive bids don't always mean something crooked is going on. There are many reasons why one would do this. Often times it involves how the MC operates if you have one. Basically, if you hire a MC your not going to have much control on if they do the vendor/contractor hiring. They can sole source if they want. Your paying them to do the job of managing your HOA on your behalf are you not?

The special assessments are typically NOT a board vote. It's a membership one. Plus one may need one due to your not having a fully funded reserves. A HOA is ONLY funded by it's member for it's members. So if your HOA is in need of roof repairs, you are all going to have to pay for it. Which doesn't sound like anyone planned ahead for this years ago.

Keeping your dues low and having high assessments isn't necessarily a bad thing for every situation. Lower monthly/yearly dues is kind of an attractant to potential buyers. If someone is comparing HOA's they may go with the one with the lower amount. It is a known risk that you may have special assessments eventually. Would never be able accordingly plan for it with potential buyers. They aren't members.

I am not saying your HOA is good or bad. Just putting a little perspective from a different view. Decisions from the outside aren't like they are from the inside.

Former HOA President

KerryL1 (California)
Posts: 14,550

Posted:

Do your governing docs or NY law, David, require an ownership vote to raise dues more than x% a year? (As In CA)

Do your governing docs prevent a special assessment of more than X% without an owners vote?

Do your docs have a deadline for when an annual budget must be sent to or presented to Owners?

Are you saying that your HOA has nothing in reserves except for 2017's contribution minus expenses form reserves for '17?

DavidF22 (New York)
Posts: 91

Posted:

Quote:

Posted By KerryL1 on 12/19/2017 3:52 PM
Do your governing docs or NY law, David, require an ownership vote to raise dues more than x% a year? (As In CA)

Do your governing docs prevent a special assessment of more than X% without an owners vote?

Do your docs have a deadline for when an annual budget must be sent to or presented to Owners?

Are you saying that your HOA has nothing in reserves except for 2017's contribution minus expenses form reserves for '17?

We keep three months’ operating expenses in reserve. Because past Boards didn’t reserve for major expenses, such as roof replacements or road repairs, the community has in recent years paid — and will likely continue to pay — annual special assessments that have ranged from the high $2,000s to the mid $3,000s. The assessments are not used to build a reserve for the future, but to pay for major expenses for the year. We have no votes on annual dues or assessments, which are determined solely by the Board. Worse yet, there is nothing in our bylaws to prevent the clowns on the current Board from taking out a huge loan or signing a seven-figure contract with a vendor for some unnecessary project and then sticking each of us with, say, a $30K assessment. I could easily envision one of the lunkheads on the Board doing this and then moving away before he had to pay. We have essentially given them a blank check.

Nearly all of our Boards have had no idea what is going on in the outside world, so when I describe what they are doing, I don’t mean for anyone on here to think I believe it is accepted practice. When I first served almost three years ago, I got them all CAI memberships and I was probably the only one who used it to learn something about what other HOAs were doing. For several years, the Board filled an artificial pond with municipal drinking water without knowing or caring that it was against local laws. More recently, they mounted a cockamamie project to revive an abandoned water well and spent thousands of our dollars for this project before knowing whether they would be granted the necessary city or state permits. We had to report them to the authorities before they understood they needed permits. And mind you, these are people who boast about their experience in construction and architecture.

I appreciate all the advice proffered on here. It makes me realize just how dysfunctional our HOA really is.

TimB4 (Tennessee)
Posts: 21,061

Posted:

Sounds like your Board needs to do a Reserve study in order to truly know what it will cost in the future.

For more info on reserve studies, see the following thread:

http://www.hoatalk.com/Forum/tabid/55/forumid/1/postid/103517/view/topic/Default.aspx

PaininyourA
Posts: 215

Posted:

...... and you need to moooooovve

DavidF22 (New York)
Posts: 91

Posted:

Nahhh. It's still a great place to live and we've met a lot of nice neighbors. Plus, our house is worth over a third more than we paid just a few years ago as property values have gone through the roof. People who move here usually come from larger homes and are used to paying for high maintenance and taxes that might have been double the cost, or more. So, even with the current high assessments, they're probably still saving money.

But, again, the main concern is that the current Board does something really stupid or spiteful and then hits us with a five-figure assessment. That would make everyone sit up and take notice, but by then, it would be too late since neither the bylaws or state laws would offer us any recourse.

SheliaH (Indiana)
Posts: 6,964

Posted:

All the more reason why you and your neighbors need to stand up and tell these folks to hit the road. You don't say how many people are on the board, but I've never been able to understand how five, seven, nine or three board members can intimidate dozens of other people into letting them do whatever they like. You may not be able to get everyone behind you in putting them out, but you may not have to - check your documents to see if you need a certain percentage of homeowners to push a recall or a special meeting to discuss the same and then work to recruit those folks.

On the other hand, the board represents the homeowners, for better or worse, so if this community is as dysfunctional as you say, the homeowners have themselves to blame. Apparently they don't care if this is costing them money every year as long as they don't have to sit up and actually begin to pay attention to how the association is run. Ignorance really isn't bliss, although it may feel that way.

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

DavidF22 (New York)
Posts: 91

Posted:

SheilaH, thanks for the supportive words. We need a two-thirds vote for homeowners to remove directors or change bylaws. There are absolutely no spending curbs in the bylaws and NY is notoriously lax on regulating HOAs, possibly the worst state in the country. Keep in mind that if the current Board chooses to ignore us or the bylaws (which wouldn't surprise us), our only recourse is an expensive court battle. The attorney general will be no help. We do have an opportunity to demand a special meeting, since our bylaws require a majority, but superseding state law sets the threshold at only 10%.

The way the community is divided now, a two-thirds vote is unlikely to happen unless we get the mammoth assessment. As mentioned earlier, I think we were exposing mismanagement of past Board members who still live there and we were starting to uncover unusual preferential arrangements involving certain homeowners, certain vendors and even the property management company. So our opposition may not necessarily be in favor of an incompetent, corrupt Board, but they may still be against us for daring to lift up rocks and see what squirms out.

SheliaH (Indiana)
Posts: 6,964

Posted:

Well, no one said change would be easy or quick - speaking truth to power never is, especially when some people people find it easier to stick their heads in the sand and ignore things.

At this point, you'll have to decide how far you want to push - this isn't about getting the attorney general to help you. Even if that office was able to blast the board into being more transparent, this will continue if people don't vote them out and start holding themselves and the board accountable. People like to yell about the AG, Congress or city council not doing this or that, but it's often because they're unwilling or unable to get off their ass and assert themselves.

I know you like your home, but if you don't think your pocketbook can withstand the coming tsunami, whether next year or later, you have a heavy decision to make - stay and brace yourself, rally that 2/3rds you need or move and watch the explosion from a distance (at least you'll be ok). I wish you well in whatever you choose to do

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

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By SheliaH on 12/20/2017 2:55 PM
Well, no one said change would be easy or quick - speaking truth to power never is, especially when some people people find it easier to stick their heads in the sand and ignore things.

At this point, you'll have to decide how far you want to push - this isn't about getting the attorney general to help you. Even if that office was able to blast the board into being more transparent, this will continue if people don't vote them out and start holding themselves and the board accountable. People like to yell about the AG, Congress or city council not doing this or that, but it's often because they're unwilling or unable to get off their ass and assert themselves.

I know you like your home, but if you don't think your pocketbook can withstand the coming tsunami, whether next year or later, you have a heavy decision to make - stay and brace yourself, rally that 2/3rds you need or move and watch the explosion from a distance (at least you'll be ok). I wish you well in whatever you choose to do

Well said.

TimB4 (Tennessee)
Posts: 21,061

Posted:

Quote:

Amen to that.

It took me three years to have changes happen within our Association.
It was another year before I was elected to the board.

Once elected, I discovered more issues then I was even aware of.
Hopefully, most of those have been addressed and the procedures put in place will be followed in the future. However, I have my doubts because members might rally for a specific issue but will not always watch the pot until it boils over once more.

PaininyourA
Posts: 215

Posted:

..... or move and watch the explosion from a distance (at least you'll be ok). I wish you well in whatever you choose to do .....

... what I said ...

KerryL1 (California)
Posts: 14,550

Posted:

Your listed quite an accumulation of poor conduct by your current and past boards, on your own or embedded in others' threads, David.

You keep giving reasons why nothing--except perhaps some Lone Ranger--will repair your 60-home HOA. Still, you simply must get yourself and those who agree with you back on the Board at the next election. this you don't seem to want to do either.

If you know for certain that your board is acting illegally, I've seen advice here to share the expense of an attorney with several others and have the attorney write a letter demanding that the Board adhere to xx && zz of your bylaws, and qq & vv of your covenants.

Continuing to list your complaints with us will not make your HOA a livable place. It takes---one more time--joint action by you & your neighbors.

LetA (Nevada)
Posts: 2,679

Posted:

If a savy prospective buyer sees that your association has frequent special assessments, they are going to pass on that property listing.
That would make it very bad for your owners to make their property sellable.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Just a reminder that things can vary quite a bit from state to state I will answer some question asked as they would apply in SC:

1. Do your governing docs or NY law, David, require an ownership vote to raise dues more than x% a year? (As In CA)

No. In our SC HOA the BOD can raise the yearly dues any amount they desire by notifying all owners of such on or before 12/01 to take effect on 01/01 of the coming year. The owners have 30 days in which to call a Special Meeting to disapprove the increase. At this special meeting, a majority of all owners (not just a majority at the meeting) can vote the increase down. To clarify 51% of all owners would have to vote no. If less then 51% vote no, the budget (with the dues increase) is approved.

2. Do your governing docs prevent a special assessment of more than X% without an owners vote?

Yes. 2/3ds of all owners must approve any Special Assessment.

3. Do your docs have a deadline for when an annual budget must be sent to or presented to Owners?

Yes. If a dues increase is to part of the budget it must be submitted to all owners on or before 12/01. If no dues increase then it can be presented to all owners at the Annual Meeting, which must be held on or before April 15.

None of the above is controlled by the State of SC. One's Covenants and Bylaws control.

KerryL1 (California)
Posts: 14,550

Posted:

Interesting, JohnC. I suspect the OP's state, NY, resembles SC much more than CA. I think David needs to know the answers to those questions in NY & per his own governing docs.

DavidF22 (New York)
Posts: 91

Posted:

Quote:

Posted By JohnC46 on 12/23/2017 6:55 AM
Just a reminder that things can vary quite a bit from state to state I will answer some question asked as they would apply in SC:

1. Do your governing docs or NY law, David, require an ownership vote to raise dues more than x% a year? (As In CA)

No. In our SC HOA the BOD can raise the yearly dues any amount they desire by notifying all owners of such on or before 12/01 to take effect on 01/01 of the coming year. The owners have 30 days in which to call a Special Meeting to disapprove the increase. At this special meeting, a majority of all owners (not just a majority at the meeting) can vote the increase down. To clarify 51% of all owners would have to vote no. If less then 51% vote no, the budget (with the dues increase) is approved.

2. Do your governing docs prevent a special assessment of more than X% without an owners vote?

Yes. 2/3ds of all owners must approve any Special Assessment.

3. Do your docs have a deadline for when an annual budget must be sent to or presented to Owners?

Yes. If a dues increase is to part of the budget it must be submitted to all owners on or before 12/01. If no dues increase then it can be presented to all owners at the Annual Meeting, which must be held on or before April 15.

None of the above is controlled by the State of SC. One's Covenants and Bylaws control.

The answers to 1and 2 are no, and the answer to 3 is that the Board must give us audited financials once a year. But when I see how comprehensive the state comptroller’s audits are for, say, our local school districts, the ones done by our independent auditors for our HOA look very superficial and never seems to address some of the financial-related shenanigans many of us observe. Perhaps we can’t expect any more from the auditors, but since we pay $5400 a year for this service, I wonder whether we shouldn’t be getting more.

HOAs in NY don’t get their own laws, but are grouped under a general Not-For-Profit Corporation Law that also included entities such as charitable foundations. As a result, the law is nowhere close to addressing needs peculiar to an HOA. Plus, the AG really wants as little as possible to do with such homeowner groups.

So, we know, for example, that the current Board is in violation of NY law because we don’t have any conflict of interest policy nor required disclosures of individual Board members as to whether have had personal/business dealings with contractors. We know the most dominant director has relationships with some vendors and must question whether any favors are being exchanged, given we have seen some vendors do work on his property at the exact same times they are there for similar HOA work, as well as the Board’s propensity to sign longer-term, no-bid contracts and eliminate competition (such as their dropping of an excellent roofing contractor in favor of another vendor whose repair costs are much higher). In any case, we should get some action from the AG over this violation of the law, but we would probably be told to hire an attorney and fight it out in court. So unless we want to spend money, we essentially have no law.

Bottom line: From the comments on here, it sounds like the advice is obvious — convince a majority to replace them. We’ll do that as soon as we have enough concerned, intelligent, educated and neighborly homeowners to make that happen. We’re probably a few years away from that scenario.

KerryL1 (California)
Posts: 14,550

Posted:

The answer to #3 is not that there's an annual audit. An annual budget is something the Board prepares telling them what to expect in the way of expenses for the next year. This tells them whether to raise maintenance dues and, if so, by how much. Many states have a deadline about when this budget must be sent to Homeowners. HOAs in other states might have dealings in their governing documents. When does your board send you Owners a budget for 2018?

Speaking of docs, some of your questions and questions to you can be found in them especially in your bylaws. But you don't refer to them.

DavidF22 (New York)
Posts: 91

Posted:

We receive an annual budget, but the Board often will spend money from unrelated categories. So, for example, they spent way more than budgeted for tree removal and trimming, and the money had to come from somewhere. They also launched an undisclosed and unrequested project to spend $20K to reactivate a water well so that one director could raise the level at the pond behind his home. Nothing was budgeted for this, and they probably raided the pool/tennis budget or other categories.

As stated earlier, we have little or no protections from state law and our bylaws other than to vote the bastards out. We have examined both documents thoroughly. Oh, and last year they swayed the election by collecting proxies from gullible and/or elderly homeowners, a number of which contained the same handwriting.

I think many of you are under the impression that we’re complaining unnecessarily about a normal regime that is merely imperfect, but it’s far, far worse than that and many homeowners don’t care because they haven’t yet been cheated enough.

TimB4 (Tennessee)
Posts: 21,061

Posted:

David,

There was a group on here many years ago who lived in LasVegas. They had some far fetched stories about rigging elections and awarding contracts. Many on here, myself included, said that they simply didn't understand the process. In fact, there were so many complaints about that group to the moderators that this site instituded a new policy and banned everyone in that group.

A few years later, news reports of everything that group was talking about started coming to light.

Because of that enlightenment, I've tried to simply go with the information provided and help where I can regardless of what I may or may not think. I haven't always been successful but I keep trying.

Therefore, I don't think you are complaining unnecessarily. You have more direct knowledge then I do and are living with the consequences of the Boards decisions. I will say that it appears you may be making some headway if the Board worked hard in collecting proxies in order to keep those positions. Keep up the good work and remember to solicit your own proxies for the next election.

DavidF22 (New York)
Posts: 91

Posted:

Thanks. I think you hit the nail on the head in explaining that normal processes at HOAs that would cause well-meaning people on this forum to offer otherwise sound advice may not apply to ours, where there is absolutely no spending cap and the only checks against abuse involve a two-thirds vote of homeowners to either amend the bylaws or remove directors for cause. I have read of other horror stories like the one in Las Vegas and I don’t think we’re anywhere near that. At least I hope not.

Oh, and I probably wasn’t clear about last year’s election process. The corrupt slate of candidates went around the community slandering the existing board with some fantastic lies and offered to collect proxies from individuall homeowners or even fill out proxies for some of them. Proxies aren’t numbered, so they can easily be duplicated and forged. As mentioned earlier, a number had the same handwriting. And now that this slate is in office, they’ll likely work hard to keep any future election rigged in their favor. It’s not that hard, especially since they allow the (biased)!property manager to preside over the counting of the ballots, along with two homeowners they designate. They simply can’t be trusted.

KerryL1 (California)
Posts: 14,550

Posted:

I do, David, tend to believe your horror stories. You/allies do need to somehow get these crooks voted out UNLESS you & other fellow travelers want to spend $$$ on an attorney. You all need to take control of the proxy situation and make sure every election rule in your bylaws is adhered to.

I don't believe you're complaining unnecessarily. But the litany of complaints don't lend themselves to useful advice.

As I wrote above, "If you know for certain that your board is acting illegally, I've seen advice here to share the expense of an attorney with several others and have the attorney write a letter demanding that the Board adhere to xx && zz of your bylaws, and qq & vv of your covenants."

there are some behaviors that, while unsavory, probably are not illegal, e.g., no-bid contracts. So stick to what this board does that obvious and clearly opposed your docs & any relevant state law.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

As far as the proxies go, it seems they have just outfoxed David and as such he wants to call it corrupt, illegal, etc. versus admit they outfoxed him.

Fool me one, shame on you.
Fool me twice, shame on me.

DavidF22 (New York)
Posts: 91

Posted:

Quote:

Posted By JohnC46 on 12/24/2017 6:13 PM
As far as the proxies go, it seems they have just outfoxed David and as such he wants to call it corrupt, illegal, etc. versus admit they outfoxed him.

Fool me one, shame on you.
Fool me twice, shame on me.

Looks like another troll has come out of the woodwork to try to legitimize what we all know as cheating.

In any case, it did give me another thought. We did investigate the possibility of hiring an independent election service at a cost of $700-$800 to take it out of the hands of the cheaters and give homeowners some peace of mind. If anyone has used such a service successfully, it may be helpful to hear about it.

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