When HOA is Over Budget

Hi,

Me and a neighbor friend requested financials of our HOA. Since our review, we have about $4,000.00 remaining in our funds and about $4,000.00 in our reserves. We have some homeowners that have not paid their dues (approx. 4 out of 75) and about $1,000.00 in legal fees associated with that.

It is only August, and eventually we will run out of monies for the remainder of the year.

Has any one experienced this? What happens when you run out of money and when the Board has not properly spent the money?

Thanks.

A 4 out of 75 delinquency is basically a 5% rate. While that can certainly put a strain on an Association's finances over an extended period of time, you have not indicated how much your assessments are, nor how long these folks have been delinquent.
It seems that your request for financials was promptly responded to, so perhaps your next question can be - what efforts are being made to collect from the delinquent owners.
75 units is quite substantial, and aligning with a $4,000 reserve fund, raises the question - what exactly are your common elements?
Do you think that perhaps your assessment needs to be raised?

Hi,

My community is approx. 2 years old. 75 homes is the maximum and bought. 4 homeowners have not paid their annual dues, due back in January. Since then, PM has used the assistance of an attorney to collect - thereby representing the $1,000.00 expense.

Other than trying to collect on these deliquent owners - we have no other income coming in and further expenses to be expended. The likelihood of collecting is probably very small.

My friend has written to the Board today explaining our concerns and the financials, and we are awaiting a response.

How does an HOA operate in the red? This is new to me and we're not sure if reserves can be used, or ....

Funny you should mention towing; on the HOAtalk main page today, there is an article entitled DC: Beware Of Condo Association Bylaws
http://www.nbc4.com/consumer/13910488/detail.html
which is about towing.

Cathy, it is the Board's decision on how to collected delinquent accounts, not the PM's. IMO, it is foolish to spend $1000 in attorney fees to collect delinquent accounts, even if the delinquent parties ultimately pay the cost. Your Board and PM are obviously doing a poor job of budgeting if you will not have sufficient funds to complete the year. You will either have to use reserve funds of do a special assessment, which should be considered since your reserve funds are miniscal.

Joe, Cathy's response earlier on indicated to me that they just collect once a year so that should simplify matters a bit.

Cathy, I wouldn't write off the money owed, it is practically always collected and attorney fees on top of it. In our case often the attorney fees nearly double the amount of assessments. A judge does not have to award all the attorney fees however, so it is important that they are reasonable. It seems like they are at $250/case now and given that attorneys are more than $250/hour normally it doesn't seem like that is horribly excessive.

As someone else said your board seems to be cooperating so I too would discuss the issue with them -- whether they are worried or not, and if not why not. Often developers set the assessments very low, and in the beginning the association certainly is cash poor if they try to live within that assessment or only raise it by the prescribed amount allowed without homeowner approval every year. It could be you have to bite the bullet and raise assessments. If you are worried that not everyone can pay that lump sum have them pay semi-annually or quarterly.

On the towing, I read that article also. Two weeks late seemed pretty quick on the trigger. It appears that those people have it as their first response. To heck with the letters! The video of the attorney -- he did not dispute the two weeks. There was another condo at Watergate that did the towing for infractions around here, and a woman got mugged walking to her condo which she had to do because she was not allowed to park there. There was some sort of lawsuit saying the condo was liable for that as they had prevented her parking near her unit. I don't know how that turned out eventually but clearly it would be a concern.

Interesting idea to check with the courthouse on fees awarded -- why didn't I think of that? I suppose that only works when the case itself is recorded? We had one judge here who used to award fees on the percentage of the amount owed. While fair on the face of it, often a condo's monthly fee is more than our yearly fee. So, this rule of thumb really worked against the HOA associations with no amenities. In fact I got a legislator to propose a fix to it (opposed by CAI BTW). Thankfully the judge retired, that issue went away and we started collecting all of our fees. If we had to take additional measures to collect, however, such as attaching bank accounts, we often didn't break even.

I still think it is important to collect, a sound collection policy really encourages homeowners to pay on time.