special assessment vote failure

Started by CC7 • 16 replies • 1175 views

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CC7 (North Carolina)
Posts: 5

Posted:

I am a member of the Board at a PUD in North Carolina. The PUD consists of townhouses and single family homes. Last year the Board called a meeting for a vote to a special assessment for the siding and roofs on the townhouses. For various reasons that I will try to be kind about, both the roofs and siding are in the last stages of failure. The vote was for an assessment to cover the cost of both, which had several merits, but which was also a large financial burden for the townhouse owners at about $18,000 each. The vote failed by a large margin.

A committee was convened this year to reach out to the residents and find out what they would need to have the vote succeed. That committee decided to have the roofs repaired first and then vote for the siding next year (theoretically). The committee has chosen vendors, asked for proposals and has considered all of the information they have from the homeowners. They plan to vote again this fall.

In the meantime, several townhouse owners have sold their home and moved (understandable) and the closing required repairs to be made to the siding and/or roofs, which the management company made. Other homeowners have had large roof leaks which have also been paid out of reserves. After several of these expenses the current Board wants to stop the repairs and wait for the vote. Personally, I don't think we can do that. I think a failed vote is as if there was no vote at all and we have to carry on our normal and customary practices as if it didn't happen.

I have two questions:
1) If homeowners vote no on a special assessment that involves upkeep of common property (roof repair, potholes in street causing car damage, insects due to rotten siding) at a meeting duly called, etc, etc, and then another homeowner suffers a negative consequence due to that "no" vote, what can they do, if anything?
2) To prevent further draining the reserves, with another vote coming soon, can the Board direct the management company to withhold repairs (but mitigate damages with a tarp over a roof, gravel in a pothole, covering over damp siding)? If so, what risk is there to do that, given that historically those repairs were made from reserves?

GenoS (Florida)
Posts: 4,276

Posted:

Does the board have the authority to take out a loan? That situation sounds dire.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Does the HOA have insurance? Is any of this covered under it? What makes the HOA responsible for these repairs? Our HOA we did not do the repairs but enforced the owners to under take them. Like bad paint, we'd have them paint their home with approved colors. If they didn't do it, then we may pay for it but they have to pay us back. Don't pay us back, we liened for that money owed for the work.

So want more details on the relationship to maintaining these items. What is defined as "common area"?

Former HOA President

JohnC46 (South Carolina)
Posts: 14,265

Posted:

CC7

I suggest looking at an alternative method to raise the money. Our docs allow the BOD to raise Annual Assessment (Dues) as much as they want to one time a year. The BOD must submit the next year's budget on or before 12/01 to become effective on 01/01. The owners have until 01/01 to call a Special Meeting to rescind the increase in dues. A majority of all owners (I repeat, a majority of all owners) must vote to rescind the increase otherwise it happens.

We went up 40% this year to add to our Reserves for roofing and siding replacement.

Reread your docs on how to increase dues versus a Special Assessment.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By JohnC46 on 08/25/2019 3:03 PM
CC7

I suggest looking at an alternative method to raise the money. Our docs allow the BOD to raise Annual Assessment (Dues) as much as they want to one time a year. The BOD must submit the next year's budget on or before 12/01 to become effective on 01/01. The owners have until 01/01 to call a Special Meeting to rescind the increase in dues. A majority of all owners (I repeat, a majority of all owners) must vote to rescind the increase otherwise it happens.

We went up 40% this year to add to our Reserves for roofing and siding replacement.

Reread your docs on how to increase dues versus a Special Assessment.

Solid recommendation from John.

Sikubali jukumu. Read all posts at your own risk.

LetA (Nevada)
Posts: 2,679

Posted:

My question is why did the BOD wait so long to perform repairs? If your board would have performed annual inspections and upkeep, you probably would not be in this dire position.

LetA (Nevada)
Posts: 2,679

Posted:

My second thought is, how much can you raise your assessments? Example, here in Nevada, we can raise our assessments only 14% per year.

I would seriously consider raising assessments and putting that extra money into the reserves.

TimM11
Posts: 354

Posted:

Quote:

Posted By LetA on 08/25/2019 8:54 PM
My question is why did the BOD wait so long to perform repairs? If your board would have performed annual inspections and upkeep, you probably would not be in this dire position.

The OP probably knows this. But this seems like a thing that many HOAs struggle with -- homeowners in mine complained about a 2.5% annual dues increase even when we told them exactly where the money was going and despite it having been six years since the last increase.

SheliaH (Indiana)
Posts: 6,964

Posted:

I also live in a townhouse community and your situation is something that could easily occur in my community. In fact, I wouldn't be surprised if we do run into the same situation 10-15 years from now because our last roof replacement was due to a hailstorm (fortunately, insurance paid for it, but I said at that time we may not be so lucky next time. )

After everything that's happened, I'm amazed that your neighbors simply refuse to do what's necessary to take care of their homes. Why do they think the roofs and siding will last forever, despite years and years and YEARS of wind, rain, snow, etc., even with good upkeep? In light of all this, I wonder with the former homeowners told the buyers about the roofs - I imagine the new folks know what's going on and may not be too thrilled, but it's too late now.

I understand the board wanting to delay the vote because it may be enough homeowners have now seen the light and will approve the special assessment. However, I'm inclined to agree with you that the association has put off repairs long enough and the community has no choice but to address it now. If things are as bad as you say, covering the damage with tarps won't help and it could put a real hurt on property values because people will see tarps everywhere, making for a major turn off.

Therefore, I think the suggestion on getting a loan is a good one, but you'll also need to raise assessments as high as your documents will allow to pay for it, fund reserves and pay routine expenses. Tell homeowners they should expect annual fee increases at the maximum for the next 5-10 years, reminding them the special assessment might have addressed this, but the community said no, so this is the next best solution (if anyone else has a better idea, bring it on). You should also tell them that even with this move, it may not be enough and the special assessment issue might have to be revisited in the near future.

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

TimM11
Posts: 354

Posted:

Quote:

Posted By SheliaH on 08/26/2019 8:09 AM
I also live in a townhouse community and your situation is something that could easily occur in my community. In fact, I wouldn't be surprised if we do run into the same situation 10-15 years from now because our last roof replacement was due to a hailstorm (fortunately, insurance paid for it, but I said at that time we may not be so lucky next time. )

After everything that's happened, I'm amazed that your neighbors simply refuse to do what's necessary to take care of their homes. Why do they think the roofs and siding will last forever, despite years and years and YEARS of wind, rain, snow, etc., even with good upkeep? In light of all this, I wonder with the former homeowners told the buyers about the roofs - I imagine the new folks know what's going on and may not be too thrilled, but it's too late now.

My former townhouse community also got "lucky" (if you can call it that) by having our roofs and some siding damaged by a hailstorm, thus getting the replacements paid for by insurance. In hindsight, it probably saved us a lot of money in the long run, though I also agree that getting payouts for these sorts of things in the future is likely to get increasingly harder.

As far as long-term funding goes, I think it can be challenging for townhouses/condos in particular due to the higher turnover compared to SFH communities. A lot of people are willing to kick the can down the road because they figure they'll be gone by the time something becomes an issue. My community had been built in the early 90's, and there were maybe six or seven original owners left out of a total of nearly a hundred units. The homeowners tended to be either younger people living there until it was time to buy a larger home, or older people who had downsized and were living there until they were ready to go into senior housing/assisted living. Yes, a BOD should be planning for these things, but ultimately they can only raise the money if the membership goes along with it.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By LetA on 08/25/2019 8:57 PM
My second thought is, how much can you raise your assessments? Example, here in Nevada, we can raise our assessments only 14% per year.

I would seriously consider raising assessments and putting that extra money into the reserves.

14% per year for 5 years will double the dues so that is one way to do it.

CC7 (North Carolina)
Posts: 5

Posted:

These are all great answers to this awful problem. Our PUD consists of townhouses plus single family homes. Our covenants assign each type of member a "class". A loan would be ideal but the single family homeowners would have to agree to the loan and the Board does not believe that they would do that. We have asked a lender to weigh in on the possibility and the loan would require that the members vote to pass an assessment to cover the initial period of the loan anyway. We thought that the loan plus financing costs were so much more that the owners would vote no for that. In other words, they would have to pass the special assessment first for more money in the long run. Alternately, we are working with contractors to recommend any financing they have used for similar purposes in the past and the results of that are not in.

CC7 (North Carolina)
Posts: 5

Posted:

As far as insurance it does not cover siding / roof replacement due to general age and lack of upkeep. I suppose if we had a weather event like another response mentioned, that might help.

I believe the residents did not pass the initial vote because it was such a large amount of money to come up with at once. Our covenants do not allow raising dues more than 5% annually for either class without a vote of the members. We have raised them every year that I have been involved as did the previous Board.

Why it got this way, I ask myself that all the time. I think previous Boards simply did not want to rock the boat or do the necessary work, but I could be a bit jaded in my opinion at this point. Our Board members are volunteers (not sure how that works in other states) but if you are on an HOA Board then you know it is a pretty thankless job and stressful. Or is that just me??

The other problem is the general membership is mad. Mad homeowners don't want to vote yes for anything because they don't trust you or the management company. It has taken me at least a year and a half for the current Board to understand that, but I believe they do now.

I believe with a bit of luck the upcoming special assessment for roofs only will have a better chance of passing. But in the meantime I am stressed about how we are treating anyone with current roof damage. I know that we can't treat those who voted "no" any differently than those who voted "yes" last time around. And I believe that once the vote failed it is moot. It is sad, really, that we are in this state as it is a lovely neighborhood full of great people that is just falling apart.

SheliaH (Indiana)
Posts: 6,964

Posted:

Well, if I were living in a detached home, I wouldn’t go for a special assessment either because it wouldn’t benefit my home at all (something that affects everyone like repaving the roads would be another matter). It seems to me if you have different classes of homes, your documents would say something about special assessments that would only apply to owners of a home in that class - has anyone looked for something to that effect?

As for your membership not trusting the management company – they’re looking in the wrong direction. The management company works at the direction of the board, so if the board passed the buck on roof repair and maintenance, those are the ones responsible. The management company can make strong recommendations for or against, but in the end they have to do the board’s bidding and THAT’s why your previous boards put this off.

And no, it’s not just you regarding HOA board work being a thankless job – a few years ago, I read an article on the Huffington Post calling it the worst volunteer job in America for the reasons you state. Some board members love the title, but don’t want to do anything to actually earn it, while others are simply incompetent, batshit crazy or a combination thereof. It can be even worse if you’re an officer - I was treasurer of my board for 5 out of the 10 years I served. It wasn’t my preference, but no one else wanted to do it and it had to be done, so…. At least I can say we started to be more aggressive on delinquencies and got the pool closed for good (a major strain on our budget).

My community also limits assessment increases to 5% maximum over this year without homeowner approval, but depending on your current assessments, that might not help you very much. $18K is a lot of money, so is there a way a roofing contractor can determine which ones are about ready to fall in within the next year or less? Maybe reserves could come up with half the money and the homeowners with the most jacked up roofs would pay the rest, then others would have to pay the following year and so on. $9K isn’t pretty, but it’s better than $18K, especially if they can start saving through some sort of payment plan. If they start now (and they should regardless of what happens with the special assessment), they’ll be ready when the special assessment comes up.

And tell everyone in the townhomes buying loss assessment coverage for their homeowners insurance would be a good idea. I don’t remember if that’s the right term for it, but the coverage pays for special assessments less a deductible – I put it on my policy and I suppose you can work with your agent to determine what would be a fair amount.

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:

I was an owner in an association that consisted of townhomes and private homes. Without going into a lot of detail, the HOA worked it butt off to justify a $25K special assessment per owner. They did a great job. Prepared a list of what needed to be done and why. Most things were obvious such as garage doors rotting, manufactured siding failing and no longer being manufactured, etc. They got a local bank to make the HOA a loan with individual owners presented with several methods for the owner to pay back the loan. The payment plans ranged from pay it all now with no interest or pay it over a period of time (max 5 years) with interest added.

Again to clarify. The individual owners paid off their notes/special assessment. The HOA paid the bank nothing.

They held several Q&A meetings over a year. One where the bank showed/explained the finance rates. They needed 75% of all owners voting yes. They got over 85% to vote yes. They did have two owners sue to stop the Special Assessment but in two court cases, the Judges ruled that the HOA followed the proper procedures and the Special Assessment was good to go.

The Special Assessment became a negotiable sales item for those that strung payments out and sold before it was paid off.

SheliaH (Indiana)
Posts: 6,964

Posted:

Quote:

Posted By JohnC46 on 08/26/2019 12:47 PM
I was an owner in an association that consisted of townhomes and private homes. Without going into a lot of detail, the HOA worked it butt off to justify a $25K special assessment per owner. They did a great job. Prepared a list of what needed to be done and why. Most things were obvious such as garage doors rotting, manufactured siding failing and no longer being manufactured, etc. They got a local bank to make the HOA a loan with individual owners presented with several methods for the owner to pay back the loan. The payment plans ranged from pay it all now with no interest or pay it over a period of time (max 5 years) with interest added.

Again to clarify. The individual owners paid off their notes/special assessment. The HOA paid the bank nothing.

They held several Q&A meetings over a year. One where the bank showed/explained the finance rates. They needed 75% of all owners voting yes. They got over 85% to vote yes. They did have two owners sue to stop the Special Assessment but in two court cases, the Judges ruled that the HOA followed the proper procedures and the Special Assessment was good to go.

The Special Assessment became a negotiable sales item for those that strung payments out and sold before it was paid off.

Hm, did those two homeowners bother to come up with some sort of alternative to the special assessment, complete with facts and figures the support it, other than “I don’t wanna pay no special assessment!!!”? Of course not – spent those legal fees for nothing and STILL had to pay the special assessment!

Your community’s approach is exactly how good HOA boards should broach the subject of special assessments – in most cases, showing verifiable proof and giving people a chance to ask questions helps drive home the proposal. People may not like it, but at least they’re making an informed decision.

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

CC7 (North Carolina)
Posts: 5

Posted:

Thanks again for everyone for weighing in. We did exactly what you suggested John the first time around but the price tag for both the roofs and siding was just too much. We had a high percentage of owners voting and that is the prevailing reason I heard for the vote failure.

There were a couple of other strings to pull for sure from your suggestions. I am going to read the insurance policy that we have and mine for anything to help.

Also, the loan idea with a small local bank might work. Our mgmt company person told us not to get involved in all that and we should separate ourselves from making suggestions for homeowner's with financing. I did not agree with that then and still don't. I feel like we have to help if we can. Some are older and probably haven't gotten a loan for years. The HOA as a whole can't borrow because the single family homeowners will freak. But not sure why we can't approach the idea with some local banks for the townhouse owners. I know they would want a vote to pass by an exceptional margin first and who can blame them.

Also we don't have any kind of emergency assessment abilities in our CCR's. In our state HOA business is governed by two laws and there is no governing body. I am searching to see if there is anything in those.

Short that, we have to vote again, if that fails, vote again. There is nothing else to do with reserves leaking like a sieve. I have one more year in my term and I hope to get a roof on the place at least by then. Thanks again all, I will pop in and tell you how it turns out after the vote in November.

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