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Annual Budget and Assessments

Started by DennisG7 • 24 replies • 726 views

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DennisG7 (Georgia)
Posts: 155
Posted:
In all my years of using this forum to post questions or discuss HOA concerns I discovered that an issue which I have questioned our HOA BOD had never been addressed by me. Let me layout the problem as I see it. A portion of the CC&R reads as follows:

4.3 "General Assessments. It shall be the duty of the Board to prepare a budget covering the estimated costs of operating the association during the coming year. The Board shall cause the budget and the assessments to be levied against each Lot for the year to be delivered to each member at least thirty (30) days prior to the due date of any general assessment. The budget and the assessment shall become effective unless disapproved at a meeting by a Majority of the Total Association Vote and the Declarant. Notwithstanding the foregoing, however, in the event the membership disapproves the proposed budget or the Board fails for any reason to determine the budget for any period, then and until such time as a budget shall have been determined, as provided herein, the budget in effect shall continue."

The rest of this section discusses what the money is to be used for, when it is to be paid, etc.

It is my assertion that at some point before the next budget and assessment to support that budget becomes effective that an VOTE must be taken. Only if the budget is voted down or disapproved to we continue with the current budget and assessment. The portion I'm looking at reads THE BUDGET AND ASSESSMENT SHALL BECOME EFFECTIVE UNLESS DISAPPROVED AT A MEETING BY A MAJORITY OF THE ASSOCIATION VOTE..."

The BOD has indicated that they do not need to take any vote and can increase the assessment and budget on their own!

Am I reading Section 4.3 incorrectly? The BOD has increased the general assessment by 50% and we are hearing they plan to increase it by another 20% next year. The letter to all members increasing the assessment has already been sent out with a significantly larger budget for 2020. To date there has been no discussion or input from members. An annual meeting to vote on HOA Directors is in 2 weeks. The agenda does not mention a budget vote or increase assessments.

I maintain they can't do this.
Any thoughts would be appreciated.

Dennis G7
AugustinD
Posts: 5,144
Posted:
In the paragraph you quoted, I see nothing either explicit or implied saying anything like, "The Board shall call a meeting to conduct such a vote." If your CC&Rs have a provision for the members calling a meeting, then this is the avenue to take.

I think I would just beware that the Board may have a good reason for raising the assessment. E.g. the reserve fund is below, say, 50% funded.
DennisG7 (Georgia)
Posts: 155
Posted:
Interesting read. I can not understand how a disapproval vote by members can be done without a meeting or ballot being sent out. If there is no meeting of Association members and no voting ballot is issued then how can it be approved or disapproved? BTW. In my 18 years here the only voting has occured at a meeting. No paper, mail-in or electronic ballots has ever been used.
AugustinD
Posts: 5,144
Posted:
Quote:
Posted By DennisG7 on 12/04/2019 1:15 PM
I can not understand how a disapproval vote by members can be done without a meeting or ballot being sent out.


You are assuming a meeting is required. But the latter is not how I read what you quoted.

You need to read your governing documents and identify how a meeting can be called. Every CC&R I have read gives the members a way to call a meeting. If enough of your HOA's members want to disapprove the budget, then take the appropriate steps for the membership (and not the board) to call a meeting.
SueW6 (Michigan)
Posts: 814
Posted:
Dennis, You don’t mention an annual meeting where Approval of the Budget would be on the Agenda for the membership to approve.

Read the Powers of the Board section in your bylaws. It may say that the Board establishes the budget and determines the assessment.

BTW: why is the Declarant mentioned ? Are you still under declarant control or are you using old bylaws that allowed the declarant the power to set the assessment?
GenoS (Florida)
Posts: 4,276
Posted:
The way I read it, a meeting of the members at which they vote against the budget is, in a word, "optional". Look at your documents. If the owners themselves can call for a meeting then that's what they should do if they want to vote against the proposed budget. The board's probably not going to set that up for you (depending on what it takes to call a special members meeting).
DennisG7 (Georgia)
Posts: 155
Posted:
This is why I don't like lawyers ;-) The BOD is to prepare and present the annual budget to the members. There is no other manner set forth in the CC&R.

The Declarant is mentioned because in the 16 years since the Declarant relinquished all powers/control in 2004 (actually they are out of business) the BOD has NEVER made a single modification or amendment to the CC&R or the By-Laws. I'm tired of asking them to review and update them.

Oh, there is an Annual Meeting coming up but it's only to elect new BOD members. There is no Budget Discussion or Vote on the Agenda. The new 20120 budget has been sent out already with a huge increase in it. There was no meeting or information put out by the bOD regarding the new 2020 budget until we got it in the mail abou 2 weeks ago.

One other point. This is the first time I'd ever seen a document that states in the CC&R that the majority of voting members must DISAPPROVE the budget. If they don't then it's approved. I need not have to tell you that when only 8-10 people show up out of 190 homes the budget virtually will never be disapproved. A neat trick. Say all of the voting members are only 10 or 12. They all vote to disapprove it. Doesn't matter because it's not the majority. The other 180 stayed at home and watched the ball game or went out to dinner. Apparently I am in the minority.

However if there is NEVER a vote taken as has been the case for the past 3 years then the BOD can implement a new budget and higher assessments. What a country.
Dennis G7
AugustinD
Posts: 5,144
Posted:
Dennis, by any chance is your HOA a condominium? If so, from the Georgia Condominium Act:
"A condominium instrument recorded on or after July 1, 1990, shall also provide for the calling of a meeting upon the written request of at least 15 percent of the unit owners."
AugustinD
Posts: 5,144
Posted:
Dennis, also, your HOA is likely a corporation. If so, Georgia's Corporate Code applies. This statute says 25% of the members can demand and get a special meeting:
https://law.justia.com/codes/georgia/2010/title-14/chapter-2/article-7/part-1/14-2-702/
GeorgeS21 (Florida)
Posts: 3,808
Posted:
Dennis,

I read the excerpt as the Board votes for and hence approves the new assessment - not the membership.

Maybe I’ve missed something?
JaredC (Texas)
Posts: 264
Posted:
There is a lack of context here. Specifically what are the rules, if any, requiring the board to present the budget to the membership for vote?

Based solely on the evidence given I would say the board is completely within their rights. Make a new budget with whatever increase they want and don't hold a meeting where the budget could be voted against. Done. End of story.
DennisG7 (Georgia)
Posts: 155
Posted:
WOW. I was certainly not expecting the responses I got. I guess that's why I put it out there, for comment. FYI we are meeting with an attorney later today. We'll see what they say.
So it appears that many of you say that the BOD does NOT have to call for a vote, and can raise assessments without a vote. If the members want to vote it down then we must ask for a special meeting, which requires 25% of the members to petition the BOD for a meeting. That will probably not happen. With only 8-10 folks attending meetings I don't see a special meeting happening.
OK. Thank you for your thoughts.
Dennis G7
GeorgeS21 (Florida)
Posts: 3,808
Posted:
Dennis,

The language you provided is pretty clear. Are we reading the same material?
MarkW18
Posts: 1,290
Posted:
I find it disappointing that a Board would need to go to an attorney for advice on a section of their governing documents that is clear as day. But in addition, you need to read further sections on special assessment, how a budget is created, whose responsibility it is to create one, and more importantly what percentages they can legally raise without a vote. This is how it's done throughout the country.

The general language is Boards can raise assessments up to and including 20% without a membership vote. Special assessments are generally 5% of the annual budgeted expenses. CCRs may have provisions including dealing with emergencies and special circumstances.

Someone on your Board needs to have a working understanding of how your governing documents work for your specific community. If not, you'll be wasting precious money going to a lawyer every time.
DennisG7 (Georgia)
Posts: 155
Posted:
Well allow me to provide a little clarification.
The HOA BOD has recently sent all members the 2020 budget. Since the 2019 budget/assessments and including the 2020 budget/assessment we have seen about a 40%+ increase in the assessment. Members are livid about this. I for one am not as concerned about the new assessment, I'm concerned about what appears to me to be a lack of following our CC&R and the Bylaws. That's my concern.

It appears to me that a "Total Association Vote", as indicated in the CC&R must take place allowing all members to DISAPPROVE the budget and assessment. Obviously if the vote does not disapprove it then the new budget and assessment goes into effect. Again, I've got no problem with the proposed budget/assessment. It's the process that I'm concerned about.

I believe it requires a vote. As you can see I'm getting a number of different comments on HOA TALK. That's why I, as a HOA member am going to see an attorney dealing with HOA's to read the CC&R and By-Laws and give me their opinion.

We live in a single family/ single home community to answer someone's question. 190 homes valued in the $350K-$450K range.

I'll update you after my meet with the attorney in a couple of hours.

HOA members appear to not have any say so over the budget or the assessments. There has been no meeting, no discussion, no report, no vote, no review of expense for next year, nothing! Perhaps that is the way it's supposed to be?

Thank you all for comments.
Dennis G7
AugustinD
Posts: 5,144
Posted:
Dennis, if the attorney says the Board is required to have a vote, then the time and money you spend to force the Board to do this may greatly exceed the time and money you spend calling for a special meeting (to have a vote on the budget) via a petition of 25% of the members. Where I am, for an issue like this, attorneys would ask to do a complete review of the HOA's governing documents. This costs at least a few thousand dollars. Your attorney (whom you have now paid a few thousand dollars) would then send a 'demand letter lite' to the board. Boards like this are all volunteer. More often than not, their hackles get raised and they attack the person who hired an attorney and effectively threatened the board. They will dig in. If the issue is at all grey, they will force you to take them to court. A year or more could go by easily, unless you pay a lot more money to the attorney to accelerate things.

To those in your community who are livid and claim they have no say, my response is that they are incorrect. First, they elect the directors. Second, they have a legal right to review financial records of the HOA. Has anyone asked to review the most recent Reserve Study? When I was on the board and people complained about assessment increases, they typically had no clue about either what a "reserve study" is or the danger of having to do large dollar value Special Assessments.

I think you are right to make sure the CC&Rs are being followed. But I do wonder about the others who are protesting without apparently even trying to exercise their rights to be informed and elect directors who will do what they want.
JohnC46 (South Carolina)
Posts: 14,265
Posted:
Dennis

Your docs read near identical to mine. I say the BOD can raise the dues any amount they want and the owners do not get to vote on it.

You are getting hung up on the UNLESS DISAPPROVED by a vote of the owners. This does not mean the BOD must call for a an owners vote on the increase.

Now that said, the owners could call a Special Meeting and a majority of all owners could disapprove the increase and the increase dies. In our case it would take 2/3rds of all owners saying no to the increase. In your case it says a majority so 51% of all owners

In our case we must notify owners of the increase by submitting the next year's budget to them on or before 12/01. The owners have 30 days in which to call a Special Meeting and get 2/3rds of ALL OWNERS voting against the increase for it to die. If not done, the increase takes effect on 01/01.
ND (PA)
Posts: 792
Posted:
Dennis,

I'm with most others here who feel that you are misinterpreting your documents. While it's an understandable interpretation, it's just not accurate. Would be curious to hear what your lawyer says, but would caution restraint before going too far with their advice.

In general, the process is . . . once the BOD prepares and delivers the budget to the members, after a period of time it is automatically approved unless a special meeting is properly petitioned/called by the members (IAW procedures in your docs) to conduct an actual vote on the budget at which point their goal would be to ensure the proper votes are cast to disapprove the budget. This is how it's worked in both HOAs I have lived in.

If each year necessitated a vote on the budget prior to it becoming effective, then Boards everywhere would be hamstrung by never having an approved budget or having to try and work within budgets from prior years that cannot be changed simply because obtaining quorum and a sufficient number of votes is impossible when most members are apathetic and don't participate.

If enough of your neighbors are upset about the proposed budget, then properly petitioning/calling a special meeting to disapprove the budget should be pretty simple. Just follow the procedure in your state HOA law and HOA documents.
JohnC46 (South Carolina)
Posts: 14,265
Posted:
Dennis

What did the attorney say?
DennisG7 (Georgia)
Posts: 155
Posted:
So yesterday I and one other HOA member ventured over to an HOA's attorney to have them look at CC&R and provide comment regarding what exactly it meant. After reading so many HOATalk comments suggesting it did not mean or require the BOD to ask for a vote I was somewhat surprised. She indicated that it DID mean the a meeting and a vote on the budget is required. Needless to say I was a little stunned as I was leaning toward the fact that we must call a special meeting to do this.
At this point I'm not prepared to request this be done. I have reached out to the local Bar Association and asked for a referral of a second attorney (on my dime) as I'd like a second opinion. I'm waiting to hear from them, probably next week.
In the mean time I plan to send a letter to the BOD asking them again for their interpretation of the applicable section of our CC&R. The President had previously told me no vote was need but that was an informal response. So this time I'll ask the BOD to review it and provide me a written response.
Let me repeat again that I do NOT disagree with the new budget and the higher assessment. I am asking why members appear to have no input into the budget or the assessments prior to implementation. There has been no member meeting since March and now we have another 20% assessment increase. The second in 12 months.
I'll update you after if I meet with another attorney.
Thanks again to all for your input and thoughts.
Dennis G7
GeorgeS21 (Florida)
Posts: 3,808
Posted:
Based on what you have provided, the attorney, in my opinion, is wrong.
JaredC (Texas)
Posts: 264
Posted:
Dennis,

You are engaged in something called "due diligence" and should be commended. Most homeowners will never spend the time or money to methodically approach and research a problem. Kudos.
AugustinD
Posts: 5,144
Posted:
Quote:
Posted By DennisG7 on 12/06/2019 2:00 PM
In the mean time I plan to send a letter to the BOD asking them again for their interpretation of the applicable section of our CC&R.


Suppose the Board says, "The reason the HOA is not required to schedule a meeting to approve or disapprove the budget is because in 4.3 there is no 'shall' in the wording regarding a meeting. The HOA attorney has said the courts have ruled the presence of a 'shall' makes all the difference when it comes to required actions and discretionary actions. Furthermore, members have the option of calling a special meeting pursuant to the state's nonprofit corporation statutes."

What would your current attorney respond?

As for two assessment increases within one year, first, are members getting the required 30 days notice? If not, this is a huge problem. Second, on the one hand, I expect that two increases within one year could be legally challenged. On the other hand, if the reserve fund is in bad shape, and based on experience with HOAs/condos allowed to crumble because members did not understand reserve funding, I would be careful about giving the board a hard time. After all, it sounds like the board need wait only a few more months and they could legitimately impose another increase.

Are you going to run for the board? Are you getting people who feel as you do to run?
JohnC46 (South Carolina)
Posts: 14,265
Posted:
Den

I also agree the attorney was incorrect and you should seek another opinion. Not that any of us are lawyers but several of of have been down this path before thus experience (not one attorney) speaks.

In our case, the BOD can raise the dues/assessments only one time per year and it takes effect on 01/01. If additional money was needed it would have to be a Special Assessment and 2/3rd of ALL OWNERS would have to agree to it. I see that as impossible.
JohnC46 (South Carolina)
Posts: 14,265
Posted:
Den

From your original post:

It shall be the duty of the Board to prepare a budget covering the estimated costs of operating the association during the coming year.

I read that to say, as do our docs, only one dues increase per year.

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