HOA in Disrepair. HELP!

My wife and I recently purchased our property which is a small condominium in a three unit building. This being our first experience as home owners, we didn't see any red flags with the HOA until we decided to refinance a couple years in and the lender required HOA info which pushed us to take a closer look at everything. What we found was embarrassing.

Each unit pays $160 a month for HOA fees ($480/month total). Each month, the HOA pays for insurance for the building which is $220, water roughly $185, and an account management fee by the bank of $7. As you can see, we are saving roughly $65 a month for our reserves. Pretty bad, I would say. On top of all this, almost every single month we are hit with overdraft fees in excess of $35.

Our HOA is a joke. We have never had an HOA meeting. We have no annual budget or goals. One of the units does the maintenance and yard work and therefore usually does not pay the HOA. Along with this, there is no record of what this unit does to justify how much they take out/don't pay into the HAO each month.

My wife and I have had enough and are ready to tackle this problem, but are starting from zero. Please help. Some guidance on where to start would be greatly appreciated.

I’d say, “take a step back and chill”.

There are three units. You don’t need the same level of governance as you would in a 100-unit building or a 1,000-home community.

You should have an annual owners meeting, but you can do that simply by having your neighbors over for a drink.

And it sounds like you don’t have a petty and vindictive board that micromanages everything so that is a benefit from this informality.

So: have your neighbors over for a drink (outside if needed due to COVID) and discuss these things informally.

I'd say "take a step back" but don't chill just yet.

First step: read your governing documents in their entirety: Declaration (aka covenants, conditions and restrictions, aka CC&Rs) and Bylaws if any. They'll give you a pretty good idea of what needs to happen.

You'll need to know if your HOA is governed by any state statutes (probably yes, but not sure from what you've said).

Is your HOA incorporated?

Problems I see right off the bat:

* Inadequate reserves, obviously.

* Insurance! If you have someone performing physical labor on commonly-owned property, then the HOA needs liability coverage and workers comp or equivalent. Without this insurance, owners become jointly and personally liable if a worker is injured and sues the HOA. Big risk here.

* Never, ever reduce monthly assessments in exchange for volunteer work. Assessments are likely spelled out in the CC&Rs, which are a contract, and no one has the legal authority to change this. If Neighbor Bob won't work for free, then you hire a pro (which I recommend in any case for a variety of reasons).

In many ways, tiny HOAs like this are harder to manage than the big ones. You won't have all the issues with amenities and private streets and extensive green space, etc.. However, you'll still need the equivalent of a reserve study to estimate the useful life of the commonly owned items such as the roof and project how much should be set aside annually so that you won't have to resort to special assessments when the roof springs a leak. You'll still need insurance (Liability, Directors and Officers, Fidelity (aka Employee Dishonesty) in case somebody embezzles funds, and Workers Comp for anyone who works for the association including volunteers). A tiny HOA is much less likely to have the necessary expertise that large HOAs have among their members just because of the numbers. And finally, any disagreements among members can be harder to navigate when people are basically in each other's faces all the time - much easier to deal with when That One Guy lives three blocks over and you rarely see him.

So tiny HOAs aren't necessarily easier and cheaper to manage - they simply exchange expenses for amenities and such for higher per-unit expenses for administrative stuff, and one set of challenges for another.

My first condo was in a six-unit townhome building, and I cringe now when I think about what idiots we all were. It's amazing we got as much right as we did, but most of that was sheer, dumb luck (plus new construction that didn't have the issues that older buildings do).

I have always advised against buying into a small association as it does not take much to control the BOD. I know of a five unit building where three of the owners are family. The voting is usually 3 to 2.
I also advise against an association where one or two own the majority of the units.

FWIW, I think your question is interesting. But I come down on the other side. Even with a two-unit HOA, where say a roof is shared, one's neighbor may not be saving to have ready that $3k to $10k, give or take, to replace the roof. I would want a detailed reserve requirement in the covenants for the two-unit HOA.

I had a place on a lake in Virginia - was on the board.

We did our own reserve study - simple Excel spreadsheet that we used during financial discussions.

There is plenty of info on how to do these for smaller communities.

Thank you so much for this. Thanks to the OP as well. Also in DC with a 4-unit building. There is no HOA because two of the units are owned by absentee landlords who won't respond or appoint representatives and the rules require either the two larger units for quorum or one large and two small units. The other first-time buyer and I are working to try to get this together and functional, but I had no idea where to start.