Mid-year Budget Adjustment

Hi All,

This is my first time posting.

I have recently been elected to a small HOA board (3 units) that has never been run according to bylaws, beyond getting a 67% vote to spend money on common needs.

I would like to put a budget into place, but can find no law stating that it can happen mid-year, as our by-laws state that notice needs to be given before Nov. 1 of the year before the budget takes effect.

How do I determine the legality of passing a budget and subsequent adjustment to dues mid-year? I imagine this would generally be covered by anything that described a change or amendment to budget/dues during mid-year.

Details
-3 units
-$750 a month
-No Current Budget
-Older Building
-Illinois

Thanks!

Another thing to research: since your association is so small, you might want to check to see if your state laws exempt HOAs below a certain size. It happens occasionally.

Thanks all!

Re: Operating without a budget: The dues have been the same for years, with the assumption that they will cover all usual common expenses and a bit will be left over for reserves.

Re: Allowing for adequate reserves: The reason we are even having the discussion is that the roof needs to be replaced at tremendous expense through a special, and we have a BM who is actively working to eliminate any spending beyond common utilities due to personal finance issues.

Our goal to get back into compliance with the by-laws to protect the HOA should the HO cease contributing their dues/assessments.

Jordan

Keep in mind that a budget is a best/educated guess at the finances. Money in, money out, and surplus (anything left over).

There are some simple association budgets outlines floating around online or in this chat. Search for some. If you do not find one, I will be glad to send you one.

Budgets have two general categories. Operating and Reserves. Operating is money in and money paid out for on going expenses like utilities every month, etc. Reserves are also a line item that money is put in but it is for future/planned on items like a new roof in 20 years.

Any basic accounting program will track Budgeted to Actual and present a number. As an example. Budgeted out every month for Electricity of $300. Well some months it will be more but some less but Actual will show how much was actually spent versus budgeted. Using the $300 per month ($3600 per year) if at the End of The Year you spent exactly $3600 the Actual will be 100%. If you spent more the Actual might be 120% meaning we spent 20% more than budgeted. If less spent the Actual might be 80% meaning we spent 20% less then budgeted. Over or under says we might want to look closer at this item.

Typically a budget is done for a year and if Actual is tracking close, then the budget is sound. If not then close then an re-evaluation has to be done. This does not mean re-do the budget all the time. As treasurer, I pay a lot more attention as we get close to the end of the year then I do during the year to see if we might need to raise dues next year. We redo our Budget yearly.

Now you touched on raising Income (dues) but how you can do such is typically in your Covenants (Deed Restrictions) and varies quite a bit from association to association so pay attention there.

Where most associations get in trouble is not on a monthly/yearly basis but in the long run as they did not set enough aside (Reserves) and they get whacked with a major expense (new roof, every 25 years) that they did not budget (set money aside in the Reserves) for.

I hope this helps.

ADD ON

Who is collecting the money and paying the bills?

You say there are only 3 of you. Am I correct? Three units at $750 per month each is $27K per year. Does not sound like a large enough budget for an older building in Chicago, but I hope I am wrong.

Unless JordanL can answer the following questions, I think his or her HOA/condo needs someone to guide them on the law here.

-- Is this a condominium subject to the Illinois Condominium Act?

-- Is this an HOA governed by the Illinois Common Interest Community Association Act?

-- Is this HOA incorporated?

-- What does "BM" stand for? Board of Managers? Business Manager? Bad Man? Boss Man? Do keep the forum guessing. (Which to me is one sign that the OP needs an attorney.)

-- What percentage of the owners must vote to support a special assessment for the special assessment to be enforceable?

-- Does the vote of each member count the same, or does one member have a greater voting allocation compared to the other members, on account of having a larger unit?

-- If you can attach your HOA/condo's Bylaws and Articles of Incorporation, this might be best. This forum requires that you redact identifying information from such attachments.

BM is Board Member

Again it's three units. Doesn't matter what act it falls under. If three people can't agree you have serious problems.

There are some states - don't know if Illinois is one of them - that exempt HOAs under a certain size from some or all provisions of the laws governing community associations.

And, as some others on this website have observed, these tiny HOAs can have more issues than the big ones because of their size. Owners have to get along with each other, can't avoid each other if they don't, and the impact of a single obstructive owner is magnified. There are also no economies of scale like the bigger HOAs enjoy, and there is less room for error. Where a large HOA can simply hire a lawyer to take care of collections or other legal issues, this may be out of reach for a three-person HOA when only two are paying.

Having lived in condos for a good 30 years and been on the boards for almost half of those years, I'm still amazed at the stuff homeowners can argue about. To paraphrase another saying, three homeowners can get along when two of them are absent...