Annual Budget, Reserves, Homeowner (Vote)Input (IL HOA)

Started by ReneeD • 5 replies • 2738 views

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ReneeD (Illinois)
Posts: 201

Posted:

Should homeowners be given an opportunity or right to vote on assessment increases and, at the very least, given a chance to offer their input prior to the BOD's adoption of the Annual Budget? Should a proxy be mailed to that effect? I am referencing several sections of our Bylaws and the last one is from our Declarations.

Section 4.01 Voting Rights states that only one individual is entitled to vote at any meeting of the owners, the "Voting Member". Any or all Owners may be present at any meeting of the Owners, but the voting rights, shall be vested exclusively in the Voting Members; provided, however, that a Voting Member may vote either in person or by proxy executed in writing by the Voting Member or his duly authorized attorney-in-fact and filed with the secretary before the meeting.

Section 5.08 Board of Directors - Notice of Board Meetings states that notice of any meeting of the Board concerning the adoption of the proposed annual budget or any increase or establishment of an assessment shall be given to each Owner in the same manner as provided in Section 4.05 of these By-Laws.

Section 4.05 Notice of Membership Meetings states that written notice of any membership meeting shall be mailed, giving Owners and the Commissioner not less than ten (10) nor more than thirty (30) days notice of the time, place, and purpose of the meeting.

Section 5.03 Voting Members -Subject to the provisions of Section 10.05*, voting rights of the members of the Association shall be vested exclusively in the Voting Members. One individual shall be designated as the “Voting Member” for each Unit Ownership. The Voting Member or his proxy shall be the individual who shall be entitled to vote at meetings of the Owners. [* non-existent]

On a separate note, earlier this year a Reserve Study was done. The BOD never shared their findings with the homeowners however they acted upon one of the recommendations of securing a $200K loan payable over 10 years to complete roof replacements on 12 buildings--I'm sure this will be a new line item to next year's budget. I only learned about this loan at our September meeting but this subject never came up for discussion at any BOD meeting to date(BOD does not share any financial/board meeting minutes with homeowners unless you actually attend meetings). Originally, our roof replacement project began in 2000 and would've been completed within the next two years--6 buildings per year paying approximately $7300 for each building. I am curious to know if the homeowners should've been told or had a right to vote on this loan? I could not find anything in our Decs/Bylaws but the Illinois Condominium Act states if improvement results in a proposed expenditure exceeding 5% of annual budget---which in our case, it did---the board of managers, upon written petition by unit owners with 20% of the votes of the association delivered to the board within 14 days of the board action to approve the expenditure, shall call a meeting of the unit owners within 30 days of the date of delivery of the petition to consider the expenditure. Unless a majority of the total votes of the unit owners are cast at the meeting to reject the expenditure, it is ratified.

Thanks. -ReneeD

JoeW1 (New York)
Posts: 728

Posted:

ReneeD - Long and short, unless your governing docs or state statute provide that owners vote on the budget and there is a cap on the amount the BOD can assess, than there is no vote of owners on the budget or assessment. Providing input is a different thing, but what basis do owners have to do so unless they are fully informed of all the ins and outs, financials etc? If owners want to vote on such matters and the gov. docs. don't currently allow it, than the owners must amend the gov. docs. OR the Board must be aware of state statute that superceeds. In your case I see there is a less than or equal to 5% cap of your annual budget provision. So run the numbers ont he 200K loan in relation to your annual budget, is the 200K equal to or more than 5% of your annual budget?

ReneeD (Illinois)
Posts: 201

Posted:

JoeW -Appreciate your response. This budget stuff is all new to me and I apologize for this silly question but when you say run the loan numbers(term is 9 yrs.) in relation to our annual budget, am I to assume that the annualized figure they've budgeted for next year is against assessments only or on total anticipated income?

PatrickH (California)
Posts: 204

Posted:

Hi Renee,

It looks like you have two issues here. One is should the homeowners vote on the new budget and should the homeowners have been allowed to vote on the loan to fix the roofs.

On the first question, usually the Board can raise the budget and dues by a certain percent each year without a vote of approval from the homeowners. In my HOA, that maximum amount is 10%. Your particular percentage should be somewhere in the documents of your HOA. That allows the Board to keep up with the ever increasing costs of insurance, utilities, landscaping, security, whatever, without having to go through the time and expense of having everyone in the HOA vote on it.

If the percentage increase exceeds what is in your documents, then the owners have to vote to approve it. That prevents the Board from raisng the dues dramatically without explaining to the owners why it's being done and getting their approval to do so.

Regarding that $ 200,000 loan, I'm shocked that the Board didn't get any feedback and approval from the owners before agreeing to it. Usually a loan in that amount would need a special assessment to pay back, and that would require a vote of approval from the members.

Your quote from the Illinios Condo Act sure sounds like they would have needed a vote to spend more than 5% of the annual budget on an improvement. Of course, someone could say that replacing a roof isn't an "improvement" it's a "repair", so then you start dancing around with the semantics.

In your case, it sounds like the horses are already out of the barn, so I doubt you could cancel the loan now and start the process again, this time with the owners input and approval.

PatrickH (California)
Posts: 204

Posted:

Renee,

One other thing to look at. A $ 200,000 loan for 10 years at say 7% interest is a monthly payment of about $ 2,300, or around $ 28,000 per year. Do your own calculations with the actual interest rate to come up with the correct figure.

If you live in a very large HOA with a very large annual budget, then perhaps this payment can be covered under the annual percentage increase allowed by your documents.

For example, if the annual budget is $ 400,000 and can be raised 10% a year without a vote of the members, then this $ 28,000 annual payment could be included in a $ 35,000 budget increase without a vote of the members.

Regardless of whether it's allowed or not, it is something that the Board should have notified the owners about and gotten some input on.

ReneeD (Illinois)
Posts: 201

Posted:

PatrickH - My thoughts exactly. In reading through our Decs again, there is no specific percentage increase; however, there is a section referring to a Cost of Living Index report that is published by the Bureau of Labor Statistics which, for kicks, I have to reprint here so that you get an idea how our assessments are calculated. I'd be interested to know what percentage (or amount) you come up with! September's Index Level was 624.543. Our current assessment is $80 and our BOD has communicated that it will approve our new budget at our December 5th meeting and increase our assessments to $95 effective January 2008.

Cost of Living Increase. If, as of the first day of any month after this Declaration is Recorded, the level of the most recently published Cost of Living Index - All items (1967=100) as published from time to time by the Bureau of Labor Statistics (the “Index”), is greater than the level of the most recently published Index as of the date of the Recording of this Declaration which is 276.4 (the “Index Base Level”), then, at the option of the Board, the Community Assessment payable by each Owner (other than Developer) for such month and months thereafter until next adjusted, shall be equal to the Basic Assessment then in effect multiplied by a fraction, the numerator of which shall be the level of the most recently published Index and the denominator of which shall be the Index Base Level. If the Index shall cease being published, such other standard or index selected by the Developer, in its discretion, as shall most nearly approximate the measurements theretofore made by the Index shall be used as the Index hereunder, and the Index Base Level shall be adjusted accordingly.

Regarding the $200K loan, we learned our BOD had a reserve study done earlier this year and based upon recommendations made within that report and the BOD not sharing its findings with the membership until now, they secured this loan and decided to incorporate those expenses into our assessments over the term(9 yrs) of the loan rather than special assess. Outside of this and not getting homeowner approval and what upsets me most is the fact that there were only 12 buildings to complete, 6 each year, and would have only cost approximately $90K. Given a $15 increase in assessments we could've paid for these roof replacements in the same timeframe. Of course, it is too late to reverse what has been done but their very actions are suspect and make me wonder if we homeowners can hold them liable for this decision now even after the fact? -ReneeD

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