Reserve Funds-Diverting

AnnaJ1 (Maryland)
Posts: 95

Posted:

I've posed this question to our HOA management company but haven't heard back yet, so I figured I'd post it here. Years ago the Board decided to put reserve funds aside for a community center that the developer submitted to the County to have built in the neighborhood. The developer is now reneging. (long story on that--we've tried Courts, the County gov't etc) Certain Board members now don't want the center, and it looks to be a dead deal. What's involved in using the funds that were set aside for the center in a different way?

CathyA3 (Ohio)
Posts: 6,299

Posted:

Your HOA will probably need to consult an attorney who specializes in HOA law, assuming you don't already have one.

Do your CC&Rs have any reference to this community center as part of the HOA's property? If so, I think that an amendment would be needed, and that requires approval from homeowners. It would also be appropriate for homeowners to vote on any proposed replacement of the center. This wouldn't be something that the board could act on themselves.

ThomasP13 (Ohio)
Posts: 87

Posted:

Quote:

Posted By CathyA3 on 03/09/2022 8:24 AM
Your HOA will probably need to consult an attorney who specializes in HOA law, assuming you don't already have one.

Do your CC&Rs have any reference to this community center as part of the HOA's property? If so, I think that an amendment would be needed, and that requires approval from homeowners. It would also be appropriate for homeowners to vote on any proposed replacement of the center. This wouldn't be something that the board could act on themselves.

No? Assuming there's nothing in the CC&Rs. We identify long-term projects in our Reserve Study (well, not really yet, but we will - lol). Some of these are replacement items for what already exists, i.e. the roof. Some identify capital improvement projects, such as an equipment storage shed for community items, like large ceramic planting pots made available for individuals to plant flowers, etc.

Now, to be sure the Reserves set aside for a Community Center are an exponentially larger sum, but other than that's the "right" thing to do, why wouldn't it be up to the Board to decide what to do with those monies, as long as what it is can be said to be in the best interests of the Association? Isn't that the Board's job?

CathyA3 (Ohio)
Posts: 6,299

Posted:

Quote:

Posted By ThomasP13 on 03/09/2022 11:37 PM

Posted By CathyA3 on 03/09/2022 8:24 AM
Your HOA will probably need to consult an attorney who specializes in HOA law, assuming you don't already have one.

Do your CC&Rs have any reference to this community center as part of the HOA's property? If so, I think that an amendment would be needed, and that requires approval from homeowners. It would also be appropriate for homeowners to vote on any proposed replacement of the center. This wouldn't be something that the board could act on themselves.

No? Assuming there's nothing in the CC&Rs. We identify long-term projects in our Reserve Study (well, not really yet, but we will - lol). Some of these are replacement items for what already exists, i.e. the roof. Some identify capital improvement projects, such as an equipment storage shed for community items, like large ceramic planting pots made available for individuals to plant flowers, etc.

Now, to be sure the Reserves set aside for a Community Center are an exponentially larger sum, but other than that's the "right" thing to do, why wouldn't it be up to the Board to decide what to do with those monies, as long as what it is can be said to be in the best interests of the Association? Isn't that the Board's job?

No, because this doesn't just involve how to spend assessment dollars. I'm assuming that the proposed community center was included in the CC&Rs, which is not unusual for a new community that's still under construction - some developers prefer to construct amenities up front, some do it toward the end of construction.

At any rate, if the proposed center was listed as part of the HOA property, then that is what homeowners bought. This means that any change to the HOA's assets requires approval from a majority of homeowners (percentage can vary) - this is not unusual. Even if the area was open space without any proposed structure planned, homeowners would still have to approve a change since it would change the physical assets owned by the HOA.

Regardless, the CC&Rs should have something in them that addresses changes of this sort: either additions to the HOA's property or removal of portions of it, and the percentage of homeowners needed to approve the change.

AugustinD
Posts: 3,698

Posted:

Quote:

Posted By ThomasP13 on 03/09/2022 11:37 PM

Now, to be sure the Reserves set aside for a Community Center are an exponentially larger sum, but other than that's the "right" thing to do, why wouldn't it be up to the Board to decide what to do with those monies, as long as what it is can be said to be in the best interests of the Association? Isn't that the Board's job?

The Board's job is to comply with the CCRs and do what is in the best interests of the corporation. Like CathyA3 indicated, adding capital reserve components that are not listed in the CCRs represents an amendment to the CCRs. Almost always an amendment to the CCRs is outside the board's authority. An amendment always or almost always requires a super majority vote of the owners.

ThomasP13 (Ohio)
Posts: 87

Posted:

Quote:

Posted By AugustinD on 03/10/2022 6:11 AM

Posted By ThomasP13 on 03/09/2022 11:37 PM

Now, to be sure the Reserves set aside for a Community Center are an exponentially larger sum, but other than that's the "right" thing to do, why wouldn't it be up to the Board to decide what to do with those monies, as long as what it is can be said to be in the best interests of the Association? Isn't that the Board's job?

The Board's job is to comply with the CCRs and do what is in the best interests of the corporation. Like CathyA3 indicated, adding capital reserve components that are not listed in the CCRs represents an amendment to the CCRs. Almost always an amendment to the CCRs is outside the board's authority. An amendment always or almost always requires a super majority vote of the owners.

The municipal water entering the building is hard. It would be in the best interest of the Association for all water touching pipes the Association is responsible for to be treated via a water softener. The expense of such a system is clearly a capital expense, and will need to be replaced at the end of its life cycle, and so that expense is placed on the cash flow analysis report that drives the annual Reserve amount component of the total assessment amount.

Is it your position that the By-Laws would need to amended in some way to authorize the installation of the water softener system before the Board could authorize the expenditure for the project?

MaxB4
Posts: 3,513

Posted:

Quote:

Posted By AugustinD on 03/10/2022 6:11 AM

Posted By ThomasP13 on 03/09/2022 11:37 PM

Now, to be sure the Reserves set aside for a Community Center are an exponentially larger sum, but other than that's the "right" thing to do, why wouldn't it be up to the Board to decide what to do with those monies, as long as what it is can be said to be in the best interests of the Association? Isn't that the Board's job?

The Board's job is to comply with the CCRs and do what is in the best interests of the corporation. Like CathyA3 indicated, adding capital reserve components that are not listed in the CCRs represents an amendment to the CCRs. Almost always an amendment to the CCRs is outside the board's authority. An amendment always or almost always requires a super majority vote of the owners.

Going to disagree.

https://www.davis-stirling.com/HOME/C/HOA-Capital-Improvements

AugustinD
Posts: 3,698

Posted:

Quote:

Posted By ThomasP13 on 03/10/2022 10:02 PM

Posted By AugustinD on 03/10/2022 6:11 AM

Posted By ThomasP13 on 03/09/2022 11:37 PM

Now, to be sure the Reserves set aside for a Community Center are an exponentially larger sum, but other than that's the "right" thing to do, why wouldn't it be up to the Board to decide what to do with those monies, as long as what it is can be said to be in the best interests of the Association? Isn't that the Board's job?

The Board's job is to comply with the CCRs and do what is in the best interests of the corporation. Like CathyA3 indicated, adding capital reserve components that are not listed in the CCRs represents an amendment to the CCRs. Almost always an amendment to the CCRs is outside the board's authority. An amendment always or almost always requires a super majority vote of the owners.

The municipal water entering the building is hard. It would be in the best interest of the Association for all water touching pipes the Association is responsible for to be treated via a water softener. The expense of such a system is clearly a capital expense, and will need to be replaced at the end of its life cycle, and so that expense is placed on the cash flow analysis report that drives the annual Reserve amount component of the total assessment amount.

Is it your position that the By-Laws would need to amended in some way to authorize the installation of the water softener system before the Board could authorize the expenditure for the project?

Depending on the details, I might very well consider a water softener to be something vital to helping maintain HOA infrastructure. Assuming there are professional reports supporting the advantages of the water softener vs. not having a water softener, with cost-benefit analysis thrown in as needed, and if I were on a board where this issue came up, I would say that purchasing and installing the water softener is part of the board's duty to maintain HOA infrastructure, and so no owners' vote is required.

Per the Davis-Stirling site and common sense, whether something is a "capital improvement" that requires an owners' vote 'just depends.'