💬 Join us to post & get advice from 50,000 HOA & Condo leaders.

Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in

ChristineO (New York)
Posts: 2
Posted:
I am an HOA board member with an unusual problem.

We have a self-managed HOA of 120 houses with common property consisting of a beach, boat slips and rights of way on a desirable lake in NY state. The lake is in the middle of town.
I have been on the board for 5 years.
Our HOA was formed in the 1920s when the original bungalow colony (summer homes) was created.
Now some 80 years later, the town is getting very built up with large "McMansion" type housing,
but there is NO public access to the lake and no public beach that those people can use.

Our little homes, some quite old and never updated, thus have deeded rights which are very precious.
The lake rights add tremendously to the resale value and desirability of our neighborhood.
We're in good shape financially, have successfully pursued our "dues scofflaws", and have an active board.
We issue beach buttons every spring for members in good standing, and our lifeguards as well as the
members, check to see that the people on the beach have them. There isn't much parking and the beach is small, but we keep it clean and attractive.

A few of the board members are advocating that we admit additional homes into our HOA, or at least that we work out some beach-use policy for additional homes. They argue that the initiation fees (which could be set high) would be useful and these folks would make good members.
Moreover, apparently in the 1960s, membership was extended to several homes about 6 blocks out of the boundaries, so there is
"precedent", though only two of the 14 board members hail from that decade, and nobody remembers that.

The main advocate for admitting the additional homes is a political party chairman in the county. He has 3 relatives on our board, plus some town appointees he wired up. He's a backroom operator and works a lot behind the scenes.

Five years ago I was personally approached by an out-of-boundary (Non-HOA) homeowner who I had met at church. (Of all places)
He offered me a bribe ( " I will make it worth your while") to get his house lake rights.
I told him that without the deeded rights, based on the lot belonging to the original Bungalow Colony, signing of the CC&R, etc. it would be impossible.
Other families down the road had hosted giant barbecues for our whole
Association, etc. and it just never worked to get them admitted.
He replied, "I am a lawyer, I know how to do these things."

I laughed, and said "You think I would sell out my friends and neighbors for a mere million dollars??" and his reply was,
"Funny you should mention that number, it is quite do-able if enough of us make it in." I shook my head in disbelief.
Then he said, "Just get it in front of the board, and leave the rest to me." I made a point to avoid the guy ever since.

So I personally know the kind of temptations and wheeler-dealing that could be involved here.

In a week we're having a board meeting where a resolution could potentially
be drafted, to be presented to our general membership for approval two weeks later. We have two general meetings a year,
and at the June one, our president announced that this issue would be coming up in the fall.

I believe our Board's responsibility is to preserve the property value of our membership.
That means keeping control of a scarce resource. I also fear that if rights are extended to some
other homes, we'd eventually be entangled in legal challenges by the entire town seeking similar privileges. Ultimately,
if not granted, we'd be nailed for discrimination somehow and whammo, we're a public beach in a couple years.

We really don't need the money! I just don't "get this" unless something shady is going on, and it probably is.

I would like suggestions from anyone who has faced this situation.

WilliamT (Arizona)
Posts: 489
Posted:
This is not advice, but just thinking out loud.

Your HOA is in an enviable situation. Everyone in town wants access to the lake, and some are willing to pay a lot of money for lake access. One reason is that it would make their property more valuable for resale, and the other is the additional recreation resource.

Your HOA is in good financial shape now, so you don't need the extra money. You can elect to keep it the way it is, but in order to do that, you must first take an action that will take care of it in an orderly fashion.

If you grant additional access, you will have more income, and you will have more expenses. As you become larger, you will need professional management. Your lake will become more crowded.

To make a rushed and unguided decision on such an important issue would be a mistake, in my opinion. So if I were on the board when the subject is brought up again, I would probably make a motion that an ad-hoc committee be formed for the purpose of studying the impact on the HOA, and the lake/beach if additional members were allowed in.

I would draft a charter spelling out the specifid duties of the committee, such as consult an attorney that specializes in HOA law, and who does not live in the area. Have a lot of questions for the attorney to answer. And determine the financial impact on the HOA if others were to be allowed in. That would include a "very high" initiation fees (to cover added expenses the additional traffic will cause and to add a share of reserve funds to partially match the reserve funds that the present members have contributed over the years)and the additional expenses required to maintain the common property, a management company, and everything else one can think of. A deadline for each project within that charter would be set. I would probably set an overall deadline of one year for the study to be presented to the board.

The board would have to approve the charter, and if it's drawn up in detail it should be easy to have it approved.

This would provide a lot of time to give careful consideration to all of the legal, financial and environmental impacts that additional members would have on the HOA.

Good luck
RogerB (Colorado)
Posts: 5,067
Posted:
Christine, if you don't need the money why consider it? If you do want to consider additional income this asset can be considered in a manner similar to the discussion on renting out a Club House. You do not have to make these people members of the association. Rather you could provide a limited number the right to access for a specified period of time (such as 1 year) with a periodic fee paid up front. You would also reserve the right to not renew the access rights and have them sign an agreement which indemnifies the association, the Board, and the members.

I strongly agree with William's statement to "give careful consideration to all of the legal, financial and environmental impacts".
WilliamT (Arizona)
Posts: 489
Posted:
Something just occured to me that I feel is very important.

Each member of your 120 member HOA owns 1/120th of the lake, beach and other property.

Below is a hypothetical example. You will fill in your own numbers.

If you decide to allow other homes into the HOA, then they must purchase from the existing homeowners a portion of the common property, because it is owned by the existing homeowners.

For example, say the common property hypothetically has a current value of $3,000,000. Each of your current homeowners own 1/120th, or $25,000 of that $3 mil property.

If you allow new homes to become a member of the HOA, then they must purchase an equal share of that common property, and the proceeds of the sale should go to the existing homeowners.

Let's say you allow 50 new homes. Add 50 to 120, which is 170. Now divide $3 mil by the total of 170 homes and each share is worth $17,647. So each newly added home would have to purchase a 1/170 share for $17,647. Fifty new homes times $17,647, is $88,235 to be divided among the existing current homeowners. Each current homeowner would receive $7,352 each. They would each be responsible for the IRS tax. Now everyone ownes an equal share, 1/170 of the property.

Now consider the reserves. The existing owners have been contributing money to the reserve fund, and the entire amount in the fund is their money. This money is for future repairs. The new owners have not contributed anything toward the reserves, (they have only purchased a share of the property) but their usage will increase the reserve expense demand.

So you could consider that if there is $200,000 in the reserve fund, then that is $1,666 that each of the current 120 owners have contributed. Therefore, to put the new owners on an even plane with the existing owners, they would have to pay an initiation fee of $1,666 for their share of the reserves. Now you have $283,222 in reserves that will help to take care of the increased demand on reserve expenses by the increased wear and tear.

If the study proves that it looks feasible to add new homes, then you can set a limit based on the current number of homes interested in joining, and then amend the CC&R's to require a very high, say 90% membership vote in order to add more homes in the future.

While all of the study is going on, you could do as Roger suggests and sell annual access rights at a premium fee. You would need increased insurance to cover the additional liability. I agree that each user would sign an indemnity clause, however, that will not prevent them from suing if something happens, so additional insurance would be required.

That could even be a testing method to see what the impact will be on the current quality of life of the existing homes.

After considering all this I can see why the attorney that approached you was interested in bribing you and asking you to be the point man while he took care of things. I can imagine him ending up making a lot of money in the deal, and the existing homeowners losing out. Law suits could follow. You were very wise to ignore this person and seek advice. Your homeowners are apparently sitting on a very valuable piece of property and now that megamansions and money are coming into the community the sharks are also there to take advantage of a situation, if they can.

ChristineO (New York)
Posts: 2
Posted:
Thank you for the very wise counsel. I'm going to share it with the rest of our board.

I've never found a specialized info discussion group that has such
expertise, regardless of domain. Terrific job you all are doing!

I particularly appreciate the idea of the "impact study" and, as
a CompSci person, developing a value formulation (metric) for pricing the
"rights to beach" or whatever the rights may be, really hits a chord.

My concern, big-picture, is that if we allow the benefits to be purchased, the
little guys are stuck with the CC&R. No upside for them. We are holding the downside, and they have purchased the upside! After the various challenges
(public and private, Scouts, schools, membership -- all of which the attorneys love) we devolve into a public beach for the town. Everybody has the upside
and we are holding the card called "OBEY THE RULES".

It could happen if we are not sharp and prepared.

Reading through all the threads here, where the main drive seems to be
getting people "in", it must seem odd that our pressure is to keep people out.
Remember that they're not asking to serve. They're asking to be served.

Tuning my brain to this way of thinking.

Chris

CharlesW1 (Georgia)
Posts: 826
Posted:
WilliamT.

I think that will help. It has definitely helped me, awesome response. That example made it very easy for me to understand, as well!

Thank you,
Chuck W.

Charles E. Wafer Jr.
GeraldT1 (<Not Specified>)
Posts: 519
Posted:
ChristineO & WilliamT,

I spend many of my summer weekens with friends on their yacht and sail, dock and anchor up and down the NY/NJ Hudson, Oyster Bay NY, Red Bank NJ, etc. Based upon the land and lake/beachfront castles I've seen, $3,000,000 is definately a hypothetical number.

Have you had an appraisal of the current value of the common property, with a separate appraisal of the area that is sought after for beachgoers?

Your common property is more than just the beachfront, it's boat slips, and rights of way. Yes each owner has a percentage share 1/120th of say $30,000,000.00 or $250,000.00. But the part you are allowing access to, and usage of is just a portion of the common property. Why give away the store, or the HOA?

Do not provide buy in to the whole HOA to those that wish to use the beach. If you base the math upon an increase to 170 as in WilliamT's example, you will be providing them ownership, rather than usage. Be careful.

As for creating a committee, it has merit, it is very well thought out by WilliamT. However, I don't recommend it. Yes, it will buy time. But those on the committee may benefit in ways you'll never be able to prove. Keep the power close to the vest of the board members/fiduciaries only. Once the idea of a committee is suggested, I suspect it will win overwhelming approval. That would be my first red flag.

There is a lot at stake, and it's more than just usage of a beach. I suspect that soon the cottage style homes will loose their charm, the plans for the McMansions are already being designed. Maybe that's a good thing for those looking to sell.

Like others have posted, you have the power, just hope your other board members are on the same page as you ChristineO.

Best of success!!
GeraldT1
NNJ

GeraldT1 (<Not Specified>)
Posts: 519
Posted:
ChristineO,

One other thought regarding the initiation fees you may eventually charge for beach usage. Setting them higher for those not residing in the HOA may be considered by some as discrimination.

Best of success!!
GeraldT1
NNJ

🎯 You've read this entire discussion

Join the conversation with 50,000 HOA & Condo Leaders:

  • ✓ Ask follow-up questions
  • ✓ Share your experience
  • ✓ Get expert advice
  • ✓ Access 350,000 discussions
Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in here