Fees Not Covering Expenses

Started by KathyA • 14 replies • 2042 views

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KathyA (Arizona)
Posts: 5

Posted:

We pay $300 a year for our HOA fees.
This fee does NOT come close to covering our expenses.

We do NOT own a pool, buildings or streets.
We pay to maintain our substantial open areas.

We have 5 board members.
Two of the board members what to raise the fees to cover our expenses,
but three do not.

We have $10K in reserves which is being used to cover our monthly expenses.
At this rate in a few years we will not longer have a reserve fund.

We have trimmed down to the bare bone, but our common areas still need to be maintained and repaired.
The community is not new (20 years)...stuff breaks.

The people in this community are NOT poor and are middle to upper-middle class.

What can a homeowner in Arizona do to help fix this?
Also what is considered a reasonable reserve fund?

We do have a property manager, but she does not press th issue for fear of being fired.

DanielH1 (California)
Posts: 482

Posted:

This is a major problem that many HOAs have. They have low, even absurdly low, fees.

I don't know if there is a "solution".

You could lobby to both the Board and the HOA at large to point out where the HOA is being damaged. Walk around with a digital camera, snap some pictures and talk about how the property is being destroyed. Complain long and endlessly about how bad the common property looks, how it is destroying the property values, how it is opening the HOA up to a lawsuit.

You could lobby directly against the Board Members themselves. "XXX doesn't have the maturity/financial skill to be on the Board." "YYY is driving the HOA into bankruptcy." "ZZZ is why the pool is green."

You could give up and move before the roof caves in. Sometimes, the only solution is to hit the road before the SHTF. (By accident, I actually did this and, within a year after I left, the HOA had >$100/month fee increase.)

I can promise that you'll not gain any friends for advocating for increased fees. Maybe a few people will understand but your defenders will talk softly and your attackers will be loud and ferocious.

DonnaS (Tennessee)
Posts: 5,671

Posted:

Kathy,

The solution is simple. Either raise the fees or cut expenses. Breaking down $300.00 per year comes to $25.00 per month. That is gosh darn cheap to maintain the common area and keep a reserve fund going. What is in your common area? I know that in my State of Florida, the reserve funds absolutely cannot be used for general expenses without a vote by the membership to do so.

That then leaves us back to the common area expenses. How big is your association and what type living are you=condo, stand alone homes? You have a Property manager which must cost a fair portion of your annual budget. Tell us about your association please.

KathyA (Arizona)
Posts: 5

Posted:

I understand we need to raise the fees.
The board will not raise them.
We have 5 board members. Three do not want to raise the rates.
They will not give me or anyone else the reason why either.

I am not on the board, but my neighbor next door is on the board and she asked for help.

I am a CPA and did present the numbers, but the board still said no.
We are a well off neighborhood. People here have some money.

We are single family stand alone homes. There are 112 homes.
We own no buildings. We do NOT have a pool.
We have a rather large open area to maintain and that is our biggest and expense about $1900 a month.
The grounds look just OK.

Our CCR's does NOT address raiding the reserve fund to pay expenses.

Insurance, water, taxes and other small expenses are $400 a month.

We have property manager, but she is a wimp and will not tell or even strongly suggest to the board that they need to raise the fees.

The property manager cost is $1650 a month and the fees were raised two years ago $15 a month to cover this expense (different board).

What laws if any will help me out.
I live in Arizona.

DanielH1 (California)
Posts: 482

Posted:

I doubt that there are really any laws that will help out.

Letting your property go to hell ... that's not against the law.

Voting short-sighted people onto the Board ... that's not against the law, either. (Actually, that's the American way!)

Convincing the Board that it is a bad idea or voting more far-sighted people onto the Board seems your best bet.

HelenK1 (Washington)
Posts: 68

Posted:

I have not heard of any buildings on the common area. If all expenses are operating expenses property manager, lanscape company, water, taxes what do you need a reserve fund for? Reserve fund are usually meant for big projects such as roofs or roads.

LauraL3 (Arizona)
Posts: 21

Posted:

Kathy, I am in Az also and the first thing I would do is get rid of your management company. My HOA hired a management company for $600 a month. A MC cannot really tell the board what to do but can make suggestions, they are as good as the board that is directing them. Check your CCR's most state that reserve funds are for designated repairs only.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Did I miss this?
What does the manager do?

Why have one, if the Board members don't want to raise fees, let them manage the place, it does not sound like a big job.

I would establish a Reserve fund. I have no idea how much but any community is better with money in the bank, just like any household is.

SusanW1 (Michigan)
Posts: 5,202

Posted:

$1900 @ mo. for a common area with no buildings? Please describe. This Michigan girl can't fanthom how it would cost that much.

MaryA1 (Arizona)
Posts: 7,043

Posted:

FYI for everyone asking what a reserve fund would be needed for if the HOA only has common areas to maintain and why the high monthly cost:

First of all, in AZ most, if not all, communities are walled in. These walls require maint and painting every 5-6 years -- a big expense that should be included in a reserve fund.

Here are some of the other expenses that would go into a reserve fund:

1) monuments - refurbish,
2) irrigation timers - replacement
3) park furniture - replacement
4) play ground equipment - replacement
5) playground turf - replacement
6) ramadas - repaint
7) ramada roofs - refurbish
8) irrigation system - refurbish
9) granite - replenish
10) trees, shrubbery - replacement
11) pet stations - replacement

This may only be a partial list. The assn may have other features (basketball court, lakes, lights, etc. that would also be a part of the reserve study

Depending upon the extent of the common areas, the monthly landscaping fee could be quite high. Bushes need to be trimmed and grass needs to be cut and landscapers do not come cheap.

KathyA (Arizona)
Posts: 5

Posted:

MaryA1 has described the reason for a reserve fund even if you do not own buildings.

We have VERY LARGE common areas that have mature trees, landscaping, etc.

Our homes are in a semi protected mesquite bosque.

We are required to tend to these trees and that eats up a great deal of money.

It is beautiful and is one of the main reasons we all live here.

We have 12858 sf that we own plus the easements for the public to get to the river walk

This easement is around our entire perimeter as is a wall.

It would be cheaper if all we owned was a pool. (LOL)

What I really need is for advise for my original question.

KathyA (Arizona)
Posts: 5

Posted:

The main reason HOAs have a management company is that no one wants to send out the quarterly bills and collect the money.

There has to be a company in Tucson that can do that for less than we are paying though.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Kathy,

AZ does not have a state law regarding reserve funds and there are no other state laws which would be of help with your current problems. I would suggest getting bids for a new management co and also landscaper. You may find the current contractors' fees are not unreasonable, but the opposite may also be true. No harm done in getting a few bids to make that comparison. Then the only other thing which you may try is to get a number of like-minded members together to confront the board and demand that they do something about the unbalanced budget and try to also make them understand they cannot just take the money from the reserve account. Point out some of the projects that may need to be undertaken that the reserve account money would be needed for.

AZ state law allows for a 20% increase in assessments (unless the community docs call for a lesser %) without a member vote. Actually you would need more like a 41% increase to break even then the next year a 20% increase for the reserve fund only would be in store. But, that would raise your assessments to over $500/mo which I think is way too high for a 112 member assn. That's why you need to get those bids!

The assn should have a reserve study performed which will tell you exactly how much is needed to be deposited into a reserve fund each year. With a community that is over 20 years old I'm sure there are some things in dire need of refurbishment or replacement. What about those stucco walls -- that can be a very costly project to repaint.

Now if those 3 board members just will not change their minds, then you're next project should be to undertake a recall. Refer to ARS 33-1813, Removal of board members; special meeting for the correct procedure to follow. These board members are shirking their fiduciary resp. by not doing what is right for the assn; i.e., not preparing a balanced budget and depleting the reserve fund to pay for operating expenses. I can't help but wonder how they manage their personal finances!

KathyA (Arizona)
Posts: 5

Posted:

I and others have done the above except try to have the board removed.
I looked and could not find any laws regarding reserve funds, but I am not a lawyer.

I have been suggesting for years that we raise the fees per inflation every year, but does not seem to work.

I am a CPA an presented the board with the cost figures, but they just sit there.

Their term is up in April and my guess is that they will let the new board be the bad guys and raise the fees.

HelenK1 (Washington)
Posts: 68

Posted:

Well there's your answer wait until april and run for the board. I'm sure your credentials as a CPA would get you some votes

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