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Opinion on dues increase (Condo in MN)

Started by JohnK11 • 12 replies • 2347 views

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JohnK11 (Minnesota)
Posts: 14
Posted:
Recently our membership and first ever owner board were informed that in order to adequately fund our association so potential owners can be eligible for FHA funding, we'd have to increase our dues about 20%.

FHA says a minimum reserve funding of 10% of the annual budget must be contributed to be eligible?
The increase was proposed by management, apparently, only to achieve FHA eligibility status. We're an incomplete development and we feel the current developer is pushing for this status to open up the field of potential buyers. Why should we stretch our budgets so they can get more buyers? I assume FHA eligibility status will help current owners find buyers shall they decide to move? 11 out of 14 currently constructed units are owner occupied(last three were turned over to the bank when the previous developer went under). There will be another 14 units built. So less that 50% of the total possible units are currently owner occupied. So if they do build out the rest of the 14 units, they will own more than the 10% cap the FHA has in their guidelines.

Are FHA eligible funded associations all that? Is somebody able to as easily get a loan financed otherwise if the association reserves don't have FHA adequate funding? The current market isn't exactly motivation people to buy anyway. We don't have to be FHA eligible, do we?

To date, our association hasn't been eligible based on FHA's guideline. People that recently moved in claim to have FHA funding though. How was that allowed/approved?

I would think the board needs to ensure these FHA guidelines are met first before determining if a dues increase for just that funding requirement is to occur? It's can't be just as simple of increasing dues, can it?

I appreciate responses. As you can probably tell, I'm quite new to this and quite fuzzy on all these "new" condo rules and requirements. This is definitely just part of the research we're now diving in to. What better place than a place where somebody may have actually experienced the same thing?

Some info:
http://activerain.com/blogsview/1357654/final-hopefully-revised-fha-condominium-lending-guidelines-issued
http://mncommunityassociation.com/dsp_article.php?id=489
http://www.trulia.com/voices/Home_Selling/How_does_a_town_home_association_become_an_FHA_app-48438

Thanks!
SusanW1 (Michigan)
Posts: 5,202
Posted:
I wonder if there is something in the FHA guidelines that speak to the necessity of the HOA being adequately 'funded'. (reserve fund or emergency fund??)
SusanW1 (Michigan)
Posts: 5,202
Posted:
Finding FHA requirements are easy. just google FHA condo requirements. Some are:

1) 50%+ owner occupied
2) <15% HOA payments >30days past due
3) Control of the property in association hands ( not developer) for >1yr
4) All phases and amenities complete
MicheleD (Kentucky)
Posts: 4,491
Posted:
While any increase is always unsettling to homeowners, 20% is probably within the range allowable by your controlling documents without a membership vote. Ours is set at 25%.

And reserves are always good to have, even if not required by either your controlling documents (ours are not) or by lenders.

Plus, if that's all it takes to make your properties more marketable, why is that a bad thing?

The goal is to have owners who will then be paying into the association. Another good thing I would imagine.

I'm not sure what your concerns are. What am I missing?
MaryA1 (Arizona)
Posts: 7,043
Posted:
John,

Below is a link to the FHA website where you can find, in detail, the requirements a condo must meet to qualify for FHA funding. Section V & VI, titled "Condo requirements for FHA loans", is what you want to look at.

www.hud.gov/officer/adm/hudclips/letters/mortgage/files/09-46bml.pdf
JohnK11 (Minnesota)
Posts: 14
Posted:
Quote:
Posted By MicheleD on 06/12/2010 6:49 AM
While any increase is always unsettling to homeowners, 20% is probably within the range allowable by your controlling documents without a membership vote. Ours is set at 25%.

And reserves are always good to have, even if not required by either your controlling documents (ours are not) or by lenders.

Plus, if that's all it takes to make your properties more marketable, why is that a bad thing?

The goal is to have owners who will then be paying into the association. Another good thing I would imagine.

I'm not sure what your concerns are. What am I missing?

The concern is that the new builder/developer is getting creative to "soak" us just to get their homes sold. Now, I realize it's illegal for them touch that money and that an increase is only to open up to FHA eligibility. But, the last developer/declarant went under and prior to that soaked all our reserves away for things unrelated to the association. We're not in a position to have that happen again. We would be thrilled if the new builder can come in here and do their thing and get outta here as fast as possible, but in this market, we'd rather be safe than sorry...again.

I guess we just aren't comfortable with how the dues increase was proposed. Just to reach FHA status. Well, there are many more hurdles to jump, that we will not be able to jump, to get FHA status...

Quote:
Posted By SusanW1 on 06/11/2010 5:06 AM
Finding FHA requirements are easy. just google FHA condo requirements. Some are:

1) 50%+ owner occupied
2) <15% HOA payments >30days past due
3) Control of the property in association hands ( not developer) for >1yr
4) All phases and amenities complete

1)nope
2)unsure
3)not even close
4)nope

So, just by that, we're a long way out from FHA eligibility under these new rules. I agree that reserves are a good thing. But we need to take increases in smaller steps, I think. And our new, first, board will have to work with management to nail down why our accounts are drained and what we can do to get the money back from last developer before we start jacking costs up on owners.
JonD1
Posts: 2,350
Posted:
John:

Just curious what are your current charges?

And the increase would be how much per month????
MicheleD (Kentucky)
Posts: 4,491
Posted:
I have an additional question, too.

You mention that it is "illegal" for the developer to touch the reserves.

On what do you base that statement?
JohnK11 (Minnesota)
Posts: 14
Posted:
Quote:
Posted By MicheleD on 06/14/2010 10:15 AM
I have an additional question, too.

You mention that it is "illegal" for the developer to touch the reserves.

On what do you base that statement?

I should have clarified. In the way they touched them, it was illegal. They admitted to our PM that our reserves were used to pay other bills. Their business bills, other association's they managed bills...
MicheleD (Kentucky)
Posts: 4,491
Posted:
That is my question.

On what basis is that illegal?

For example, here in KY it would not be illegal. Until turnover, he can fund the association, and the reserves, anyway he wants, since it's basically "his" corporation until transition.

So I was wondering on what authority you know that his expenditures from the 'reserve' are illegal in Minnesota.
JohnK11 (Minnesota)
Posts: 14
Posted:
Quote:
Posted By MicheleD on 06/14/2010 7:00 PM
That is my question.

On what basis is that illegal?

For example, here in KY it would not be illegal. Until turnover, he can fund the association, and the reserves, anyway he wants, since it's basically "his" corporation until transition.

So I was wondering on what authority you know that his expenditures from the 'reserve' are illegal in Minnesota.

His corporation, per our articles of incorporation, was setup for the purposes to provide for ownership, maintenance, preservation and architectural control of the units and common areas within a portion of block 3, phase 2, this county, this state and to promote the health, safety and welfare of the residents within the above described property.

To me, that means the funds we pay as owners/members in to the association are for the administering association and only the association. Not for him to soak out to pay his personal business expenses, or expenses of completely separate associations.

This is going OT. Although I appreciate the tangents, they are for another time.
Opinions on dues increases solely for reasons to boost potential buyer numbers for the development via 10% reserve funding. At this time no other reasoning was provided to justify a dues increase.
MicheleD (Kentucky)
Posts: 4,491
Posted:
I'm sorry you feel this is going off topic, and sorry that you think his using the reserves for his business, of which the association where you live is a part, and only one part, but that doesn't necessarily make it illegal.

It is something YOU think is "illegal" but probably not actually illegal.

I would even question whether your PM may or may not even be giving you accurate information.

The point is, and this is why it is not off topic, is that the association and the entire development is still under developer control.

The residents really have no say in what he does regarding the association or development, or how he does it.

Not at this point.

So if he wants to meet some threshold for getting FHA approvals, then he can likely do that.

And even though you may not like the increase, that is likely allowable under the controlling documents anyway, regardless of his real reason for the increase.

Many documents allow for a certain percentage increase without a vote of the membership. And, unfortunately, it is likely that he would have more votes anyway, even if it did have to go to a vote.

With luck he can turn over the unsold lots quickly and you can be on your way to a transition or turn over from the developer sooner rather than later.

But until the turnover actually happens, you and your neighbors are pretty much not going to be able to stop him.

JohnK11 (Minnesota)
Posts: 14
Posted:
Quote:
Posted By MicheleD on 06/14/2010 10:15 AM
I have an additional question, too.

You mention that it is "illegal" for the developer to touch the reserves.

On what do you base that statement?

Wouldn't reserve use for things other than our association violate owner obligation to have a funded reserve per MN 515b.2-115 subsection 2:
https://www.revisor.mn.gov/bin/getpub.php?pubtype=STAT_CHAP&year=2007§ion=515B#stat.515B.3-115.0

All budget sheets I've seen, no matter how incomplete, have had a line item for reserves. Meaning assessments have always been levied. We are obligated to fund it but could never have adequate funding since it was drained.

As far as a dues increase for FHA status only...we're going to vote on dues next meeting. It was understood that an increase for FHA only would be out of the question and shouldn't be brought up. If an increase is voted in, it will be for us for the future health of the association. There are so many new requirements for FHA that, I'm afraid, we won't even come close to meeting.

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