So you bought your condo or home in a nice community with an HOA. After a while, you may notice one of two things: a) you never seem to hear from the HOA other than getting the bill for fees or b) you get a slew of violation notices for rules you never heard of. Neither of which give you a good feeling about the community you are now part of. It could very well be that the board has become dysfunctional and a fresh start may be in order.
Why would you care about any of this? Well, this is your home! As a member of the community, either a single family home governed by an HOA or a unit in a condominium property, you are now (as stated in your deed) a member of the association that, among other things, 1) controls the use of property (yours and the common areas) within your community and 2) is responsible for maintaining any common property which you now co-own.
Most of this article is based on my experience serving on the board of a 50 unit townhome condominium in the midwest (100% owner occupied). YMMV.
Signs that your HOA board needs a makeover
- The same people are on the board year after year – might be good, might be bad. Could be someone on a power trip or could be things are so bad, no one is willing to serve on the board.
- The board is continually undermanned with one or two people trying to run things.
- There is little or no communication from the board on what the association is doing and what the financials are.
- There are no written policies such as how rules are enforced, how grievances are handled, or how the board handles certain situations.
- The board is secretive or not transparent in its dealings. By law, owners have access to board minutes simply by asking.
- Does the board actually have minutes? Are they holding meetings per the bylaws?
Where to start
- Once you recognize that there may be a problem, the first thing to do is to contact a board member such as the President and find out when the next board meeting is and plan to attend. The response to this simple request will be very revealing. Most, if not all, states have laws that stipulate that owners be allowed to attend board meetings, except those portions where delinquent assessments (personal financial info) or legal matters are discussed.
- Based on your experience with the board meeting, that will tell you more about how things are. If you feel that a makeover is needed, continue reading….
Building a concerned board
- In all likelihood, you will need to get more directors on the board or replace the board. In either case, you need willing volunteers to serve on the board.
- To find volunteers, you need to get to know as many of the other owners as you can and gauge their level of interest.
- It is important to talk to the other owners in person. A plea from the board in a newsletter or email is a waste of time. No one responds to that because everyone will simply assume that someone else will respond.
- As you talk to people, remind them that they agreed to be a member of the organization that is run by a volunteer board – and that the only way that works is for some of the owners to serve on the board from time to time. You may have to remind them that if NO ONE serves on the board, everything stops – no bills will be paid, no maintenance will be done, eventually creditors will file suit to be paid and the court may appoint a receiver to run the association. Now some stranger is running the association and you the owners are paying $500/hour for him/her to do so.
- Furthermore, ask if it is fair to the owners that are willing to serve on the board? Serving on the board should not be a burden and should not be a full-time job. It is a shared responsibility of all the owners.
- If you have a management company that takes care of the busy work and day-to-day details, it’s generally easier to get owners to serve.
- Hopefully, you have gathered enough owners willing to serve that they can be appointed or elected to build a new board.
- Getting the volunteers elected to the board may take some doing depending on your particular situation. The easiest way is to elect the slate of nominees at the annual meeting and move forward. If the current board is unwilling to step down, you may need to call a special meeting to elect the new board. The mechanics of how to do that depend on your bylaws and state law.
Gather education resources
- Okay, now you have a new board. The first thing the new directors need to do is understand the duties, powers and limitations of the Board. Then they need to learn how to run the association. Make it a point to expect board members to spend some time on board education.
- Join Community Associations Institute (CAI) and attend the board development workshop either online or in-person. CAI is a nationwide non-profit organization that provides information, education and resources to the homeowner volunteers who govern communities and the professionals who support them. Learn more at http://www.caionline.org. For $300, the entire board (up to 15) can join CAI. Each member gets a subscription to Common Ground magazine, access to online resources and discounts on education and books. Another benefit is the online discussion forum (Exchange) where 100’s of other board members discuss the same problems you may be having.
- Websites – there are many websites that cater to HOA management.
- Books – in addition to the extensive CAI library, consider purchasing additional books to develop a library of reference material for directors to consult, especially new directors as they learn the ropes.
- The Homeowners Association Manual, (5th Edition), by Marc W Dunbar, ISBN-13: 978-1561643134 is a good place to start.
- Pretty much any book that comes up when searching Amazon for “HOA Management”
Focus on some key objectives
- Establish and maintain an online repository of association documents, if there is none
- Copies of all governing docs (Declaration, Master Deed, CC&Rs) – Be sure to get current copies as recorded at the County Recorder Office, Rules & Regulations enacted by the board, policies, procedures, etc. All directors should read all the documents!
- Minutes of all meetings, both Board and Member Annual and Special Meetings
- Copies of quotes, contracts, purchase agreements, buyer agreements, estoppel certificates or other required state documents, tax returns, reserve studies, budget worksheets, equipment maintenance and operating guides, paint specifications, etc.
- All of these things are needed to retain the knowledge to carry on the business of the association. Establish policies and procedures to see that the repository is updated with new documents as they are created or obtained.
- Improve owner communications
- It’s important to hold open board meetings. Most states require that owners be allowed to attend board meetings, except when legal or personal financial information (e.g., specific owner delinquency) is discussed. What many boards do is allow an owner to express concerns or ask questions before the meeting. Once the meeting starts, they may remain as an observer but not participate.
- Work to ensure transparency in decisions and actions taken. When important or contentious decisions are made, share with the owners the various issues and rationale for the decision that the board makes. For example, let’s say there are 2 options to repair some equipment, a $20,000 short term fix or a $30,000 long term repair. The board selects the $30K long term repair. Communicate that decision and schedule the work a month in the future to allow time for the owners to digest that information and accept the decision. If they don’t agree, they will have time to ask for a special meeting to discuss the issue and perhaps override the board’s decision.
- Establish regular communications such as a newsletter. A newsletter provides many benefits including awareness of the work the board is doing on behalf of the owners. How often and what’s included will vary widely depending on the community. It’s wise to include the latest financial report.
- Review rules and regulations
- Many community problems revolve around the rules and their enforcement. It’s important that whatever rules the board enacts do not conflict with restrictions in the governing docs and are within the powers of the board.
- Enforcement of the restrictions and rules must be consistent, fair, and applied equally to all residents. If an association’s board fails or refuses to enforce the restrictions, the association may lose its right and ability to enforce the restrictions based upon certain legal precedences.
- An important concept here is that the board must act as the ‘conscience’ of the community. Frequently, when faced with a violation, a board member will just say “Doesn’t bother me. Why do we have to enforce this?”. This is when the member takes off his ‘owner’ hat and puts on his ‘director’ hat. It matters not what his personal opinion of the violation is, the owners in the community have spoken (by their agreement with the governing documents) and determined that 1) the restrictions/rules apply to their community and 2) the board members are responsible for enforcing them.
- Get a handle on financial management
- Is the budget adequate to maintain the common property?
- Are the funds being spent wisely? When were proposals sent out for bid to ensure that what you’re paying for services is reasonable.
- Perform (or update) a Reserve Study and propose adequate reserve funding. This is a common oversight in many HOAs, particularly condos with significant common property. A properly funded reserve is the only fair way to distribute the cost to maintain common property over all the owners over all time. In essence, the reserve study will identify the common elements that deteriorate over their useful life. The owners that used that equipment or property and contributed to its deterioration (e.g., roofing) should pay their fair share of its eventual replacement cost (not the owners that happened to be there when the replacement is done). Special assessments for needed repairs are a sign that the reserves were not funded adequately and prior owners have not contributed their fair share leaving the current/new owners holding the bag to pay for the replacement. To learn more about funding reserves see -> https://www.reservestudy.com/resources/.
- Provide complete financial reports to owners on a regular basis.
- Strive to be consistent and fair in all dealings with the owners. The best way to do that is to document, document, document. Write and approve via Board motion Policies and Procedures for maintenance, enforcement, fines, late fees, payments, etc, etc. All governing documents are going to have some gray areas in them. Problems ensue if different directors over time interpret restrictions or rules differently. Adopt a specific interpretation of any ambiguous restriction or covenant by way of a board enacted motion and publish that in the Rules & Reg or FAQ. This makes it clear to owners and directors alike how those situations are handled when they come up.
Long term goal is to establish a framework for board members (and a management firm if you have one) to follow year after year to ensure that the property is maintained and operated according to the standards that the owners put into the Declaration and that the board has enhanced and expanded over the years. Remember that all deeds to property in community associations contain language that all owners upon purchase ratify and agree to the terms in the Declaration. In essence, the owners have created the covenants applicable to their community and the board has been tasked by the owners to ensure they are followed.
This post has been generously been contributed by Toby Kraft, who having steered his HOA through a makeover was willing to share his experience.
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