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Long Range Planning In Your HOA

Written by on Tuesday, 24 March 2015 12:52 pm
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A manager of a seniors homeowner association once commented "We have to approach long range planning carefully around here. Many of our residents won't buy green bananas."

While it's understandable that some folks may not relate to long range planning for practical reasons, the truth is that many, regardless of age, live "in the now". This attitude is reinforced by the incredible abundance with which our country is blessed and a sense that no matter what happens, someone will be there to catch us if we fall.

Homeowner associations are based in the premise that sharing common property makes the unaffordable affordable. The framework allows ownership of parks, pool, ponds and other expensive amenities that few homeowners alone could support. In common wall communities, individual owners turn over their exterior building maintenance duties to the association and agree to pay a fair share of the costs. Sharing such costs reduces costs to the individual IF proper planning and execution are involved.

Reserve funding is an issue that frequently causes associations to stumble. The premise of reserves is that money is set aside systematically to pay for big ticket items like roofing, painting and street maintenance. Since these repairs or replacement crop up infrequently, when they do, the costs are significant. If there has been no systematic accumulation of money to pay for them, guess what? Special Assessment Time!

Special assessments are the product of poor planning. They penalize current owners who are unfortunate enough to live in the community when major costs come due. Prior owners skate on their obligations leaving current owners to hold the bag. Special assessments are particularly burdensome because they:

  1. Put some owners in an immediate financial crisis.
  2. May be uncollectible if an owner's equity is small.
  3. Are always politically unwelcome and,
  4. Pressure the board to defer needed maintenance to avoid the turmoil.

HOAs that fail to plan for major long range expenses typically do not handle day to day association business very well either. The two seem to go hand in hand. Those HOAs typically keep fees unrealistically low and, by so doing, services are starved, maintenance lags and curb appeal suffers. Curb appeal directly impacts market value of the homes so in a real sense, owners are cutting their own throats.

There is a fundamental conflict of interest at work here: The long term financial and maintenance needs of the community conflict with the individual homeowner's short term desire to hang on to the money a.k.a. the Green Banana Syndrome. A homeowner living in a stand alone home has the luxury or misfortune of doing business this way while a homeowner association will fail miserably if it does.

A reserve "philosophy" is a fundamental ingredient of HOA policy. The best way to solidify that philosophy is with the adoption of a Reserves Resolution. This resolution reflects the desire of owners to do long range reserve planning and funding. Such a resolution curbs the impulses of some boards "to raid the cookie jar" by misspending reserve money or failing to add to reserves when the plan clearly calls for it. A Reserves Resolution is a critical step toward proper care of the community.

Consider the negative effects of Green Banana thinking on your assets. If such is the case in your community, be aware that you are on a slowly sinking ship and need to take action before it's too late.

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  About the author, Richard Thompson

Individual news stories are based upon the opinions of the writer and does not reflect the opinion of Realty Times.