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Ask the HOA Expert: Collection Policies

Written by on Tuesday, 09 August 2016 2:55 pm
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Question: Our collection policy states that if an owner is 30 days past due, the management company sends a pre-lien notice letter. Several board members think the board members should be notified when these letters are sent.

Answer: When a collection process is implemented, the board should be kept apprised of the progress. It is easily and cheaply done by email to all board members. It is standard procedure for the management company to keep the client informed of significant events like this.

Question: We are having a difficult time with our management company providing accurate, complete and timely financial statements. Month after month, the same problems. We've written them letters and met with them in person yet no improvement. We've had it and want to terminate the contract but fear they won't release us.

Answer: Providing accurate and timely financial reports is an HOA management company's highest priority since money is an essential component of the HOA's operation. An occasional error is to be expected but ongoing errors is another matter. Either the management company is doing it correctly or not. Numbers don't lie (except at Enron).

Management contracts cut both ways. If one party is not living up to its end of the bargain, it has no right to continue. The board or HOA's attorney should advise the management company of the specific breaches that are the basis for termination. If the facts are true, there should be no argument.

Question: Our board of directors recently passed the following resolutions. Be it resolved that:

  1. Board members shall be on signature cards of all bank accounts.
  2. Management company may not sign any checks without the approval of the board.
  3. Management company shall produce true and accurate financial statements.
  4. The HOA will not be responsible for any late fees incurred due to failure by management company to make timely payments.
  5. Management company must develop a system to pay HOA bills on time and correctly.

Answer: Clearly the board has many issues with the current management company which need to be resolved, and soon. Observations based on your numbered resolutions:

  1. Both the President and Treasurer are usually signers on the HOA's bank accounts. This should be done as soon as possible. If the management company interferes, get a new management company.
  2. The management company should be authorized to pay itself for normal monthly charges authorized by the management agreement. Special billings should receive prior approval from the Board President. It should only be necessary to get the whole board to approve a payment when it's outside the approved budget.
  3. The management company should normally produce a monthly income and expense statement and reconciled bank statements by no later than the 15th of the following month.
  4. This is reasonable. The HOA should not pay for late fees caused by the management company.
  5. Many HOA management companies pay bills twice a month to avoid unnecessarily delaying payment or incurring late fees. The HOA, of course, must have the money available to pay the bills.

Question: Do board members have a legal responsibility to follow the reserve study recommendations?

Answer: The board should be careful about deviating from reserve study recommendations. Most reserve studies recommend a funding plan that steers the HOA away from special assessments. If the board decides to fund reserves less, the risk of special assessment grows.

If a special assessment is called for due to under funding, a case could be made that the board did not fulfill its fiduciary duty and be held personally liable. And just as importantly, past owners who have sold will not have paid their fair share. Unless there is a compelling reason to deviate, the board should follow the recommendations.

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