Question: The board has announced that collection and rule violation hearings will be held in public. Is this advisable?

Answer: All collection and rule violation issues should have an established process which includes notifying violators in writing, stating the specific details, the correction needed, the penalties for failure to comply and the right of appeal. If an appeal is requested, a private hearing should be held at a convenient time and place where the board and accused can discuss the issue.

It is not appropriate to hold public meetings since the accused may not be guilty or there may be extenuating circumstances. Regardless of the guilt or innocence, the board should never engage in public humiliation of its members. Besides a legal challenge from an offended owner that could embroil the HOA in a lawsuit, it just makes practical sense when neighbors are governing neighbors.

Question: Our HOA has only one bank account for both operating and reserve funds. This frequently gives the board the impression that there is more spendable cash then there really is. If we run short, money that was intended for reserves gets tapped.

Answer: Operating and reserve funds should be kept in separate bank accounts for exactly the reason you point out. Reserve funds are intended for specific repairs and replacements scheduled to take place in the future, some times many years away. If reserve funds aren't protected from operating budget shortfalls, the money won't be there in the future when it's needed and the HOA will be forced into unfair and unpopular special assessments.

Question: I read somewhere that the cost of a reserve study should be paid for out of reserve funds rather than the Operating Budget.

Answer: It depends. It's reasonable to pay for the initial reserve study with reserve funds. Afterwards, some states require annual reserve study updates. Whether mandated by state law or not, it makes good sense to update the reserve study annually to keep it accurate, just like the Operating Budget. So the cost of an annual update should be included in the Operating Budget. If the reserve study is only being updated every few years, it makes sense to plan for it in the reserve study.

For more Ask the HOA Expert, see Regenesis.net.

Published: November 7, 2007

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Richard Thompson owns Regenesis, a management consulting company that specializes in condominium and homeowner associations. He is a nationally recognized expert on HOA management issues. Regenesis publishes The Regenesis Report, a monthly newsletter for HOA boards, developers and managers. To subscribe, go to Regenesis.net. He can be contacted by email at .