Tuesday, 23 October 2018
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This Old House - Do-it-Yourself

Ask the HOA Expert: Payment Plans

Written by Posted On Wednesday, 04 April 2018 20:05

Question: We have a unit owner who is over a year delinquent. Our property manager took it upon herself to set up a payment plan to include the dues plus $50 extra per month. It will take over three years to pay off the late assessments! Is it typical for managers to make this kind of decision without input from the board?

Answer: No, the manager should not have made any deal unless the board authorized it. If the manager was not authorized, the board can rescind the offer and tender a demand for payment in full.

Has your board adopted a formal Collection Policy? That policy should call for aggressive measures like filing liens against the unit, garnishing wages and foreclosure if allowed in your state. The policy should allow the use of an attorney to collect rather than a collection agency. The attorney will press for full payment of the delinquency, late fees, attorney fees and related costs so that the HOA gets all the money it's owed. Collection agencies generally take a percentage of the proceeds. Waste no more time on this urgent matter. Collections are of prime importance.

Question: We have two board members that plan projects outside of the board meetings. When the rest of the board finally finds about them, they are already in process. This is creating unnecessary tension or friction.

Answer: Board members can research anything they want outside a board meeting. But if it is something that requires board approval, that approval needs to happen. If a majority do not approve the proposal, it dies on the vine like any other. However, sometimes a project is in keeping with the budget and can be approved by the Board President. Speak to the individuals in private and insist that all projects need to be at least run by the President. If the President feels the board needs to weigh in, the project will need to wait until the board convenes.

Question: Our current HOA fees have been the same amount for seven years. The proposed budget is calling for a 30% increase with an additional $500 special assessment. I understand the importance of maintaining the property and providing adequate reserves for future capital projects. However, at what point do high HOA fees have a negative impact on unit market values?

nswer: Your board is finally addressing a long overdue reality: HOA fees that don't keep pace with increasing costs and inflation will prevent the board from paying for adequate maintenance, repairs and services. Over seven years, inflation alone would cause a 30% increase in prices. Boards that fail to increase HOA fees each year usually pay for cost increases by starving or stealing from reserves. Over time, though, reserve projects like painting and fencing can no longer be avoided and the board is forced to address the deficit by increased fees, special assessments or both.

While the HOA needs to be competitive with similar HOAs, keeping HOA fees artificially low is not how to do it. Too many HOAs keep their fees artificially low by ignoring reserves. Because of this, future owners will be forced to pay for expenses that should have been partially subsidized by current owners.

As a general rule, 25-35% of HOA fees should be dedicated to reserves which are only used to pay for major renovation work like painting, roofing and paving. (A professionally done reserve study will produce a funding plan specific to your HOA's reserve needs. See www.apra-usa.com for a list of qualified reserve study providers.) The balance of the HOA fee should be adequate to pay for operating expenses (management, landscaping, pool, etc.) without stealing from reserves. That means that HOA fees should increase a minimum of the current inflation rate each year, currently around 2.5% .

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

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Richard Thompson

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 rich@regenesis.net.

www.regenesis.net

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