What You Need to Know When the HOA Takes Over from the Developer

This article is Part 3 in our series about Home Owners Associations (HOA’s). Part 1 was called “Meet the New Boss – Your HOA“, and Part 2 was “What You Need to Know about Your Home Owners Association“. We are grateful to Joe West, CEO of the Community Associations Network, for his assistance in preparing these articles.

As if Home Owners Associations (also called Community Associations) and condo associations didn’t have enough issues to deal with, at some point in their lives also have one colossally important matter to work on. That would be the handling of the community’s transition from Developer run to HOA managed. How that process is handled will impact the community for years and years to come.

We talked with Joe West about some of the issues to be aware of in the transition. Here is a summary of his responses:

TR: Many communities take over primary responsibility for the management of a development, presumably when all of the units are developed or and sold – correct?

Joe West: The transition from developer controlled HOA or community association is governed by documents developed by the developer. It can vary from state to state, there is nothing universal controlling. Usually it revolves around a target percentage of the units being sold. 

TR: What should the association do to manage the process successfully?

Joe West: It is critically important to be smart about this transition. The first thing the association needs to do is to hire a competent attorney and an auditor who have experience in this field. This will cost money, but you have to do it. 

The board and your advisors need to find out if the developer did everything they were supposed to do under the documents and state law, and didn’t do things they weren’t supposed to do.

1. Violations. In many cases you will find the developer allowed violations of their own documents (precedents). I saw one developer who violated every rule on the books, including allowing two owners to build a volleyball court on the common area, which also happened to be protected wetlands. The association needs to get those issues under control fast.

2. A good audit is needed. More times than should happen, funds have been comingled and the books are not up to snuff. You have to make sure that money residents paid in for assessments didn’t go to pay for items the developer should have paid for themselves. Sometimes it is just that the developer used his trucks to plow snow and paid himself, but you need to make sure everything is documented and on the up and up. An association needs to start off on a sound financial basis.

3. Reserves. You need a professional reserve study to tell you the condition of the property’s common areas like roads and clubhouses and provide you with a plan on how you’re are going to handle the repair and replacement of these items in the future.

4. Get organized. This is so critical it’s not even funny, getting things going the right way at the beginning. Your board has to get started on the right foot, with competent people in critical positions. If there are outstanding issues, work on them right away. If you let things slide there will be nothing but hard feelings when you have to enforce them later. We often see an initial board that is passive, then an active association board comes in and cleans things up – that often leads to court troubles that could have been avoided. Errors are hard to undo, so be brave and do it right the first time.

5. Set up effective communication from the start. Effective communication and transparency with your residents is key. Get your newsletters, website, and other communication active early on. Try to keep your communications upbeat, simple and frequent. Don’t put out a newsletter that is basically a list of “Don’t do this” items.

TR: How do you assess the condition and performance of most HOAs?

Joe West: Most HOAs and condo associations I see are doing a good job. You don’t hear about them because they are quietly running well – they have competent, hard-working officers who attend to their responsibilities, often with good management and other professionals (attorney, CPA, reserve analyst). Leadership is the key to success. Elect good people and you get a good association, one that’s a nice place to live – elect not-so-good people, and you get problems. Of course many associations are being hurt by delinquencies and foreclosures of their residents. They are having a hard time right now, cutting or postponing major repairs because revenue is tight, but that’s happening for people who don’t live in an association also. The key here is that if you’re looking at moving into an association, pay real close attention to their financial condition.

TR: How can associations find advisors and other help.

Joe West: Organizations like ours (Community Association Network), Community Associations Institute, and HOA Talk.com are good places to start. There are several law firms in F and CA that put out great newsletters you can sign up for online. Online classes for board members are also a great idea. 

TR: What is another problem you see with ineffective associations?

Joe West: Apathy is a major problem in many associations. Associations are most successful when the owners take an active interest in what’s going on and who they elect to govern their community. It doesn’t take a whole lot of time, even if you serve on the board, but it is especially important when the association is new and transitioning to owner control.

Thanks Joe, I am sure that our readers will find this very helpful!

Courtesy: TopRetirements.com
http://www.topretirements.com/blog/real-estate/what-you-need-to-know-when-the-hoa-takes-over-from-the-developer.html/

This article is not intended to be specific legal advice. It only provides general legal information. You should consult a licensed attorney if you have a legal issue.  

What You Need to Know About Your Home Owners Association

This is the 2nd of a 3 part series of articles about homeowners associations, the organizations that have an outsized influence on your life in a condo, 55+, or active adult community. The first article, “Meet the New Boss, Your HOA”, talked about many of the problems to be of aware of concerning Home Owners Associations. Part 3 focuses on “What You Need to Know When the HOA Takes Over from the Developer“. In this article we were fortunate to gain an in-depth interview with Joe West, CEO of Community Associations Network, who provided his insight on the basics everyone should know before they commit to living in any community governed by an HOA. Joe’s organization, which is found at Communityassociations.net, is the largest free website of information for condo and HOAs. The third article in the series will cover the important points to consider when the day-to-day management of the community passes from the developer to the HOA, which typically happens once all or most of the units have been sold.

TR: What’s the first thing we should know about Home Owners Associations?

Joe: The first thing that you need to know is what the association is responsible for and what you, the owner are responsible for. Sometimes the terminology can be confusing. In a condominium association, generally the association takes care of everything from the perimeter walls out, including roofs, siding, roads, lawns, etc. In a Homeowner or Property Owner association, the association generally takes care of the common areas, which may include roads, gates, amenities and so on. They usually don’t take care of the home or structure, itself. However, this will vary from association to association and from state to state. In some states, the media and owners often refer to both types as “HOA’S”, even though it may actually be in a condo. This is why it’s so important to read and understand the documents, sometimes called “CC&R’s” (Covenants, Conditions & Restrictions) or Master Deeds & Bylaws. The generic term “Community Association” covers all of the forms of associations where membership in the association is mandatory. Unfortunately, laws governing the nation’s estimated 270,000 residential and commercial HOAs are confusing and sometimes non-existent. States like California and Florida have extensive laws governing them, but many other states have just a condominium law or a poorly written, often amended HOA law. As we shall see, the absence of clear legal guidance can be a problem.

TR: Joe, what is your number 1 piece of advice for anyone buying into a development with an HOA?

Joe: That one’s easy – Don’t fall in love with the house before you check out the association. You have to be comfortable with a few important things: the rules that you will have to follow, the people governing the organization, and its finances.

TR: Could you give us an example of why that’s important?

Joe: Sure. Especially today, because of the economy, there are some community associations where a 1/3 or more of the owners are not paying association dues. What that means is that at least in the short term, the remaining residents will have to make up for that by paying higher fees and special assessment s. The people who live in condos generally understand that the building has to be maintained and that there will be expenses required to keep it running. But in HOAs, particularly those with predominately single family homes, the new residents don’t realize the scope of the infrastructure that has to be maintained – roads, landscaping, recreational facilities, etc. That requires money, but the benefits aren’t always visible. Similarly new residents are usually not prepared for the amount of HOA control they are now under. After years of living in the suburbs where their home is their castle, many become upset when they realize that exterior colors, fences, decorations, and improvements will be tightly controlled in their new community. One of the key areas that is often overlooked when someone is moving into the association is, how does the board govern? The basic rule of associations’ is that good boards make good associations – bad boards make problems. Make sure you read the minutes of board meetings before you move in (at least a year back) and once you live there, pay attention to what’s going on and who you elect. 

TR: To be better prepared, what steps should a new buyer take before entering into a contract to buy a home with a Home Owners Association?

Joe: The first step is to gather the information to help you assess the HOA. Unfortunately that’s not always easy. In many states, the HOA is often prohibited from providing a new buyer with information directly. So anything you get will have to come from the seller. You should ask for the HOA master deed and by-laws (governing documents), recent minutes, and financial statements at a minimum. While some states, like Virginia, have strong disclosure rules protecting buyers, many other states have no rules at all, even though disclosure is in everyone’s best interest.

Secondly, you either have to read and understand these documents yourself, or hire a lawyer, financial planner, or accountant to review them for you.

Third, if the seller unreasonably delays getting you the documents, or won’t provide the information you asked for, be prepared to walk away. There is probably a reason why they won’t, a reason you want to stay away from. At a minimum you can get some of this information by going to the local office where deeds are recorded and ask to see the restrictions and covenants that are attached to the property. Unfortunately, the minutes and financials (last audited financial statement, current year-to-date financial statement and current budget) will probably have to come from the seller.

TR: What kind of problems are you seeing in HOAs and condo associations these days?

Joe: First, let me say that the vast majority of these associations are well-run. They take care of problems and they maintain their properties. The problems we see among community associations usually come when they are not proactive, instead reacting only after an issue has arisen. There are many problems that can occur in a community, because you are dealing with people and their “castles”, but most of them can be avoided with planning and oversight. More problems are coming up all the time, and associations need to be ready for them. Since the advent of the Internet, a issue in Florida can and will become an issue in New Hampshire at lightning speed. A recent case in Chicago, where a Jewish couple’s mezuzah was prohibited on the exterior condo door frame (a common area), is a good example. That case led to a discrimination suit because Christmas wreaths were allowed on doors. Thanks to the Internet, it quickly became an issue for communities across the country. Pro-active solution: What can or can’t be placed on a common area needs to be thought out in advance and take into consideration our multi-cultural, multi-religious society.

Another big problem is not being pro-active financially, which means planning ahead and establishing reserve funds. Condo associations generally understand the need to plan for and adequately fund reserves, but often HOA’s ignore or underfund them. If the board never gets around to setting up a reserve for their maintenance or replacement, a big assessment will come out of the blue some day and cause much heartache.

Lastly, lack of transparency is a frequent HOA board problem. Meeting minutes should be quickly and prominently posted. Members of the community have a right to know what is going on and have the ability to provide some type of input. Associations should have newsletters and a web site to provide solid information on a timely and continuing basis.

TR: Thanks Joe, we appreciate your advice.

Courtesy: TopRetirements.com
http://www.topretirements.com/blog/active-adult-communities/what-you-need-to-know-about-your-new-homeowners-association.html/

This article is not intended to be specific legal advice. It only provides general legal information. You should consult a licensed attorney if you have a legal issue.  

Buyer Beware (Avoiding HOA Nightmares)

One of the biggest real estate investing mistakes I have ever made was purchasing a condo in the Fontaine East “community” in Dekalb County Georgia, a community lacking an effective (knowledgeable) Homeowner’s Association (HOA).  Actually, what I bought is a veritable property owner’s nightmare!

Once I realized just how much of a mess I had gotten myself into, I decided to be a part of the solution…and I was, for three years as my HOA board president. During the tenure of the board (neighbors) that worked together, we made many obvious changes/improvements to our community. We banned together to combat a growing crime problem, we lowered association fees and improved the overall HOA payment rate to nearly 47%, we removed board members (neighbors) who were serving (not serving), the interests, both neighborly and financial of the community.

Due to personal reasons…(I was verrrrrrry pregnant and placed on bed rest), I resigned my position as president and now, once again, my “community” is in dire straits. *To the point that I no longer feel safe and have been forced to move. There are abandoned vehicles throughout the community, crime has/is increasing exponentially, buildings and units are being vandalized, the pool has been allowed to become a cesspool and eyesore, the roof repairing schedule we had come up with is null and void, and the board (many of whom are the same people who were sitting on the board when I purchased my condo, are once again “serving” without being properly voted into office)…and this is just to name a few complaints! The folks sitting on the HOA board at this time, have raised HOA fees, they have placed liens on many owner’s homes, thereby causing many folks to foreclose, (further adversely affecting property values), AND MOST DISAPPOINTINGLY, they have fostered a general apathy among neighbors.  Additionally, since no visible signs of proper management nor improvements can be seen on the premises, most, homeowners (including myself), have refused to pay fees to folks whom have from the onset, proven that they really do not know (or do not truly care about), what they are doing!

Yes, I am fully aware of my contractual obligations in living in a mandatory HOA community, however, I am also very aware of the FIDUCIARY OBLIGATIONS owed me (and my fellow neighbors), from the board of “directors.”  It is quite obvious that those serving on the board of directors at this time are obviously ignorant to and careless with the value of the hard earned money of their “neighbors.”

Additionally, what is an extreme slap in the face to all the hard work previously done in the community, is the fact that there are a few “vendors” whom were forced, (via court order) to release our community from bogus contracts…who are once again being allowed to “service” and make undeserved money off of our community. Now, we also have board members serving who either by admission or by fact of research owe HOA fees themselves and yet they continue to (a) improperly and illegally SIT on the board, AND, (b) at least three members (who are admittedly behind in fees), one of which has been paid, in my opinion exorbitant amounts of money to make “repairs” in the community, have numerous invoices for “services” provided. This truly alarms and angers me, especially given that our community bylaws specifically outlines the degree to which board members are to be “contracted” to provide services for the community…it is an obvious conflict of interest.  AND YET, THE BOARD IS DILIGENT (VIGILANT) IN ATTEMPTING TO FORCE FELLOW HOMEOWNERS TO ABIDE BY THE BYLAWS AND DECLARATIONS OF OUR “COMMUNITY”!

My major concerns regarding my present HOA board and the impending demise of my community (and my hard-earned investment), is that the board is not fair in their enforcement of bylaws and covenants (as is evident in the fact that board members are obviously exempt from the ramifications and legal parameters for non-payment of fees); none of the board have ever been properly voted into their positions, and yet they expect homeowners to in good faith, give them access to our hard earned money, in the form of HOA assessments; they are rude and condescending to owners at the sporadic meetings they hold and do not and have not ever provided any substantial information regarding the management of our community (other than copies of a financial statement generated by a management company); and they continuously withhold from owners, what I deem to be pertinent and necessary financial information regarding the financial status of our “community.”

I guess my concerns and dissatisfaction with the manner in which this board is presently “serving” the community stems from the fact that I KNOW UNEQUIVOCALLY HOW WELL THE COMMUNITY CAN (AND WAS) BEING MANAGED WHEN THERE ARE PEOPLE WHO TRULY “SERVE” THE COMMUNITY (NOT JUST IN TITLE), AND AS WAS EVIDENCED IN THE NUMEROUS, VISIBLE, IDENTIFIABLE, POSITIVE CHANGES THE COMMUNITY EXPERIENCED WHEN NEIGHBORS CAME TOGETHER TO WORK AS A UNIFIED FRONT AND “COMMUNITY.”

Further, it just really pisses me off (please excuse me), that (1) when I was paying my fees, they were not doing jack diddly and yet because the prevailing laws regarding HOA’s in no way serve, protect, nor offer real recourse to home owners, I am expected to basically donate my money to folks undeserving of having access to my HARD-EARNED MONEY; (2) the audacity of board members to think that I am willing to give them my hard earned money (to put in their pockets…I wouldn’t mind board members having contracts with the community if I could actually see things being done); (3) board members are jeopardizing home owner’s investments both individually and as a collective, for fee payment negligence, (when several of them are negligent), AND, (4) the blatant arrogance in their wrong doings.  It really makes me want to spit, every time I drive into my community which is more aptly described as a “ghetto” now.

In my personal search to find some relief and escape from my neighborly nightmare, I have come across the following helpful information that other disgruntled homeowners may find useful in learning more about condominium laws and rights as a homeowner.

1 - Do a search of your state’s official government homepage and look for links to state “laws,” “statutes,” “codes,” or “legislation.”

2 - For general information on homeowner’s association law, try visiting the Community Associations Network.

3 - Visit the Community Associations Institute on line which offers a myriad of information, resources, publications, and legislative activities.

4 - Attempt to work with your neighbors in making your community a nice place to call home, BUT, if this fails, take more drastic measures to save/protect your investment.

5 - Galvanize other concerned neighbors and work to have board members removed who are not serving the best interests of the community.

6 - Start a letter writing campaign (as I have done).  Write letters to anyone and everyone who will listen.  Contact elected officials, attorneys, judges, newspapers, radio stations and anyone willing to hear you and your neighbors out.

7 - Ask to review your community’s files and records (as is the law pursuant to The Georgia Non-Profit Corporation Code. *Homeowners are allowed this right REGARDLESS AS TO WHETHER THEY ARE DELINQUENT IN HOA FEES OR NOT.

8 - Hold your board of Directors accountable for any and all financial decisions (contracts entered into on behalf of the community), monies spent/disbursed; reserve account balances, etc.

If all else fails, contact a good lawyer(s) (as I have done) and research your rights and abilities to sue.

In the end, unless you are fortunate to sell your property and move on, neighbors will have to come to a happy medium and learn to work with each other…and in the case of HOA boards, work for the best interest (both financial and neighborly), of one another.

Courtesy: Yolanda J. Ash
http://yolandajash.com/real-estate-and-investing/buyer-beware-avoiding-hoa-nightmares/

This article is not intended to be specific legal advice. It only provides general legal information. You should consult a licensed attorney if you have a legal issue.