Tuesday, November 4, 2014

Amend This

This is the fourth in a series of postings providing a detailed look at the governing documents for homeowners associations (HOAs). 

In our last posting, we discussed assessments.  Board members often request ideas on changes that can be made to the Declaration and Bylaws to strengthen their communities.  Here are some items related to assessments that we are seeing included in brand new communities.  As always, consult with your Association’s attorney before incorporating these ideas.

Construction Deposits.  Because of the potential damage that could occur to the common area, the Association should have authority to establish a construction deposit when an owner is making modifications, alterations or additions to his home.  Costs for repair of such damage may be deducted from the construction deposit and any additional expenses would be specifically assessed against the home.

Special Assessments.  Special assessments historically are capped at $200 before a community-wide vote is triggered.  Due to inflation, this cap may, at some future date, be raised to a higher level by the Georgia legislature, but communities will only be able to take advantage of this if their documents indicate they can do so.

Borrowing. To handle some emergency repairs, rather than relying on a special assessment, the community may want to authorize the Association to borrow up to a certain threshold, such as $10,000, without the need for a vote.

Audit Review. There are different levels of auditing available, and it makes sense that at least bi-annually the community has a CPA provide an independent review. 

Operating Budget.  If the Board fails to establish a budget, or the community votes down a budget, the default is to go with the previous year’s budget.  To avoid deteriorating services, the prior budget should be automatically increased by a minimum inflation rate determined by something such as the Consumer Price Index (CPI). 

Capital Budget.  To ensure that accurate numbers are being used in long range planning, communities are starting to require reserve studies prepared by an independent qualified engineer.  Such study shall be updated at least every 4 years. 

Working Capital Fund.  Often an initiation fee or capital fund is listed as a fixed amount in the documents.  Tying the amount to a percentage of the annual assessment makes more sense in keeping up with inflationary costs. 

Foreclosure Administration Fee.  Foreclosures create substantial administrative and other burdens on the Association, such monitoring the status of mortgages and legal periodicals to determine when foreclosures occur, searching the land records for names of the purchasers, contacting the foreclosure purchaser/owners regarding responsibilities and assessment obligations and updating Association records multiple times.  The Association should be able to assess a fixed rate amount, such as $1,000, at the time of foreclosure to offset these costs.

More amendment ideas headed your way in upcoming posts!

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