Protecting Your Covenants

One Board member asks, “In your Board training class, you mentioned that a benefit of converting our community from a common law homeowners association (HOA) to a statute Property Owners Association (POA) permits us to rely on automatic statutory liens, rather than having to file paper liens on delinquent homeowners.  What if our Declaration of Covenants (CC&Rs) already says that we don’t have to file paper liens, even though we are not a POA?”

Great Question!  If your community is not submitted to the POA, then a paper lien is still required to protect the Association’s debt claims, regardless of what is written in your Declaration.  Your Declaration doesn’t overwrite the law regarding property lien notification.

There are certainly a lot of reasons to convert communities over to Georgia’s Property Owners Association Act (POAA), and we encourage all of our clients to take steps to gain such protection.  Here are some of its benefits:

• Creates certainty – HOA authority is constantly changing under court challenges, but more of your regulations are locked if you are operating under the POAA
• Explicitly states homeowner protection from being sued individually against claims others may make against the Association
• Provides 21 days notice - rather than the normal minimum 10 day notice - required for upcoming meetings
• Clearly allows you to hold renters liable for their actions
• Places prospective owners on constructive notice about assessments
• Shifts the burden of collection expenses onto the delinquent homeowner
• Automatic statutory liens established, so you no longer have to pay $200+ in legal fees filing paper liens
• Avoids lien invalidation due to accidental misspellings
• Buyer and seller jointly liable until all funds collected at closing
• Association may foreclose on HOA debt while leaving the home loan bank note in place
• Blocks a judge’s arbitrary waiver of late charges, fines and attorney fees
• Amendments to the governing documents can be applied equally to everyone, not just those that voted to approve an amendment
• Creates a one year time limit for challenges against amendments
• Establishes a range of 66% to 80% required approval for future amendments
• Any regulations that are a violation of federal/state law may be amended automatically without a community-wide vote (such as removing rules that are now considered Fair Housing Act violations)

If your community is currently operating under a common law HOA regime, get with your property manager and legal counsel to explore how you can enact the above protections!

Email Exchange

Anyone who has worked as a Community Association Manager (CAM) for any length of time knows that responding to homeowners as quickly as possible is key! A quick response time goes a long way in forming a homeowner’s impression of us as a manager, their impression of the company we work for and their impression of the Association we work with.  Over the years as technology has evolved, the many ways for a homeowner to make contact with his/her manager has also changed.  Most managers do the vast majority of communicating through email - so being cognizant of how email is used becomes very important.

Email is a great “written” record of the exchanges we share with anyone - homeowners, contractors, etc. It is so convenient to go to your archive to find exactly what was said, agreed to, promised, etc. Besides being mindful of your grammar, punctuation, etc., WHAT and HOW you say something is equally as important. How many times when looking back through an email (after the fact) have you been surprised at the content????  Sometimes you can unknowingly become engaged in a long email trail with an unhappy homeowner - and even the most disciplined and low key manager can find themselves in this position at one point or another.  However, in some instances, what starts as a simple reply to a question, request or concern quickly changes tone and turns into something you would never remain engaged in if the person was physically in your office.  

  

Here’s what is key – make every attempt to craft each email response with the understanding that, should your email be brought back to support a legal action, it will reflect nothing but the kind of professionalism valued in our industry.  Clear, concise information that sticks to the subject is best.  Address everyone in a respectful manner, using the same etiquette you’d expect of a business you would want to become involved with.

 

In the end, your participation in all exchanges will be seen as a straight forward, friendly and professional attempt to be of assistance and address concerns of the homeowners and Boards we all serve.  

Reserving Activity

One of our clients asked the following:  I know that we transfer a fixed amount into the reserve account monthly.  My confusion is handling excess operating income and properly reporting the funding of capital projects.  In years where excess revenue exists, do you do an end-of-year transfer to the reserve account?  Should all capital projects be placed in the operating budget?  If so, this will create a net deficit.  Does this mean that instead of having a monthly transfer into reserves we then have to transfer from the reserve fund back into operating?  I don't see the point in doing both.  If there needs to be a transfer from the savings/reserve account, does that take place monthly, as needed or end of year?

Should reserve activity be included in the operating reports?  Communities with large volumes of capital reserve work often set up a separate set of reports to keep up with reserve activity.  Smaller communities with no amenities frequently roll in all reserve activity on the regular operating budget comparison report.  The Board should select whichever method is the least confusing for it to follow.

How often should funds be transferred in to reserves?  For smaller communities, it makes sense to just do a single transfer of funds into savings at the end of the year.  Otherwise, it is best to schedule transfers to occur throughout the year.  Failing to plan is planning to fail, so Boards should actively plan for future large expenses by being disciplined in their savings pattern.

What about the problem of net deficits because of reserve expenditures?  If you are combining your reserve activities with you regular operating budget, your comparison report should have a sub-total line that captures the net effect of your regular day-to-day operating expenses, which hopefully is always a surplus.  If instead you are keeping track of capital expenditures separately, you definitely need a line item showing reserve fund transfers.  In either case, if there is a negative net total at the bottom of your report, this indicates that money is coming either from past year savings, or a bank loan.  You can trace this answer back to your balance sheet (the place that keeps track of all your money), under the line item ‘Net Income’, which should always match what appears on your budget comparison report.  

So why should we do transfers to a reserve account, if we are just going to move the money back to operating?  It used to be ‘standard procedure’ for communities to shuffle budget numbers to make it appear that money was being saved (and actually saving this money, not spending it on capital projects), when often there was no intention or ability to actually do so.  Bank loan underwriters are now savvy to this ploy, and have been rejecting home loans because of it.  Do not set up a monthly reserve transfer if you know that the money will have to be spent during the current annual operating cycle.

Obviously, financial reporting for an HOA or COA substantially differs from that of personal finances or even many for-profit businesses. It is extremely important to partner with a 3rd Party Expert (in this case a CPA) that actively deals in the Association industry. Reach out to your manager or your local CAI chapter for more info/recommendations!