Homeowner Resources

HOA & Condo Assessments: What Can & Can’t Be Collected from an Owner
Posted on January 3, 2020 by Jim Slaughter 


Obligation to Pay Assessments
Homeowner dues (legally called “assessments” by statute) are the lifeblood of an association. Most all HOAs and condominium are nonprofit corporations. That is, community associations are not designed to make money; they are designed to pay the association’s bills. Associations basically act as agents for collections by other entities—water, garbage, electricity, landscaping. The funds collected are not kept by the association, but are forwarded to other parties, including the government. For example, many of our associations pay the premiums insuring all units each year.

Unless assessments can be collected the association will owe debts but not have the funds to cover them. And because associations tend not to have excess funds sitting around, any shortfall can usually only be made up by:

not paying necessary obligations,
charging other homeowners higher amounts, or
allowing the community’s common elements to deteriorate.

All purchasers who buy into an association agree by contract (in the “Declaration”) to pay certain amounts, and it simply isn’t fair to the other owners to allow a few non-paying owners to hurt everyone’s property values. Given all these considerations, our advice to associations is to be vigilant (while also being fair and courteous) in pursuing past-due assessments.

Collection of Assessments
We are often asked as attorneys what can and can’t be charged to a homeowner during the collections process. The answer is complicated and can vary depending on the facts and governing document language for each community. However, here are some general considerations when collecting assessments in North Carolina and South Carolina.

NORTH CAROLINA

Assessment collections in North Carolina for both HOAs and condos is heavily regulated by statute. And those statutes often override specific language in the Declaration or Bylaws. Because improper collections can violate federal and state collection practices statutes (and carry penalties), it’s important to have good collections practices and to carefully follow them.

Generally, in North Carolina a homeowner is obligated to pay the following amounts for nonpayment of assessments (FYI, the process for collecting fines as a result of violations is different and the subject of other articles):

The past-due assessments owed under the Declaration
Late charges not to exceed the greater of $20.00 per month or 10% of any assessment installment unpaid
For older associations, interest if allowed by the Declaration (not to exceed 18%); for newer associations, interest as established by the Board (not to exceed 18%)
Reasonable attorneys’ fees and court costs as permitted by statute so long as certain steps have been followed.

If such amounts owed are not paid, a claim of lien can be filed on the property and (after many more steps) foreclosure proceedings can be commenced. While such recourse may seem harsh, the prompt collection of assessments is necessary in order for associations to pay their obligations and avoid increasing assessments for members.

FYI, in the mid-2000’s, the NC General Assembly amended the HOA and condo statutes to provide that “[A]n association shall not levy, charge, or attempt to collect a service, collection, consulting, or administration fee from any lot owner unless the fee is expressly allowed in the declaration . . .” The intent behind this change was to prevent homeowners from being billed surprise charges beyond those allowed by statute, whether related to costs of a third party collection agency or the actions of a community management company. While such charges can certainly be paid by the association, legislators did not want homeowners charged these amounts without supporting language in the Declaration. As a result, any such charges billed to an owner must be clearly allowed by the documents and must be reasonable as to amount.

http://lawfirmcarolinas.com/blog/hoa-condo-assessments-what-can-cant-be-collected-from-an-owner/


Are Bargain HOA Assessments Really a Bargain?
by David McConkie | Apr 10, 2019

Assessments can be a big determining factor for people looking at buying a property in an Association. The amount charged can vary drastically from one HOA to another, and because people often look at the dollar amount and not the whole picture, you might fear shooting yourself in the foot with assessments that are too high. But what does a lower fee really mean for your community and anyone who lives there now and in the future?

Anatomy of HOA Assessments
To know how lower fees might affect your community, you must understand what makes up the assessment. Normally a budget is done annually, predicting what the HOA will be paying for different expenses. You can then decide how much each owner will need to pay based on what those costs are predicted to be. Then you look at the cost of future repairs / replacement of common elements (typically found in a reserve study), and how much must be set aside annually to prepare for those costs. Many would argue — and wisely so — that you should also build in a cushion for unforeseen expenses, such as an extra heavy snow season, extra dry summer, unexpected sprinkler issues, or anything else requiring abnormal costs to be incurred.

There are two other methods I have found for coming up with the assessment fee to be charged. I call them either the “what sells” or “what can we afford” methods. Both methods involve coming up with a dollar amount to charge first, and then figuring out what the HOA can afford to fix, repair, or replace based on that revenue.

What Sells
The “what sells” method is done by builders or developers — or at least is pushed on the management company by the party trying to sell the units. The salespeople look at what they are wanting to sell units for and what the target market can handle. Higher assessments can mean lower sales prices, and lower assessments can allow potential buyers to be able to afford a higher purchase price. They can get away with this due to the potential revenue from fees such as reinvestment or transfer fees, depending on what they are called in your state. As an example, a fairly typical reinvestment fee is around .5% of the sales price. Normally, this goes straight into reserves. If you charge this up front on the sale of all units, then the HOA can quickly get ahead of schedule on funding reserves, and look very healthy even when their budget does not include funding reserves from assessment revenue.

What We Can Afford
The “what can we afford” scenario is done by boards trying to appease the masses. They avoid setting assessments higher than what they believe the owners can fit into their individual budgets — or what they believe they want to pay. Often this happens when there is a high level of ownership living on a fixed income. This is typically where we see HOAs with no budgetary cushion and little to no reserve funding.

So, buyers looking at a new or existing property that has these “bargain assessments” might fairly ask themselves how are they able to charge what they are? What could this mean for the future? Keeping assessments artificially low over time can result in deferred maintenance, the need for big special assessments, and loss of value and curb appeal, and therefore lower marketability of the units. Is it better to pay a little more monthly, or pay much more in a few years? Your answer may depend on which you’d prefer: increasing assessments annually to cover the increasing costs of operating the association, or having large increases in 5, 10, or more years down the road?

Keep in mind that if reserves are not properly funded, then at some point either assessments will be increased, or special assessments will be charged. If “bargain assessments” based on “what we can afford” result in having little or no budgetary cushion, be aware that when unexpected expenses occur, the HOA is likely to need additional funds. Sure, people may complain about the higher costs, but how much will they complain when the community falls into disrepair and they can’t sell their homes, or be proud of where they call home?

Conclusion
An HOA budget is much like your own – either you prepare for the future and have an emergency savings, or you will come to a point when you must pay for things you cannot afford. Reasonable and proper assessment levels allow for predictable expenses for owners, and help eliminate unpleasant surprises. They allow the association to fulfill their primary role of preserving, protecting and enhancing the community.
 5 Things That Make Community Management Unique

by Burke Nielsen | Aug 30, 2017

Community management is a tough job and community managers take pride in their work. Just try calling a community manager a “property manager”. You’ll probably get a strange look or even a stern correction. After all, those in the community association industry know there’s a big difference.
Don’t get me wrong, property managers are great, and most of them do a good job managing apartments and commercial buildings. But, using property management methods to manage HOAs and condos will result in a poorly managed community.
What is the difference
While there are some similarities on the surface, the differences run throughout every aspect of community management. Here are a few of the differences.
1. Governing Documents — Apartment and commercial management is usually governed by rules established by the manager or property owner. In a community association, CC&Rs and bylaws give each community a unique set of rules and procedures that must be understood and followed. These governing documents make managing more complicated, especially for portfolio managers.
2. Who’s Calling the Shots? — Every type of property management requires a person or entity that makes the important decisions. For apartments, it’s usually the building owner. HOA’s, on the other hand, have a board of directors elected from among the membership. This board consists of several individuals with differing opinions, backgrounds, and personalities. To make things more complicated these members change on a regular basis. This means that important decisions take more time to come about and policies can change with the turnover of board members.
3. State Laws — Each state has unique laws that govern HOAs, and different but similar laws for condos. Not to mention the laws governing non-profit corporations. A knowledgeable community manager knows when to bring in legal counsel to help the board navigate these laws.
4. Residents are Owners — One of the key differences are the people. HOA and condo residents are often the homeowners. This means they are more interested in the association’s success and how things are managed. This is a good thing, but it also can lend itself to heated confrontations when ideas and expectations don’t align.
5. Financial Management — Because of the reasons mentioned above, HOAs must follow financial and accounting practices that other property managers do not. These differences are found in the way funds are deposited, collections, who signs the check, and how large replacement expenses are paid for.

So next time you refer to your community manager as a “property manager”, don’t be offended by the look of disgust that will inevitably follow. It’s not that she thinks the position of community manger is high and mighty, and no, she doesn’t hate property managers. It’s just that she knows what it takes to manage a community and she’s seen what happens when a community is not managed properly.
Homeowner Association (HOA) Resources

To reference some useful links for your area, CSI has compiled a list of HOA, Community, online Government and local resources.
           
           
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Clarifying Misconceptions About the Manager's Role
By Gil Cross
Common Ground
May/June 1997
Community associations hire
managers for two reasons: to carry out
the policies of the board of directors
and to manage the association's
day-to-day business affairs.
Frequently, however, residents and
even some directors don't understand
the manager's role. They see the
manager as a referee and information
source. They expect the manager to be
on call 24 hours a day. They believe
the manager works only for them.

That's not how it works. In most
communities, the manager meets with
the board of directors each month to
report on association business. Often
the manager gives advice,
suggestions, and recommendations. A
board typically directs the manager to
perform 10 to 20 tasks before the next
meeting. This may include writing
letters, soliciting bids, preparing
policy statements, and negotiating
contracts. The manager also must deal
with maintenance and rule
enforcement problems. The limit on
the manager's authority generally is
spelled out in the management
agreement.

What are the most common
misconceptions? Consider the
following:

1. The manager is a referee.
Homeowners should not expect
managers to arbitrate disputes with
their neighbors. Unless the dispute
involves a violation of association
restrictions, the manager does not
need to be involved.

2. The manager is the
homeowners' advocate.
Homeowners should have enough
interest in their community to
present their concerns to the
board--forwarding those concerns is
not the manager's job. The manager
does not vote on any board issues.
Venting frustrations at the manager
may make a homeowner feel better, but
it's unproductive for everyone
involved. Homeowners should direct
their attention to the board. Likewise,
managers cannot update each owner
on association activities. Residents
should attend board meetings to learn
what's happening in the association.
Those who can't attend meetings
should read the newsletter or contact
board or committee members for
updates.

3. The manager is available at all
times. With the exception of on-site
managers, most community managers
have commitments to other
associations. They are entitled to a
courtesy call to arrange a meeting.

4. The manager is responsible for
contractors. The board and the
manager try to choose the best
contractors for the association. But
they do not have direct control over
the contractors' actions and they are
not responsible for poor performance.
The contractors are responsible for
supervising their personnel, not the
manager. The manager is responsible
for monitoring their performance and
reporting problems to the board.
Homeowners should report any
problems with the contractor to the
manager, who will forward them to the
contractor. The
board is responsible for any
subsequent actions.

5. The manager anticipates every
problem. Managers typically inspect
the property on a monthly basis, but
even an experienced manager can miss
a problem--particularly if there's no
evidence on the building's exterior.
Owners should not rely solely on the
manager to safeguard their
investment--their participation is
essential in identifying problems.

6. The manager takes orders
from each owner. The manager is
accountable to the board of directors,
not individual owners. Homeowners
who disagree with the board's
polices--and, in turn, the manager
who carries them out--should
resolve the conflict with the board of
directors.

7. The manager takes orders from
individual directors. Managers act
under the orders of the entire board of
directors, not one individual director
or committee member (unless the
board grants a particular individual the
authority to deal with a specific
matter). The management agreement
between an association and a
management company usually
stipulates that the board should
identify one person to act as liaison to
the manager. Too many bosses
creates problems for everyone.

8. The manager is responsible for
delinquent accounts. A manager or
management company typically has
three responsibilities regarding
delinquencies:

* Send monthly notices to delinquent
homeowners

* Give the board a monthly
delinquency report

* Represent the association in small
claims court

The manager's collections efforts
do not include phone calls or visits to
delinquent owners. Beyond small
claims courts, collection activities
should be handled by the association
attorney.

9. The manager should give advice
on everything. Managers have a
broad range of expertise, but they are
not engineers, architects, attorneys,
or accountants. Owners should not
expect them to give advice if they are
not qualified.

10. The manager responds to all
emergency calls. The manager
responds to all true emergency calls.
Inconveniences, however, are not
emergencies. Failing to plan a party
around the association's lawn
irrigation schedule or getting locked
out of the house does not damage or
threaten the community--which is
how the association classifies an
emergency. Understanding this--and
understanding the manager's
role--will reduce future conflicts.


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