Ask The HOA Expert

by Richard Thompson
Realty Times

Question: Can the HOA charge a fee for cleanup and repairs created by renters when they move in or out?

Answer: It's not uncommon to charge a Move In/Move Fee if there are actual costs incurred by the HOA but it should apply to all residents, not just renters.

Question: Our governing documents indicate that we need an audit of the HOA's books done every year. What exactly does that mean?

Answer: CPAs perform several levels of financial records inspection:

Audit: The highest level of service. An audit is a methodical and objective examination of accounts and items that support the financial statements.

Review: The second highest form of service. A review is a report of limited assurance stating that the accountant is not aware of any material modifications that need to be made to the financial statements in order for them to conform with Generally Accepted Accounting Principles (GAAP). The accountant must perform sufficient inquiry and procedures to give a reasonable basis for that conclusion.

Compilation: The lowest form of service. An accountant reviews financial statements without expressing any assurances.
When governing documents talk about "audit," it means the highest form of service. Depending on the size and complexity of your HOA, this may be overkill and audits are not cheap. It makes sense to amend the governing documents to add something like "...unless a majority of the owners vote at the Annual Meeting to not have an audit done in that year." This still holds the Board and Management accountable to an audit unless the members say otherwise.

Question: Due to deferred maintenance, we are facing a large special assessment. Most owners are able to pay in full but some don't have enough home equity to borrow against. Should the HOA finance those folks?

Answer: The HOA is not responsible for owner personal finances. Most homeowners have financing alternatives beyond home equity loans. While it's possible for the HOA to accept a payment plan for special assessments, collecting multiple payments is time consuming and expensive. Also, there is always a risk that some owners may default on any or several payments. Then, the HOA must engage in lengthy and expensive collection efforts.

Ask yourself this: If you owned a single-family home and had to pony up big money for urgent repairs, what would you do? Answer: One way or another, you'd raise the money even if it meant borrowing from friends or relatives. The HOA should stay out of the banking business.

But the bigger question is why is there so much deferred maintenance? Usually it happens due to failure to plan for predictable events. It sounds like your HOA desperately needs a professional Reserve Study so major maintenance can be scheduled well in advance and funds collected systematically so special assessments can be avoided altogether. For more on this subject, see Regenesis.net "Reserve Planning."

Question: We had a water pipe break in a common wall which flooded two units. The HOA has no policy about common wall water problems and both owners are looking to the HOA for repairs to both the plumbing and the units. What do you advise?

Answer: Unless your governing documents assign responsibility to the HOA for common wall plumbing (a very important factor), the location of the plumbing leak is critical. If the leak came from a common water supply line, the HOA should fix the plumbing. If the leak came from a supply line serving only a particular unit, that unit owner is responsible for fixing the leak.

The plumber should be instructed to determine which it is when performing the repair. However, even if the leak came from a common water line, it doesn't mean the HOA should fix the resulting damage to units unless the HOA was negligent in responding to the plumbing repair in a timely manner. If there was no negligence, the resulting unit damage should be paid for by the affected unit owners or their insurance. The same principle would apply to a leaking roof or errant sprinkler head that did unit damage.

And the HOA is under no obligation to reimburse unit owner insurance deductibles. Some repairs and costs should be shouldered by the HOA and some should be borne by the owners, including the deductible. Most governing documents require owners to insure their unit and personal property for this very reason.

To protect the HOA's insurability, the Board should enact an Areas of Insurance & Maintenance Policy which clearly defines by building and grounds component who is responsible, owner or HOA. Since HOA insurance is very broad and will pay almost any claim submitted, this policy will determine which claims qualify.

An Areas of Responsibility Policy will put both unit owners and their insurance companies on notice of how it works at your HOA so most disputes can be settled before they start. The Areas of Responsibility Policy cannot shuffle responsibility for maintenance or insurance where the HOA clearly is obligated. It simply should describe the dividing line. For a sample Areas of Responsibility Policy, see Regenesis.net.

 

 

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