A down economy is no fun. Not for you, not for your neighbor, and certainly not for your Homeowners Association. Homeowner delinquencies and HOA operating costs are both on the rise, creating a perfect storm for collecting assessments. We’ve put together a list of 4 tips that should help. 1. Take control Many HOA boards leave collection to the Property Manager. After years of smooth sailing, some Boards fail to understand or even recognize the magnitude of delinquencies until its too late. There’s nothing wrong with that but make sure you take a hands on approach, understand the current status of delinquent payments and speak to your Property Manager often to find solutions. 2. Know your rights Make sure you read your CC&Rs and understand both the rights of your Association as well as the homeowners. Know exactly what is allowed to happen when delinquencies occur. Can you add late fees, interest and collection costs to the outstanding amount? What are the timelines for doing so? 3. Take action Now that you understand your rights as an HOA board within your community, its time to exercise them. The biggest mistake we see people make is to let owners go more than 30 days without a past due letter. Be timely about the warnings because if you don’t it will make it much more difficult to enforce the consequences. 4. Be consistent You should have a formal collection process in place. Everyone should be aware of it. Anyone past due should get the same letter at the same time. There should be no exceptions to. If you do not follow this advice it will be infinitely more difficult to collect. The bottom line: There’s no golden ticket when it comes to collecting money in a down economy. However being proactive, educated, organized, and consistent will certainly help.

See related:

Can HOAs buy distressed units?

Can HOAs sell common areas to boost revenue?

Interested in getting a Reserve Study for your community? Click here to get a proposal!

Distressed Units

There’s an argument floating around that HOAs should purchase distressed properties in their association so they don’t get sold for pennies on the dollar later on. The thinking is that if you can invest the organization’s funds to maintain property values in your community.

It looks good on paper but it’s rarely done.

The truth is most HOAs don’t have that kind of cash lying around. If they do, there are typically better uses for it. Like for example, funding your reserves!

Also, there is no guarantee that investing in distressed units will directly benefit current homeowners. The valuation of their unit is based on market price. Picking up a unit here and there isn’t going to move the average much, if at all.

Furthermore, depending how your association’s governing documents are drafted this may not even be permitted. Even if they are it’s going to be a tough sell to the owners; particularly in this economy.

Let’s pretend for a moment that this is feasible and you have the support of your community. Maybe you’re planning to rent the unit until the market recovers.

Are you ready to be a landlord? You’ll need to be ready to oversee tenants, make payments and pay assessments to the association, keep the unit(s) maintained etc. Most HOAs have enough to worry about without coming up with extra money and taking on additional responsibilities.

Ok, you get it. It’s a bad idea, right? Not always!

There are times when such purchases can and do work out for HOAs. For example, maybe the community has a need for additional assets like a clubhouse housing for a superintendent.

If your association is considering the purchase of distressed units, the bottom line is this: make sure the money is there, the community agrees, it is an appropriate use of HOA funds and you’re ready to take on the added responsibility.

See related:

The role of an HOA Property Manager

Vacancies in your community – What can you do?

Interested in getting a Reserve Study for your community? Click here to get a proposal!

 A Homeowners Association (HOA) is the governing body of a planned unit community, or real estate development. It’s created so that the organization and maintenance of the common areas are properly supervised. The ruling documents, which are referred to as the Declaration of Covenants, Conditions and Restrictions (CC&R’s), and the By-Laws, specify the HOA board’s responsibilities.

 The board of directors consists of elected homeowners in the community, as well as the original developer.  The developer will contribute dues for any unsold units and thereby holds a strong position on the board, generally until the project is sold out.  Sometimes the developer may retain units as well as a board position; again, the CC&R’s and By-Laws will dictate the terms of these agreements.

Now that you know what the HOA is, it’s important to understand their role.

1. Enforcement of the Rules

When it comes to maintaining a sense of order amongst the homeowners, common areas within the real estate development need to be maintained and certain rules must be followed. The neighborhood and the external aesthetic appearance of homes within the community must also be kept to a specific standard.  All new rules and restrictions are sent out via notices or newsletters to the membership; certain changes may require a majority vote by the homeowners.  New rules cannot negate any previously set down by the CC&R’s without an amendment, which must be voted for by a majority of the membership.

If a homeowner is in violation of a rule, they will receive a notice, explaining how the situation can be rectified and the legal recourse that the HOA might take if the violation is not set right within a given time frame. Commonality, property value and sense of order are maintained within the community when such rules are enforced by the HOA.

2. Minutes Minutes

Keeping a record of decisions that are made during board meetings is also one of the HOA board responsibilities. A document stating issues addressed during the regular or executive meeting is created to keep track of the minutes. The minutes will record the type of information that was focused upon – including any issues that the board members voted on, as well as any objections that were raised by the HOA members.  The HOA may need to reference these details later, or may need to support decisions they made.

3. Execution of Contracts

Another HOA board responsibility is to create binding financial or legal obligations, and execute contracts with third parties on the Association’s behalf. The HOA board is also responsible for acquiring appropriate insurance coverage, hiring a suitable property management company and retaining legal counsel on behalf of the association. The obligatory duties must be satisfied by the HOA board of directors, who must make the best possible vendor and professional choices for the entire body of homeowners.

4. Financial Management

Ensuring that the Association makes sound financial judgments on the homeowners’ behalf is also the responsibility of the HOA board.  It has several financial duties, which include the assessment and collection of dues from homeowners every month. All of the operating expenses of the association are to be covered by these dues, as well as a reserve fund for future replacement of area components and unforeseen costs.  The board and management company are also charged with making certain a reserve study is performed as often as dictated by state law.  The reserve study helps to outline the Association’s annual budget, as well as the ideal contributions necessary to appropriately maintain the reserve fund account.

See related:

HOAs save money with professional Project Management

The role of an HOA Property Manager

Interested in getting a Reserve Study for your community? Click here to get a proposal!

The lawful governing of the Homeowners Association (HOA) is the general responsibility of an HOA Property Manager.

A regular Property Manager may coordinate, direct and approve the sale of vacant properties and establish leases, but an HOA Property Manager also oversees daily operations of the Homeowners Association.

Read More: Property Managers, protect yourself!

Here’s a breakdown of their responsibilities:

Analysis of Property Values

Property values, as they regard assessments of existing property and procurement of new properties, are analyzed by an HOA Property Manager. A detailed report is prepared and later submitted to the Board of Directors, or the homeowners themselves in most cases. During the analysis of property values the general population, population growth and zoning are all considered, as well all recent properties purchased and sold.

Reserve Studies

The Reserve Study is an integral part of HOA management, and the Property Manager must make certain the community adheres to the state laws.  The frequency with which the studies are prepared, as well as the allowed minimum funding of the reserve account, is dictated by the state as well as the governing CC&R’s and By-Laws of the community.

Read More: Get the most from your Reserve Study

Advertising and Marketing

HOA Property Managers may also market vacant tenant spaces to the public, as well as create advertising campaigns and marketing strategies. To keep the public informed of vacancies, both online and offline advertising in media such as community magazines and newspapers, Internet real estate portals and websites are used by HOA Property Managers. They might also list with various property management companies and real estate agents, with the consent of the Board of Directors.

Preparation of Organizational Documents and Reports

A variety of management reports are prepared by an HOA Property Manager, which are later reviewed by the Board of Directors. Account and bookkeeping reports that contain the HOA’s expenses and income transactions, and tenant or homeowner payments of monthly dues are included among the reports. They must also ensure that the business status of the HOA organization is current with the appropriate Secretary of State’s office.  Legal contracts with vendors used to upkeep the property are also handled by an HOA Property Manager, as well as the various maintenance requests.

Responsibilities of HOA Managers to Tenants

When it comes to addressing issues and solving problems, tenants and homeowners tend to rely on the HOA Property Manager. Issues regarding the well being of tenants or residents, and the policies of the Homeowners Association, are usually addressed during community meetings. Advice regarding any decisions that the Board of Directors makes, or changes made to any HOA covenant documents, must also be provided to tenants or owners by their HOA Property Manager.

Education and Licensing

An efficient HOA Property Manager needs to have the skills to resolve disputes. They must at least have an associate degree in business management and, depending on their state laws, must be licensed by the Real Estate Board; they may also be required to have a Real Estate License.

Read More: The Role of an HOA Board

Interested in getting a Reserve Study for your community? Click here to get a proposal!

Happy New Year from Barrera and Company!

This year, resolve to cut your costs and properly fund your reserves.

Oftentimes delinquent dues and bad debt will create cash-flow problems for your Homeowners Association (HOA). Collections and liens can be costly and hard to retrieve as well. As board members and property managers, you are expected to consistently look for ways to cut expenses – especially in these hard-hitting economic times.

In the past, we’ve looked at some “outside-the-box” ways to cut costs – such as leasing common area space for cell phone antennas.

Here are a few areas in which every HOA can gain more control resulting in cost savings for the community and possibly lower monthly assessments. This will make adhering to your reserve study more attainable this year.

Contract Negotiation

Rather than getting stuck in long-term agreements, think about shifting to annual renewals. This gives you the chance to renegotiate pricing each year, and to opt out of contracts whose quality of service has fallen. Vendors will pay more attention to the account if they know renewal is not guaranteed and tied directly to their performance.

Landscaping and Water

Add a requirement in your contract to have the landscape vendor turn on all water stations after mowing and edging to check for leaks. Post signs reminding owners to report water leaks and broken sprinklers immediately; make certain sprinklers aren’t aiming onto pathways, parking areas and walls. Update old irrigation lines and sprinklers to cut down on water usage, and use bubblers for decorative plants and ground cover. Make sure you are using the correct lawn seeds for your climate and traffic pattern; choose grass types that are tolerant to higher temperatures and lower water levels.

Green areas have many benefits over using rock landscaping; contrary to popular belief that you should landscape with rocks to save money on water. Lawns cut down on pollen, filter toxins in the air, cool the air temperature (while rocks give off heat into the evening – called the “radiator effect”), and help to prevent rainwater runoff into sewer systems, waterways and even your parking lots.

Pools and Jacuzzis

If you have multiple pools, choose only one to heat in the cooler months. Solar systems are quite costly and may only increase your swimming timeframe by a few weeks. Propane or natural gas heaters are becoming more and more efficient, and updating them is probably better money spent then a solar system. Consider switching from chlorine-treated filtration to salt water – not that it will decrease the pool service fee, but the chemicals are harsher on the pool, as well as its plumbing and filtering equipment. Put the Jacuzzis, whether above or in ground, on timer switches that automatically shut off every 20 minutes or less.

Cable TV, Internet, Security

If you provide some or all of these services for the community, negotiate the best “bundled package” possible – again, shorter term might assure the best services and rates can then be renegotiated annually. Sometimes paying a little more per month not to be locked into a long contract is a wiser move. Most of these companies offer a teaser price (good for 3-6 months) to lure you in, then raise the prices higher and higher throughout the usual 24-month term. Of course, if you can leave these items up to the individual homeowners to handle, it is just one less issue for your HOA; and they will appreciate the ability to choose their own carriers.

Office Expenses

Postage is a large expense, considering the various notices it is your job to send out to the membership annually. Try to combine documents into one mailing (invoices with newsletters for instance), use postcards to communicate instead of letters when possible, and of course email whenever you can. A PDF document sent over the Internet costs nothing, and the responses (if required) are much quicker.

Insurance

Bid out the account each year to take advantage of market changes – don’t assume your insurance agent will automatically apply earned discounts, stay on top of this. Consider raising your insurance deductible in order to reduce the premiums; make room in your operating budget for the larger insurance deductible so you are covered in case of a loss. Be certain to require all vendors to provide up-to-date license and insurance binders; requiring that the vendor name the HOA as additionally insured will prompt the carrier to advise you if the coverage is cancelled.

Interested in getting a Reserve Study for your community? Click here to get a proposal!

To Group

Within a Reserve Study, it’s common to see multiple assets lumped together. For example, the roofs of several buildings or different pieces of common area furniture. It makes sense to group components that will need to be replaced at the same time. In the case of the roofs, they should have the same Remaining Useful Life (RUL) and Useful Life (UL). Same with the club house furniture – it may be the case that you would want to replace all the furniture at once to keep with a cohesive theme throughout the property. Grouping such assets together makes for a less confusing and more concise Reserve Study.

The bottom line: If Reserve Components have the same UL and the same RUL they can and should be grouped together.

Not to Group

We’ve updated Reserve Studies in the past and found inappropriately grouped components. We’ve seen the roofs of several building lumped together when in fact, one or more had failed and been replaced. It’s extremely important that those are pulled out and separated because they now have different UL and RUL.

In some cases we’ve encountered whole buildings lumped together as one component – roofing, exterior painting, interior painting, HVAC, flooring, furniture. Obviously the UL and RUL of these components are drastically different. Reserve Studies are supposed to be a valuable planning and budgetary tool for you and your community. There’s simply no way to accurately plan ahead when assets are inappropriately grouped together, projecting a large, singular future expenditure.

The Question

When you receive your Reserve Study, make sure you ask questions. Look for lumped assets and make sure they have the same UL and RUL. If your Reserve Analyst can’t explain to you why some components are grouped together, ask him to split them out. This could be a costly mistake down the line so make sure you’re asking the right questions and holding the Reserve Analyst accountable.

Interested in getting a Reserve Study for your community? Click here to get a proposal!

We get lots of questions about how often a reserve study should be performed, as well as what information one needs to provide.

To answer some of these questions and simultaneously clear up some of the confusion surrounding reserve fund studies, we’ve put together this handy check-list.

In order for a professional engineer or consultant to conduct the study, he or she will require:

• the most recent audited financial statements
• the current annual contribution to the reserve fund
• repairs and replacements to the common elements that have been completed and in what year
• scheduled future projects
• any outstanding concerns that need to be reviewed, such as water penetration

Condominium directors and HOA’s that refuse to conduct such studies are putting themselves at risk for possible legal action from unit owners, who suffer an increased financial burden as a result of the delay.

Delaying a reserve study can place insurance policies in jeopardy, and affect the resale values of the units in the complex.

For these reasons it’s imperative that a reserve  study is completed on a regular basis.

Interested in getting a Reserve Study for your community? Click here to get a proposal!

Homeowner’s Associations are often faced with large maintenance and repair jobs and find themselves in over their head. Such projects often involve several different disciplines such as electrical, plumbing, carpentry and engineering that must be separated and set out for bid. Jobs like these are best handled by a professional project manager.

Here’s why:

Win / Win

Both HOAs and subcontractors want to get the job done in the most efficient manner. When there are misunderstandings and miscommunications often lead to cost overrun and missed deadlines. We’ve found that in most cases the HOA is put out by extra costs while the subcontractor is left with more work that he can collect on. No one is happy.
Conversely, a good construction manager provides accurate specifications, scheduling and supervision that keeps everyone on the same page and operating at maximum efficiency.

Contractual Issues

A professional construction manager helps draft contracts that inherently keep change orders to a minimum with accurate and timeframes / deadlines and fair penalties that incentivize efficiency. Contracts should also require evidence of liability and workers compensation insurance.

Scheduling

Understanding the sequence of construction events and coordination amongst the subcontractors is an art only mastered with years of experience. HOAs need a professional Construction Manager who “speaks the language” and isn’t afraid to get his hands dirty when issues arise. There’s a lot of moving parts when it comes to complex renovation and repair jobs. Make sure you have someone in your corner that understands each of them.