Updated May, 2020 (originally published in 2010). In light of a recent lawsuit which resulted in a $35 million payment by the developer at Solivita for excess HOA fees, this article seems timely.
This article is Part 3 in our series about Home Owners Associations (HOA’s). Part 1 was called “Meet the New Boss – Your HOA“, and Part 2 was “What You Need to Know about Your Home Owners Association“. Both of those generated numerous interesting comments which are worth reading. We are grateful to Joe West, CEO of the Community Associations Network, for his assistance in preparing this series.
Home Owners Associations (also called Community Associations or condo associations) and their homeowners face a colossally difficult challenge when the community transitions from Developer run to HOA managed. How that process is handled will impact the community for years and years to come.
We talked with Joe West about some of the issues to be aware of in the transition. Here is a summary of his responses:
TR: Many communities take over primary responsibility for the management of a development, presumably when all of the units are developed or and sold – correct?
Joe West: The transition from developer controlled HOA or community association is governed by documents developed by the developer. It can vary from state to state, there is nothing universal controlling. Usually it revolves around a target percentage of the units being sold.
TR: What should the association do to manage the process successfully?
Joe West: It is critically important to be smart about this transition. The first thing the association needs to do is to hire a competent attorney and an auditor who have experience in this field. This will cost money, but you have to do it.
The board and your advisors need to find out if the developer did everything they were supposed to do under the documents and state law, and didn’t do things they weren’t supposed to do
1. Violations. In many cases you will find the developer allowed violations of their own documents (precedents). I saw one developer who violated every rule on the books, including allowing two owners to build a volleyball court on the common area, which also happened to be protected wetlands. The association needs to get those issues under control fast.
2. A good audit is needed. More times than should happen, funds have been comingled and the books are not up to snuff. You have to make sure that money residents paid in for assessments didn’t go to pay for items the developer should have paid for themselves. Sometimes it is just that the developer used his trucks to plow snow and paid himself, but you need to make sure everything is documented and on the up and up. An association needs to start off on a sound financial basis.
3. Reserves. You need a professional reserve study to tell you the condition of the property’s common areas like roads and clubhouses and provide you with a plan on how you’re are going to handle the repair and replacement of these items in the future.
4. Get organized. This is so critical it’s not even funny, getting things going the right way at the beginning. Your board has to get started on the right foot, with competent people in critical positions. If there are outstanding issues, work on them right away. If you let things slide there will be nothing but hard feelings when you have to enforce them later. We often see an initial board that is passive, then an active association board comes in and cleans things up – that often leads to court troubles that could have been avoided. Errors are hard to undo, so be brave and do it right the first time.
5. Set up effective communication from the start. Effective communication and transparency with your residents is key. Get your newsletters, website, and other communication active early on. Try to keep your communications upbeat, simple and frequent. Don’t put out a newsletter that is basically a list of “Don’t do this” items
TR: How do you assess the condition and performance of most HOAs?
Joe West: Most HOAs and condo associations I see are doing a good job. You don’t hear about them because they are quietly running well – they have competent, hard-working officers who attend to their responsibilities, often with good management and other professionals (attorney, CPA, reserve analyst). Leadership is the key to success. Elect good people and you get a good association, one that’s a nice place to live – elect not-so-good people, and you get problems. Of course many associations are being hurt by delinquencies and foreclosures of their residents. They are having a hard time right now, cutting or postponing major repairs because revenue is tight, but that’s happening for people who don’t live in an association also. The key here is that if you’re looking at moving into an association, pay real close attention to their financial condition.
TR: How can associations find advisors and other help.
Joe West: Organizations like ours (Community Association Network), Community Associations Institute, and HOA Talk.com are good places to start. There are several law firms in FL and CA that put out great newsletters you can sign up for online. Online classes for board members are also a great idea.
TR: What is another problem you see with ineffective associations?
Joe West: Apathy is a major problem in many associations. Associations are most successful when the owners take an active interest in what’s going on and who they elect to govern their community. It doesn’t take a whole lot of time, even if you serve on the board, but it is especially important when the association is new and transitioning to owner control.
Thanks Joe, I am sure that our readers will find this very helpful!
Comments? Have you gone through a transition from developer-controlled HOA to community controlled? What kind of issues did you face, and how to the community work on them? Did you hire consultants or attorneys to advise you.
For further reading: