Restarting Your HOA? Where to Begin

Restarting Your HOA? Where to Begin

March 2013
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This article is part of an ongoing series in which we'll take your questions from the discussion forum and get you the answers you need from experts who specialize in association management. If you have a question you need answered, post it on the message board.

Here's a question from an reader on a situation that happens more often than you might imagine: "We have four units in our building and three owners. Currently we have a property management company, but we have not been happy with them for some time and are looking to start new. However since Hurricane Sandy flooded our basement, I have come to realize that I need to know more. We have never had a formal board meeting and a few weeks ago was the first time all three owners were on a call together. My question is does anyone have advice on where to start?"

Here our experts provide their best tips for board members at associations that have never operated much as an association and want to get back on track.

Dormant HOA? You're Not Alone

"This comes up more frequently than you might think," says Jenny Key, the Austin, Texas–based vice president of RealManage, a San Rafael, Calif., association management firm that oversees properties in Arizona, California, Colorado, Florida, Louisiana, Nevada, and Texas.

"It's fairly common," agrees Robert Galvin, a partner at Davis, Malm & D'Agostine PC in Boston who specializes in representing condos and co–ops. "Usually what happens is that owners never hold meetings, don't have minutes, and don't have budgets, and whenever they need money, owners simply pay."

How do HOAs get to that point? There are all kinds of paths that lead to a failure to run an association as an association.

  • "Maybe the owners have been self–managed and doing what they think is right, or they've perhaps been poorly managed," says Key.
  • "I see this when associations are very new and the developer has either abandoned them or handed the owners control in theory but hasn't gone through the necessary steps to set up a functioning managing structure," says Kevin Britt of The Law Office of Kevin L. Britt, who specializes in representing associations in the Seattle area.
  • "This also happens when an association has had a functioning board for a time, and then for whatever reason, maybe they're not able to get people to serve, they say, 'What do we need a board for? We're getting along just fine,'" explains Britt. "They go for years and nothing much happens, and then they have an issue. They have to enforce some provision or raise funds, and they realize they do need this functioning organization."

"What's the big deal if oversight at your HOA's has fallen by the wayside? You're taking a big risk with what's likely your biggest financial investment. "At some point, something bad will happen," predicts Galvin. "There will either be no insurance or the common areas won't be maintained, which eventually will lead to expensive losses or repairs. It's not really all that difficult to manage an association, especially if you're in a very small building. But somebody's got to step up and do it."

Owners, Restart Your Association Engines

Where to begin? Curl up and do some reading.

"The first step is to assign them some homework," says Matthew A. Drewes, a partner at Thomsen & Nybeck PA in Edina, Minn., who represents associations. "You need to become familiar with your association's documents. Even among associations that may be subject to our state's version of the Uniform Common Interest Ownership Act, there can be variations in the documents, or certain procedures have been elected. Governing documents aren't one size fits all. You need to read them."

Be looking for certain signals. "The bylaws govern how you should be operating your corporation or entity," explains Drewes. "So look for how you elect board members, how meetings should be conducted, what you should include in your notice of meetings, and the timelines that should be used in any notice of meetings. The declaration typically speaks more to the use, operation, and maintenance of your property and controls issues regarding access. There you should be looking at how your association should be maintained, who should maintain what, and what sorts of activities are permitted and not on association property."

Once you've got a feel for the rules, get your arms around what's been happening. "Owners need to understand who's running the association now," says Britt. "Sometimes they're like a ghost ship adrift in the seas, and it's no one. But usually someone is, and often it's the management company making decisions. They may be running it based on their standard practices, and the property manager is in effect the board because it's acting like one—but the manager isn't the board. Understand the status quo, including what's being done now and what the governance structure is now."

Next call a meeting—validly. "In Washington state, our statute states that even if there's no board at all, a specified percentage—it's different for condos and HOAs, but generally it's 20–30 percent—of the owners can call a meeting," says Britt. "Part of your agenda, once you've figured out how to call the meeting, would be to elect a board. Then look at your governing documents and decide how many members the board needs to have. The goal is to elect the board to make decisions on behalf of the association."

Fix What's Broken

If your HOA's board hasn't gone dormant for a period of time, but hasn't run like it's supposed to have, you may have to implement some fixes.

"Generally, we try to correct any major issues that have happened in the past," says Key. "The biggest one is maybe they didn't elect board members properly. Maybe they didn't have enough volunteers and some people stepped up. Or perhaps there was no quorum at a recent annual meeting. With an attorney's help, we can go back and memorialize that these things weren't done properly and what we're doing to correct them. We recently started managing an association that had too many board members. It didn't cause any global issues, but the board wasn't in compliance, and if somebody wanted to take issue with how the board's operating, that's something they could complain about. So at the annual meeting, we explained who's on the board and that two people were stepping down, and it was fine."

There are, however, some bells you can't unring. "There are some things you can't fix, and you just have to move forward," says Key. "Let's say the association passed a special assessment or increased assessments more than it should have. The money's probably already been spent; how would the association pay it back? Luckily, I haven't seen a lot of those issues. What we do see a lot is that decisions aren't documented. We can't correct everything, but if there's something outstanding, we try to correct it."

Don't be afraid to spend a few bucks on professional advice. "If you have questions, outline them and begin reviewing your documents with them in mind," says Drewes. "Or get professional advice, whether it's from a lawyer on legal issues or an accountant on financial matters. An association is entitled to rely on the advice of professionals, and you can get targeted questions answered economically, which can save a lot of grief later."

Britt agrees it doesn't have to cost a fortune to get solid advice. "Many board members feel that getting legal advice is going to be prohibitively expensive—if you ask a simple question, you'll get a $500 answer," he says. "But not all attorneys are that way, and you can negotiate your expectations with things like caps on fees and how much time a project will take. Often boards are pleasantly surprised they can ask a simple question and get a simple answer. And by getting that good advice, even if it's by briefly sending a quick email and getting a quick email back, board members will insulate themselves from personal liability for their decisions because they'll have done their part in terms of diligence to find out their obligations."

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