$600,000 underfunded

Started by JimH • 4 replies • 3313 views

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JimH (California)
Posts: 2

Posted:

We just got a letter from our HOA that our association of 106 townhomes is going to fall short $600,000 for needed repairs etc. They have called a special meeting next week. My question is should we be angry that they did not make us aware of this sooner? Should we shop for a new management company? How would we know if there is some financial wrong doing or criminal financial negligence? Any input would be appreciated.

JaimeW (North Carolina)
Posts: 24

Posted:

Being in the Property Management field I think you should have been notified sooner regarding this shortfall. A Management Company is there to provide financials to the Board of Directors which should include a income statement showing the income received and expenses paid out as well as if there is a shortage.

The way to find out if there was any mishandling of the funds is to have an audit completed by a CPA on the records.

LisaS (Illinois)
Posts: 341

Posted:

You don't mention what state you are from- check your state laws (if you have them) to see if an audit is required and how often. Also, in most states and associations, you are able to make a request to view association documents. Do it! Financial statements, check book, bills, etc.

It is quite possible that due to poor budgeting and financila planning (whether on the part of the association or management company) has put you $600K under. Ask how they came up with this number. If it is that big, I would have to assume they had a private company, or at least someone with some experience, do a cost/asset analysis.

Good luck.

RobertL3 (Ohio)
Posts: 3

Posted:

A shortfall of this magnitude takes years to develop. In my experience they result more often than not from well meaning Boards bending, year after year, to homeowner pressure to NOT RAISE ASSESSMENTS than from fiscal malfeasance. In order to keep homeowners happy and to reduce the number of irate phone calls at dinner-time, these well meaning Boards choose to differ maintenance and under fund Reserves in order to make up for increases in costs in other areas. Doing so allows them to keep assessments low which keeps homeowners happy. The angry finger of blame tends to be pointed at the Board or Manager who responsibly, or out of necessity, tries to deal with the aftermath of years of bad decisions.

By all means ask to look at the association’s financials but don’t be surprised if you don’t find the smoking gun you’re looking for. My guess is that the folks responsible moved on years ago.

SamuelB (North Carolina)
Posts: 83

Posted:

RobertL3 is right on target. In all reality, it is not the property managers (PM) responsibility to do the budget, which includes reserves. The PM may prepare the budget, but that should then be scrutinized by the Board and approved before adopted. In NC, the Board is required to have a Budget Ratification by the membership of the Association before it can be adopted. This should be done, IMHO, whether required by law or not.

As for audits which do more than a cursory look at the financials, it would be very expensive for an HOA of any size to have that done. The members must stay involved in the activities of the Board of Directors, and must stress (even demand) communication between the Board and the membership.

I fly because it releases my mind from the tyranny of petty things . . . - Antoine de St-Exupéry

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