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Subject: Florida - Can New Board Do a New Budget?
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AudreyM2
(Florida)

Posts:3


11/28/2018 11:11 AM  
Hello,

I am an owner of a condo in Florida and we recently elected a new board. Everyone was brand new and they basically removed 5 crazy board members who have been ruining the place for 10 years. The old board knew that they would not be reelected again since many of us owners pushed back, and literally hours before the election they held a budget meeting.

The ex-president (at the time) said that he did not want to allow any new board members "who have no knowledge" to spend money, so they purposely kept the assessments the same and cut the budget down to EXACTLY what we bring in assessments each year so that the new board can't do any major projects that they campaigned on. (Paving fixing common elements etc) I'm not too familiar with reserves, but our proposed budget said they are putting 150K into reserves which leaves only 500K for the board to use on day to day expenses.

The new board stated at their first meeting that they were going to send notice next month for a new budget meeting to address issues that need to be fixed. The ex-board members started yelling and screaming saying that the new board cannot have another budget meeting because it is illegal. They also started screaming matches about not wanting their assessments to go up a penny and so on. Unfortunately the old board has ruined the property and left it in such terrible condition that no one can even sell their homes. It is my opinion that they are "poor" minded and strapped financially that they can't afford an increase in dues, which explains why we spend more than we bring in every year.

So my question here is can a new board do a brand new budget and rid the old one done by the ex-board members? Our by laws say that the board "shall from time to time, and at least annually" prepare a budget. Can they just redo a new budget? I hope for the sake of this place they can.
LetA
(Nevada)

Posts:550


11/28/2018 11:25 AM  
Yes you should do a budget, why, cost change every year. How can you rely on a budget from X years ago to be reliable to current cost.
RoyalP
(South Carolina)

Posts:203


11/28/2018 11:25 AM  
YES, they not only 'may', but, from your quote, can and probably should.

The key words are: ..... at LEAST annually .....
AugustinD


Posts:1208


11/28/2018 11:37 AM  
I agree with LetA and RoyalP. A few other observations:

-- A HOA budget is a guide. A HOA cannot realistically be expected to follow it dollar-for-dollar. In theory I think the new board could keep the budget done by the old board and spend what it needs to.

-- If the HOA's common areas have not been kept up, the new board has a fiduciary duty to fix this.

-- The new board should be very clear about why an assessment increase is necessary. Do a presentation. The meeting that is planned for next month is a great first step. If your CC&Rs have strict rules regarding how an assessment increase may be imposed, the new board must follow these. If possible, give members a few months notice before imposing an assessment increase. Invite input. Ask people to consider carefully the effect on property values of poor maintenance. Remind them that if things get really bad, it is possible that a member could seek a court order to put a receiver in charge. If members are worried about higher fees now, wait until they see the extraordinary costs a receiver will impose. This will include paying his/her salary.

-- I think nothing fires up a membership more than an assessment increase or special assessment. If the new board is not careful, the membership may rally and throw the new board out next year. It may not matter how rational the new board is regarding budgeting and assessment increases.
AudreyM2
(Florida)

Posts:3


11/28/2018 12:22 PM  
Thank you all for your replies.

The bigger issue here is that this property used to be apartments from 1980 - 2008 when they were converted to condos. All 5 of the ex-board members were tenants from the 80's, and have been on the board since 2011 when they purchased units. The property had a severe foreclosure problem after the 2008 economy tanked, and they took advantage of the apathy of owners and of course, the decrease in occupancy.

They have purposely allowed Airbnb on the property for the last 7 years in an effort to make the place UNappealing to owner occupants. This is how they have maintained control for the last however many years, until this year when I made it my mission to campaign on behalf of the new board to try and get them elected. It worked despite the board missing election notice deadlines and purposely sending out ballots on the slowest mail possible. They know that 90% of the owners are absentee, so they make it so that ballots don't arrive in time for owners to send them back, and unfortunately our bylaws say without 20% of the vote, the current board remains. (We had just 10 votes out of 350 last year)

Recently the area has been naturally gentrified with brand new businesses, apartments and condos being built all around us. The new board wants to bring the property up to par with the neighborhood so we can attract some of the new buyers in the area. Unfortunately it's hard to compete with brand new amenities, club houses, and business centers, when we have yellow paint on the walls from the 80's, brown drapes, dead foliage all over the place, and no business center. The people moving to this area are from fortune 500 companies and silicon valley, and they would rather rent across the street than buy here. We've even had a problem where realtors won't even take listings in here because they know about the problems and the lack of maintenance. The property has been treated like public housing by people who don't know the first thing about business.

Many of the ex-board members have even publicly said at meetings that they are not going to let "rich white people" force them to move out from where they've lived for over 30 years. They refuse to increase assessments when we spend 200,000 over budget every year. We only have 400K in reserves because of their refusal to adjust. So now they are attending every meeting to yell and scream and cause chaos for the new board. One of them threatened a lawsuit stating that it is illegal for a new board to change the budget.

It's quite the mess here
AugustinD


Posts:1208


11/28/2018 12:31 PM  
For what it is worth --

Let the old board make their threats. Attorneys generally will not take cases to court that they know a judge will see as seriously lacking in merit. It hurts the attorney's reputation among judges too much. Many attorneys will not even send a letter of demand if there is no law to back up the client's complaint. Lastly it is expensive to go to court.

The old board member talking about "rich white people" better be more careful with his or her language. HUD does not like that kind of talk. Granted it takes way more before HUD is interested.

Ninety percent absentee owners (with many of them landlords?) is the pits for a HOA. See
https://www.marketwatch.com/story/too-many-renters-are-a-bad-sign-in-a-condo-complex-2015-04-27

Sounds like you did a lot of work to get a new board. Good luck to you.
KerryL1
(California)

Posts:5950


11/28/2018 12:42 PM  
Welcome to the forum Audrey. Please try to pare down your replies. there's too much info and other verbiage to wade through. Stick with the basics.

How many condo units are there? Do you have elevator buildings, or? What is your current annual operation budget? Do you have a property manager?

Assuming you have a reserve study, how much does it say you should have in reserves?

Are you on the board? If not, you still need to read and encourage the other directors to read your governing documents AND FL state docs about how and when you may raise assessments. States are different on this topic. When you have that info, follow Augustine's advice about a town hall type of meeting to explain why dues must go up.

Have a well written explanation, too, to mail to all of those off-site owners (90%!!)




JohnC46
(South Carolina)

Posts:7865


11/28/2018 12:50 PM  
As a budget is a best guess, if a BOD stays within the Bottom Line then they could change the amounts around or even add new categories.

OLD, $50K to A, $40K to B, $10K to C. Total Budget $100K

NEW, $40K to A, $30K to B, $5K to C, $25K to D. Total Budget $100K

AudreyM2
(Florida)

Posts:3


11/28/2018 12:50 PM  
Sorry about that Kerry.

300 Units

No elevators

Budget is 700K

No CAM - One of the ex-board members employed himself to work as the office manager.

Reserve study was last done in 2014 and they said 1.5M at least.

I'm not on the board, I only campaigned for them. I work 3 jobs and don't have time for board duties. Bylaws are quiet on assessments and only state that if they go more than 115% than the previous year, members can call a special meeting. I believe Florida law is the same.

The new board is well versed. They handle themselves professionally with these people, and hired a new attorney. Turns out the old one was a friend of the ex-board members.

The town hall is a great idea and that is what they said the meeting will be for. Then they will schedule a new budget meeting for January. They only want to increase dues by $50 so we can fund some major projects.

Yes. The 90% figure is real. Unfortunately only 22 owners live on the property, and some other units are vacant.


GenoS
(Florida)

Posts:2518


11/28/2018 2:44 PM  
It can get tricky. Our Bylaws say the budget for the next year must be adopted by December 1st each year. The annual meeting and elections are in January so the new board is sort of stuck with the 2-month old budget that was passed by the previous board. The new board can change the budget if they want but that's a lot of legwork including adjustments to the budget, the budget lines set up for the bookkeeper, and even re-printing and mailing of the coupon books if the bottom line assessment amount changes. Changes to the budget during the budget year are specifically allowed by our Bylaws. No board has ever done it as far as I know.

It's not an ideal arrangement because it tends to box in the new board if it has different ideas about budget priorities.
MelissaP1
(Alabama)

Posts:7762


11/28/2018 5:07 PM  
I am not against what your former board is saying. They are on the right trail of thought. The HOA should be spending what it brings in with it's dues/assessments. It's a non-profit but not charitable one. So it is to be set up to collect as much as it spends. Anything extra can be subject to taxation. (That doesn't mean reserves/savings necessarily).

Now your new board can change the budget. However, if it wants to pay for the "Extra's for improvements, then those should be done as "Special Assessments". They are "One-of" type cost like "New pool furniture or painting the clubhouse". It's not something your normal budget should be for. Those are more for the long term costs like insurance, electricity, etc...

I had a new board take over when I left. They screamed and yelled at me too. Told people I was lying and the HOA had enough money to pay for things. They promptly spent that month's budget on painting the clubhouse and other items. The next month? Couldn't afford the electric or insurance bill. They had to have a $125 special assessment which was supposed to have been just for the pool resurfacing. They lied and spent the "extra" money on other things outside the scope of the pool resurfacing. If you say the money is for "Pool resurfacing" you special assess for that expense only. Otherwise, it leaves a bad taste in people's mouth to see the board do other things with that money. Even though it may have been needed. You didn't tell people that $25 of the $100 was for other projects.

So be careful when budgeting. It NOT like your home budget. The board is in charge of EVERYONE's money. Would you like it to find out your HOA is raising dues but not for every day/reserve purposes? It's to purchase new pool furniture?

Former HOA President
DouglasK1
(Florida)

Posts:1278


11/28/2018 5:40 PM  
Our docs provide a budget procedure that includes setting the budget and notifying owners 30 days before the end of the year. If the notification had been made I would say our budget could not be changed. Your docs may be different. In any case, the new board members could pass a special assessment assuming your docs give them the authority to do so.

Escaped former treasurer and director of a self managed association.
TimB4
(Virginia)

Posts:16045


11/28/2018 10:17 PM  
Audrey,

If you don't have a reserve study or don't have an updated reserve study, concentrate on that vs. creating a new budget. The study will be needed to propose a proper budget. Additionally, a reserve study can document and support the need to raise assessments. When we did our first reserve study, it was determined that we needed to increase assessments 20% to fully fund the reserves (which required membership approval). The board was able to obtain that approval by educating the membership about reserves and how properly funding them should eliminate the need for special assessments in the future.

for more on reserve studies, see the following thread in this forum:

http://www.hoatalk.com/Forum/tabid/55/forumid/1/postid/103517/view/topic/Default.aspx


Keep in mind that budgets are guidelines. Typically, a board may be over or under budget in several categories. Therefore, the need to change the budget itself likely isn't necessary (unless your governing documents or applicable laws say otherwise).

Even if you change the budget, it's unlikely you can change the amount of assessments if you have already entered the fiscal year. Again, one would need to read your governing documents and applicable laws to know for sure.

Hope this helps,

Tim
BarbaraT1
(Texas)

Posts:106


11/29/2018 9:42 AM  
Or, just go over budget.

A budget is a planning tool that reflects expected expenses over a specific period of time. It is not a promise to pay this much or an obligation to only pay that much.

If the roof caves in, are you going to leave it because the repairs weren't in the budget?

If you're under budget on water, are you going to open up the pipes to run up the bill to the budgeted amount?

Make a new budget whenever your documents say you're supposed to.

If, in the meantime, there is a maintenance need that cannot wait, and you have the available cash, fix it.

SueW6
(Michigan)

Posts:354


11/29/2018 1:20 PM  
The legal requirement is that the HOA has a budget. So that falls on whatever Board is in power at the time.

The new board is allowed to “adjust” the expenditures, but not the “revenue” side, since that would involve raising assessments. That’s probably why people are upset. They fear a raise in assessments.

The new board may require a year’s experience before getting a handle on just what needs to done and whether things are important or urgent/important. Keep things simple this first half of the year and pay the requirements. Then adjust again for the last six months. If you aren’t doing deficiet spending, consider yourselves lucky.

It takes a while to turn around a big ship. Sounds like things have been going on a long time and aren’t going to change overnight.

Some neighborhood bonding sounds like it has to take place, too. How about a bbq dinner to meet all thr neighbors?
GeorgeS21
(Florida)

Posts:796


11/29/2018 2:26 PM  
I would add - TRANSPARENCY.

Tell everyone in the neighborhood what the goals are - what the strategy is to meet them - how the budget works and how the budgeted amounts will be allocated - both the current and as far into the future as you can provide.

Then - repeat the communications - make sure everyone gets updated as often as possible.

Offer to answer an questions anyone might have - connect all the questions and answers back to the governing documents.

Don't get emotional, just provide loads of information as often as possible.
JohnC46
(South Carolina)

Posts:7865


11/29/2018 4:13 PM  
Sue makes a valid point. Manipulating budget expenditures is one issue. Raising dues is quite another. From experience, when we present Actual Expenses for a given year, versus Budgeted expenses for that year all anyone cares is we did not raise their dues. Few question the expenditure changes.
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