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Subject: FL: Day after annual meeting with pool reserve vote, PM want higher threshold
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ArtieM
(Florida)

Posts:3


12/06/2018 8:35 PM  
Our HOA of 110 units switched from straight-line (component) to cash flow (pooled) reserves in 2016. Of course the old straight-line reserve accounts remain with contributions made before the switch as those funds cant be used for other purposes without membership approval. I joined the board and was appointed to be the treasurer this year and we have implemented several budget changes, updated our reserve study, and our homeowners seem to approve. I also was appointed to President in October after we set all this in motion after a resignation due to health reasons. As part of the changes we proposed officially transferring all residual balances from the old straight-line accounts into the pooled reserves to make accounting easier for the boards of the future. We did our research months in advance. Our PM prepared and mailed proxies. The board reached out to the owners and solicited members return ballots to make sure we hit our 20% quorum. Everything seemed to go as planned.

Then we got bad news. On the very day we are to hold our annual meeting we receive an email update on the number of proxies received so far and (to paraphrase) we likely will hit a quorum but will not reach the 74 votes (2/3rd of all units) needed for passage. With as many apathetic units that we have, that's an impossible margin to achieve and clearly we wouldn't have bothered with the proxy had it been know the threshold was so high. A couple email exchanges later we were told to disregard the initial number and the simple majority of present owners is the correct standard we needed. At the meeting we had 29 units present. 26 voted yes, and 0 no votes were recorded. We declared the question had passed and adjourned.

The next day, we receive another email from the PM explaining they consulted the association attorney and they concluded we needed 55 votes (50% of the entire membership) to approve a transfer of reserves. No reference to where exactly in our governing documents this margin is listed and no explanation why the requirement in FS 720 don't apply. Our DCC&R is silent on whether membership can vote to spend reserve funds for unscheduled purposes. This "majority of voting interest" standard does not exist in our documents at all. Amending the DCC&R is a 2/3rd requirement (likely where the initial request to hit 74 votes came from). Being a non-lawyer I no longer know who we can trust with the right answer here. I (and the board) are frustrated that this was not resolved months ago when the board agreed to move forward with proxies. At least we would have know to either just not bother with the proposed change, or recess the annual meeting until and chase down more proxies.


So, what should we do now? Of course, we can just drop the matter and just spend the old reserves down to zero over time. But I feel I have a duty to stand up for the members and defend the unanimous vote that the association just enacted. Can the board just demand the PM accept the election results and implement it? I guess that's possible but the PM can respond and resign. In the meantime, the board has called a special meeting early next week to discuss.
MelissaP1
(Alabama)

Posts:8080


12/07/2018 5:11 AM  
Okay it's time to evaluate the relationship with your PM. They consulting the lawyer without board approval would put a bad taste in my mouth. I think your depending on your PM a little too much. They don't have to follow or enforce the HOA rules unless that is contractually defined. The HOA is responsible. The PM is a hired contractor to the HOA.

So maybe you all need to re-evaluate the PM relationship and get an understanding of that relationship. Don't let them tell you what it is. Read your documents that will tell you what you need to know. Consult the attorney yourselves and NOT through the PM. That cost is something that shouldn't be passed down to the HOA. It's an expense the HOA should approve before consulting.

Former HOA President
ArtieM
(Florida)

Posts:3


12/07/2018 9:26 AM  
Posted By MelissaP1 on 12/07/2018 5:11 AM
Okay it's time to evaluate the relationship with your PM. They consulting the lawyer without board approval would put a bad taste in my mouth. I think your depending on your PM a little too much. They don't have to follow or enforce the HOA rules unless that is contractually defined. The HOA is responsible. The PM is a hired contractor to the HOA.

So maybe you all need to re-evaluate the PM relationship and get an understanding of that relationship. Don't let them tell you what it is. Read your documents that will tell you what you need to know. Consult the attorney yourselves and NOT through the PM. That cost is something that shouldn't be passed down to the HOA. It's an expense the HOA should approve before consulting.




Yup, ok thanks. That reinforces a lot of the current boards thinking. Being < 2 months in the presidency we did just start to review our management contract though it was a lower priority concern with our recent landscaping and board leadership transitions. Historically our PM has organized the annual meeting handling the mailing of notices and the collection and accounting of proxies. We all presumed after the board meeting in October when the board set the date and the agenda and we reviewed the requirements for the proxy vote we sought that we'd have another routine annual meeting.

As you suggest, this incident has the board unified and thinking of accelerate the process of reviewing our PM option may have just risen in priority. I have acquired the contact info for the attorney, and pending permission from the board at our special meeting will follow up to see where the basis of thier conclusion is in case we've missed something in our documents the lawyer can point out. Otherwise, I did communicate to the PM that we expect they effectuate the clear instructions of the membership in the accounting of our reserve positions (the PM does perform and oversee our accounting).

SheliaH
(Indiana)

Posts:2464


12/07/2018 10:19 AM  
I’ve never heard of the membership needing to vote to approve transfer of reserves from one type of account to another. That’s a different question than needing homeowner approval to use the money for something other than reserves, so I’d double check with your attorney on that because I’m not sure the property manager heard that correctly.

It seems you did your due diligence with everything else, so I agree your property manager overstepped his/her bounds. It’s ok to make suggestions, but the board has the final say and the property manager wasn’t authorized to ask anything of the association attorney, so that fee should come out his/her pocket. If there are issues on the best way to manage the money, your bank and/or reserve specialist might be better resources.

As for the property manager, I agree with Melissa that you need to re-evaluate your relationship. If he/she is part of a property management company, it might be a good idea to ask for a replacement. You should also remind your attorney that any request for information/advice come from the board only (designate someone for this so you don’t have 3 or 5 people asking different questions).
JohnC46
(South Carolina)

Posts:8267


12/07/2018 12:56 PM  
Artie

I agree with what Shelia said:

I’ve never heard of the membership needing to vote to approve transfer of reserves from one type of account to another. That’s a different question than needing homeowner approval to use the money for something other than reserves, so I’d double check with your attorney on that because I’m not sure the property manager heard that correctly.
ArtieM
(Florida)

Posts:3


12/07/2018 1:22 PM  
Posted By JohnC46 on 12/07/2018 12:56 PM
Artie

I agree with what Shelia said:

I’ve never heard of the membership needing to vote to approve transfer of reserves from one type of account to another. That’s a different question than needing homeowner approval to use the money for something other than reserves, so I’d double check with your attorney on that because I’m not sure the property manager heard that correctly.




In Florida you can't spend funds collected for statutory reserve item for a non-scheduled items without member approval if you are using straight line reserves. It's clearly laid out in both FS718 and FS720. If you have pooled (cash flow) reserves then as long as the components are identified in your pooled expenses then you are ok. The problem is, an association that switches cant just move money out of straight-line accounts to fund the new pooled reserves.

Our association switched to pooled funds 3 years ago but apparently never bothered to have the second vote to transfer.

https://www.floridacondohoalawblog.com/2009/01/21/board-talking-about-switching-over-to-pooled-reserves/
https://www.naplesnews.com/story/money/real-estate/2017/01/14/what-pooled-reserves-and-how-do-we-implement-them/96199098/
RichardP13
(California)

Posts:3512


12/07/2018 1:59 PM  
I read the first post on the list and it essentially no different than what we have in California.

You cannot use reserve account monies, no matter what type of accounting you're doing, to handle a capital improvement or something not yet identified in a reserve study, without a vote of the Members. Make perfect sense, as it is their money.

I got fired from an HOA recently for not allowing the VP to spend reserve money anyway they saw fit.

Been there, Done that
SheliaH
(Indiana)

Posts:2464


12/08/2018 8:48 AM  
Although one hates losing business, I think you've escaped a crazy board if you were canned because the vice president wanted to use reserves for any damned thing. Sometimes the best you can do is make the suggestion, but people will do what they want anyway - and pay the price for it down the road. If that HOA doesn't pay attention, they will rue the day they let you go....
GenoS
(Florida)

Posts:2896


12/08/2018 11:46 PM  
Posted By ArtieM on 12/07/2018 1:22 PM
In Florida you can't spend funds collected for statutory reserve item for a non-scheduled items without member approval if you are using straight line reserves.

My HOA is about to do this very thing. The plan is to take the current individual reserve components (straight line method) and propose that the membership vote to terminate them and approve the adoption of the pooled (cash flow) method of planning and accounting for reserves. The total dollar amount would stay the same: out of the straight-line individual accounts and into the pooled account.

The plan, depending on what the attorney says, is to rely on FS 720.303(6)(b) which says,

"... the association shall thereafter determine, maintain, and waive reserves in compliance with this subsection. This section does not preclude the termination of a reserve account established pursuant to this paragraph upon approval of a majority of the total voting interests of the association. Upon such approval, the terminating reserve account shall be removed from the budget."

At the same time we'll ask the homeowners to approve the establishment of a pooled reserve account.

The component reserve accounts will be terminated and the pooled (cash flow) reserve account will be established. Among other things, the pooled method lets you carry smaller balances while establishing that there will be enough in the reserves to cover the replacement of all components for the next 20-30 years. We have defensible numbers, including a 30-year projection, showing this right now. Without pooled reserves our assessments will have to rise by $100 per home per month the year after next. Either that or a substantial special assessment will be necessary in 2021. We think that bit of information will encourage owners to vote in favor of pooled reserves.
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Forums > Homeowner Association > HOA Discussions > FL: Day after annual meeting with pool reserve vote, PM want higher threshold



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