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AnnetteN
(Georgia)

Posts:3

08/20/2006 9:29 PM
Does anyone know if there are laws or genral HOA stipulationcs concerning the use of Initiation Fess. Specifically, I would like to know if a Developer can simply take them, or are they supposed to be put into some type of "reserve account". Thanks for any help or direction you can provide, Annette

RogerB
(Colorado)

Posts:3725

08/20/2006 9:55 PM
Annette, what state? Can you be more specific on exactly what you call an initiation fee? Where the money goes depends on whether it a charge by the Developer for the Developer or for the Association.

Roger Borcherding Official HOATalk.com Sponsor DARCO Property Management (Colorado) (303) 925-0150 *See legal notice below (end of page) or go to www.hoatalk.com/legal

CharlesW1
(Georgia)

Posts:821

08/21/2006 4:11 AM
AnnetteN, I’m not 100% sure as too the exact purpose of the initiation fees. I believe the builder is supposed to establish all the services needed for any amenities. He is to pay all the utility bills. Any money left is to go into a “reserve”, which should be established in the very beginning. Hopefully it’s not too late! I’m not all that sure myself. I’m just learning everything myself. I do know that our HOA, when it was turned over to the residents was a complete disaster. From what I was told by the current BOD, They were about to file chapter 11. It was that bad! Thank god for the intelligent board we had at the time. They got the financial situation under control. We are so much better off now, because of their business savvy ways. It will take a lot. You are truly doing the right thing for you and the entire community. Are you a volunteer HOA? I think this may also help many of the reader that will respond to your post. It’s good that you are concerned with the “reserve” Like I said earlier. I don’t know all that much about it, but what I have been told is that a “reserve” is a must. It should be established and have a considerable amount of money it, for just that purpose! Best of luck. Chuck W.

Charles E. Wafer Jr.

GeraldT1

Posts:0

08/21/2006 5:37 AM
AnnetteN, In my HOA/COA each owner paid a one-time fee at close. This fee was put into a Working Capital Account, not reserves. The amount contributed to reserves was taken from a portion of the monthly maintenance dues. Your gov. docs. may outline the one-time fee. Look there first. GeraldT1 NNJ

JulieS
(Georgia)

Posts:412

08/21/2006 7:08 AM
Our HOA is in Georgia and the builder charged a one-time $100 initiation fee to the very first homeonwer(per our covenants). This was used to offset expenses until the HOA was turned over to the homeowners from the developer. The developer reduced his out of pocket expense by charging this fee. We just passed an amendment to our covenants allowing for an initiation fee everytime a home is sold in our neighborhood. Through research and talking with contacts and management companies, we found that most neighborhoods have an iniation fee when there is a transfer of property. Our first attempt was a fee of $150 but when we started the process over this year, we changed it to 'the same as the current years dues'. It took me 6 months to collect the 2/3 majority vote but we are now collecting the much needed money. Our plan is to put the money into reserves which will help keep the annual assessment from going up so much each year.

JulieS
(Georgia)

Posts:412

08/21/2006 7:08 AM
Our HOA is in Georgia and the builder charged a one-time $100 initiation fee to the very first homeonwer(per our covenants). This was used to offset expenses until the HOA was turned over to the homeowners from the developer. The developer reduced his out of pocket expense by charging this fee. We just passed an amendment to our covenants allowing for an initiation fee everytime a home is sold in our neighborhood. Through research and talking with contacts and management companies, we found that most neighborhoods have an iniation fee when there is a transfer of property. Our first attempt was a fee of $150 but when we started the process over this year, we changed it to 'the same as the current years dues'. It took me 6 months to collect the 2/3 majority vote but we are now collecting the much needed money. Our plan is to put the money into reserves which will help keep the annual assessment from going up so much each year.

BradP
(Kansas)

Posts:1742

08/21/2006 8:12 AM
Annette: Good responses so far, look at your governing docs, does it mention anything about an initiation fee for the association. If it does then that money should be going to the general association. We have a $100 fee every time a home is sold that is paid at closing. That money goes into our general operating fund.

WilliamT
(Arizona)

Posts:489

08/21/2006 9:31 AM
Posted By BradP on 08/21/2006 8:12 AM Annette: ...We have a $100 fee every time a home is sold that is paid at closing. That money goes into our general operating fund. Brad, If a new home owner asks why the initiation fee is being charged to new homeowners when everyone is supposed to be assessed equally, how do you justify the charge? Is the initiation fee written into your CC&R's? I'm interested in asking our board to consider having an initiation fee for new owners in order to help bring our reserve funds up, because they are currently very low, and I need to have answers so I can sell the program to the other board members. So far I can't see how we can justify the fee. WilliamT

CharlesW1
(Georgia)

Posts:821

08/21/2006 9:59 AM
I don’t feel a new HO should have to pay the yearly dues unless the previous HO hasn’t paid them yet. At this point it should be pro-rated rate. That homeowner shouldn’t have to pay for the entire year if the just moved in a new community in October. If dues due are due on the first of the year, then that’s only like two months! You should only have to pay for the whole year. Maybe they should be figured into at the closing. Is that the way it currently is? If not, then that is the way it should be. Chuck W.

Charles E. Wafer Jr.

JulieS
(Georgia)

Posts:412

08/21/2006 9:59 AM
William, We had a number of points to sell this idea on everyone: 1. Why is it that only the very first homeowner had to pay the fee and no one else? Shouldn't everyone have to pay it? 2. Most associations have this fee as it is considered an initiation fee into a swim/tennis community. 3. The money will help offset the increases each year of the annual assessment. Everyone is in an uproar when they receive the annual assessment invoice because it goes up, primarily to build the reserve we didn't have. We sold approximately 30 homes last year...had we collected the $450 we are collecting now, that would have paid for the new pool furniture we purchased at $12,000....which really cost each homeowner about $100. 4. Some people thought that an initiation fee will affect the sale of their home. In my opinion, would a homeonwer rather pay an up-front fee rolled into closing costs or have higher annual assessments each year, that will only continue to grow? If we have a $450 assessment, assuming the dues stay the same, I would rather pay that $450 initiation fee once and continue with $450 dues instead of paying $700 or $1,000 every year. When you are looking for a home in a subdivision with covenants, you look at the common areas, pool and tennis courts. If they are not in good condition, you probably will not look at the homes. Maintenance and repairs takes money, a lot of it, if you want to maintain the property values in the neighborhood. This is the curb appeal so to speak. In the future, if I am looking for a home, I will probably not move into a smaller neighborhood because I know the dues will be higher (fewer homes means a higher share of the cost). I will also look at the amount of the HOA dues...can I afford $2,000 every year or can I afford $500? Would I rather pay a $500 initiation fee knowing the annual HOA dues will be lower, you bet. I think it is a smart way to run the business of the HOA.

BradP
(Kansas)

Posts:1742

08/21/2006 10:31 AM
William: to answer your question about everyone being assessed equally it is simple. All of our homeowners are required to pay that at closing, so at one point or another every single homeowner has paid the $100 initiation fee. It is written into our covenants that anytime there is a legal transfer of the title to the lot that this fee is to be paid. As Julie pointed out why should just the first owner of the home have to pay it, then you are getting into not assessing members equally. To me it is a good way to raise extra funds, right now this one time fee accounts for about 4-5% of our annual budget. To me what is an extra $100 when you are financing a home well over $100,000, that is an easy pill to swallow. But if you have to start creeping up your dues each year because you can't meet your expenses or your reserve is depleted then you get into problems. We have been lucky, our dues have stayed constant for the 2 years we have been here and I have no plans to raise them in the near future. I can see how a homeowner would be irrate if they bought into a community expecting dues to be at one spot but they increase every year. It is another tool to raise money, to me it is a good tool.

BradP
(Kansas)

Posts:1742

08/21/2006 10:33 AM
Charles: To answer your question yes that is how it is or at least where we are. The initiation fee is seperate, but when our homeowners close they pay pro-rated dues in their closing through the end of the current calendar year.

WilliamT
(Arizona)

Posts:489

08/21/2006 11:51 AM
Thanks Brad and Julie, We don't have an initiation fee in our documents. There is a documents transfer fee that the MC charges the new home owner, and the association does not get any of that. It's because no one else has paid an initiation fee and it's not currently in our CC&R's that I have the questions. I'm sure that the current homeowners would be willing to vote to add this covenent to our documents because it would benefit them.

JulieS
(Georgia)

Posts:412

08/21/2006 11:58 AM
Charles, We have the $450 initiation fee for this year for all new homeowners. Our HOA assessment is due 4/1. Typically, the seller will receive a refund (pro-rated) and the new homeowner pays a pro-rated amount for the balance of that year. If a home is sold July 1, the old homeowner would get a refund of $225...the new homeowner pays $225 plus the $450 initiation fee.

JanM
(Texas)

Posts:142

08/21/2006 12:01 PM
We are also charged a transfer fee, no fees are mentioned in any of our documents except building fees. I was given no reason for the transfer fee, but told I couldn't vote if I didn't pay it. My only guess is that is what they charged for changing the name on the computer. I personally think it is B.S.!!

JulieS
(Georgia)

Posts:412

08/21/2006 12:03 PM
William, Like anything, we had a hard time getting people to respond to the mailings and consent forms to get the amendment approved. We re-keyed the pool gate this year and decided to have people pick up their new key and have them sign a consent form in order to get the amendment passed (needing 2/3 majority vote). Thinking about doing that again next year if we decide to change from an HOA to a POA. For some reason, the same people who didn't want the initiation fee think it is awful to foreclose on someone who hasn't paid dues. Where's the logic?

BradP
(Kansas)

Posts:1742

08/21/2006 1:14 PM
Jan: If it isn't mentioned in your documents then I would agree with you. However, I hope you can see the value of this one time cost as a way to keep association dues down. If you buy a home and live there for 10 years the initiation fee is a drop in the bucket compared to what you could have paid with escalating dues over that 10 year period.

JosephW
(Michigan)

Posts:787

08/21/2006 1:20 PM
It seems as if you're dealing with 3 separate issues. Let me see if I can put some explanations to them so the discussion can center on the individual pieces. In a brand new development, thee is usually a one-time fee charged to new owners. It may be called an initiation fee, but is also often called a "working capital deposit". This is designed to provide some initial funding for the association. Because some association costs are paid in advance, insurance premiums being the prime example, the fee is needed, because normal assessments will not accrue fast enough to cover these costs in a brand new association. Annette, this is the one I think you are referring to. The monies should be deposited to, and accounted for, in the association funds, not the developer's pockets. The audit at transition will show this. The second type can be called a "transfer fee". It may have many other names, but essentially it is a payment when a re-sale occurs. This fee may actually have two parts, one to the association and one to either a management firm, or third party vendor, similar to CondoCerts. Part (or all) of this fee is designed to cover the costs of providing the paperwork and/or documents necessary for a buyer to close on their purchase. In some states, like VA, this fee is capped ($100), but in most states it isn't. This is basically an administrative charge, and the association may or may not actually see any monies resulting from it. There may be other fees of this type, sometimes charged to the new owner, such as for gate and pool keys, but here the new owner is covering an actual cost. The third type, and the one I think this thread started with is relatively new. It appears that some associations are trying to resurrect the "working capital deposit" format (although under different names( and applying it to re-sales. The main purpose is usually the shortage of funds, either in operating or reserve accounts, and the use of this mechanism to provide additional funds without having to raise assessments. There are a number of problems with this. First, many documents prohibit assessing owners for anything, other than direct costs (see second type), that isn't assessed among all of the owners. If all you're doing is raising funds, then it's an assessment and the documents spell out how that is to be applied. Another rationalization is that the new owner hasn't contributed to the reserves, and this is a form of "catching up". This fall flat on its face as the new owner also didn't contribute to the wear and tear on the common areas so how you can you assess him for something he didn't cause. Saying that the new owner will benefit from the reserve repairs and replacements runs into the same argument - the new owner wouldn't need the repair or replacement if the prior owner hadn't contributed to the wear and tear. Next, why would you want to penalize a brand-new neighbor. Its certainly not going to help their opinion of the association. If anything, I would think you would want to stick it to the outgoing owner, who was a part of the problem in the funds shortage and won't be around to complain anymore. Basically, if what you're trying to do falls under the third type, then I would: a) Make sure your documents allow it b) Make sure your state allows it (or is silent on the subject) c) Have an opionon letter from your attorney on file stating that you have the authority and that it is legal. Without these items, you could find yourself having to return all of the money if someone challenges it. Joe

Joseph West Official HOATalk.com Sponsor Community Associations Network, LLC www.CommunityAssociations.net *See legal notice below (end of page) or go to www.hoatalk.com/legal

CharlesW1
(Georgia)

Posts:821

08/21/2006 1:29 PM
Julie, Great idea! We are getting ready to make the switch ourselves from HOA to POA. I don’t know all the details as of yet. I have been told that the new documents will have to be handed out to every homeowner. They have a certain time to look over of the documents and then they are required to mail it back. So is 100% needed to switch? I’m thinking so. In our sub-division you must be current on your dues, to receive a pool key. So the only people that would be picking up the new key would be the ones that have paid. Ideally if everyone paid their assessments, then that would be perfect for us too. Unfortunately I have been told we will have to go door to door, to hand these new documents out. Is this the only way to do it? Appreciate your response as always. You have educated me so much on various topics concerning HOAs Thank you Chuck W.

Charles E. Wafer Jr.

JulieS
(Georgia)

Posts:412

08/21/2006 1:42 PM
Charles, you will want to look in your documents to see what percentage is required for amending the covenants. Ours is 2/3 majority vote of the eligible association, some are higher. Joe, our covenants state that a $100 initiation fee will be paid by the first time homeowner. Our attorney wrote the amendment and didn't note any problems with an initiation fee for whatever reason. In the Atlanta area, most subdivisions have an 'initiation fee'. When I researched the idea, our management company, as well as others I deal with through my job, stated that the majority of their HOA's have this fee and you are not very smart if you do not have it. All the money we collect on this will go directly into our reserve fund which will offset future assessment increases. I only wish we had it for everyone from the beginning. I also wish we had a reserve study and reserve fund for the first 5 years of our HOA.

JosephW
(Michigan)

Posts:787

08/21/2006 1:47 PM
Julie, Just checking, your fee is only for the first-time buyer, not for re-sales? Joe

Joseph West Official HOATalk.com Sponsor Community Associations Network, LLC www.CommunityAssociations.net *See legal notice below (end of page) or go to www.hoatalk.com/legal

JulieS
(Georgia)

Posts:412

08/21/2006 1:52 PM
The covenants stated for the first time home buyer only from the developer but we just amended it for re-sales.

JosephW
(Michigan)

Posts:787

08/21/2006 2:04 PM
Yeah, its a "catch-up" fee, but its only $100 and you've gotten the attorney to sign off, so you should be OK. Joe

Joseph West Official HOATalk.com Sponsor Community Associations Network, LLC www.CommunityAssociations.net *See legal notice below (end of page) or go to www.hoatalk.com/legal

BradP
(Kansas)

Posts:1742

08/21/2006 2:07 PM
Joe: Ours is and has been written into our docs as a transfer fee ($100) since the inception of the HOA on all sales including re-sales. The docs were drawn up by an attorney and signed off on.

JulieS
(Georgia)

Posts:412

08/21/2006 2:38 PM
Joe, Our amendment reads that the initiation fee will be the same as the current years dues. This year, our dues are $450 and so is the initiation fee. If the dues go up next year to $460, then so does the initiation fee. Our intent is to build reserves and keep the annual assessment as low as possible. Our dues were $350 for the longest time. Builders/developers/real estate professionals want to show low dues to attract buyers but don't think about the long term ramifications (cathing up)of having such low dues. And here we are!

AnnetteN
(Georgia)

Posts:3

08/21/2006 8:25 PM
Thanks for all of the replies. Yes, I am a volunteer at this point, but a very experienced one (lots of Boards and was my line of business before I was ever on a Board) We fear that our developer spent all of the initiation fees without putting them into a reserve. They are talking special assessment now and supposedly, there is only 200.00 in bank IN AUGUST! You know there won't be anymore coming in. I will be reviewing the financials tomorrow - hopefully. The Board was just recently appointed. The developer has been running things for almost three years. I need to look into a lot of things - but wanted to know if there was anything he HAD to do with the fees. The docs only state that each buyer had to pay them. The docs do not spell out how the fees were to be treated - AT ALL. Wish us luck.

JosephW
(Michigan)

Posts:787

08/22/2006 10:18 AM
Start-up fees, whatever they are called, usually go towards items wwhere the costs are incurred up front. Check to see if the insurance premiums (casualty and liability) were paid and when the policy went into effect and when it expires. Other items to look for: Maintenance to the common areas: (lawn cutting, snow plowing if up north and the roads are maintained by the HOA, other items) Water bills: Is there a common water meter for watering common areas? Electric Bills: Is there a common meter for street or entrance lighting? Basically you're going to want to see receipts to account for all expenditures. Joe

Joseph West Official HOATalk.com Sponsor Community Associations Network, LLC www.CommunityAssociations.net *See legal notice below (end of page) or go to www.hoatalk.com/legal

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