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Subject: TX HOA and Mgt Co
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Author Messages
TristaJ
(Texas)

Posts:3


08/13/2021 5:36 PM  
Our management company has prepaid themselves until the end of the year. They had our board president sign the checks to ensure they are paid through the end of the year. Are they allowed? Would it be depending upon what is in the contract they signed with our HOA?

Thank you for any insight.

Trista
BarbaraT1
(Texas)

Posts:591


08/13/2021 6:04 PM  
There is no state statute that addresses how a vendor can be paid by an HOA. Unless your governing documents specifically preclude this - which would be highly unusual- it would fall under the discretion of the board to as to how to pay or prepay vendors.
BillH10
(Texas)

Posts:786


08/13/2021 8:22 PM  
Trista

Did the management company 'pre-pay' itself in reality?

Please assume the MC has a contract for the next 12 months, to provide base rate services at $NNN per month. If the MC invoices the Association on January 1st, the liability is on the balance sheet for the following 12 months.

Why should the basic invoice for management services not be paid when rendered instead of being paid each month?. Arguably, the MC incurs fixed and common costs in month 1 which are not periodic, such as payroll, FICA, and similar expenses?

I recently paid an insurance invoice for a client for the next 12 months. Doing so avoided monthly finance and collection charges. How is this different?

Why should the MC not be treated similarly?
BillH10
(Texas)

Posts:786


08/13/2021 8:33 PM  
I worded my post badly and am too tired to reword it now. Look for pearls of wisdom sometime after the light illuminates the eastern sky in the Central Time Zone.
BillH10
(Texas)

Posts:786


08/14/2021 6:19 AM  
What I meant to say there are fixed and common costs any business must pay, generally in a lump sum--property taxes are an example. Other costs must be paid as they are incurred, such as payroll or whatever.

While I have never seen a MC 'pay itself' the fixed contract amount for the entire year, there is nothing intrinsically wrong or illegal about it doing so. Of course doing so would likely raise havoc with the cash flow unless the assessments are paid annually in January for the following 12 months.
JohnT38
(South Carolina)

Posts:794


08/14/2021 7:01 AM  
This is a personal opinion but in the case of a Property Manager I don't believe in paying in advance for services that have not yet been rendered. I would refuse to vote yes for this.

Based on what the OP originally asked, I also wondered if what they asked for was signed checks in advance dated for each month? If so, I'm not sure why you would do this.
KellyM3
(North Carolina)

Posts:1811


08/14/2021 7:02 AM  
To me, it's would be usual for the management company to prepay itself for future services as its services are rendered day by day in the operational sense. It reduces your liquidity and slightly handcuffs the HOA board's contract management flexibility.
JohnC46
(South Carolina)

Posts:11667


08/14/2021 9:49 AM  
The MC may believe/know the association is in financial trouble and they want to to be sure they get paid every month.
MarkM19
(Texas)

Posts:844


08/16/2021 6:55 AM  
Trista,
This seems very odd to me. Usually the first check PMCs write at the beginning of the month. I have never seen them try and get paid in advance. This would raise all kind of questions for me.

1) What is the reason for this new practice?
2) How much cash does the HOA have in the Operating account? Most run fairly close to the bottom line and it needs new dues payments to stay solvent.
3) Is your PMC in desperate need for these funds to pay it's bills?
4) I would ask other HOAs that are under the same PMC if they are seeing a similar request.

BarbaraT1
(Texas)

Posts:591


08/16/2021 7:42 AM  
Posted By JohnC46 on 08/14/2021 9:49 AM
The MC may believe/know the association is in financial trouble and they want to to be sure they get paid every month.




This was my thought too. I used to work for a very large, national management company and when an association looks like its heading for insolvency, they would always make sure accounting drafted the management fee before anything else each month.
AugustinD


Posts:1937


08/16/2021 9:00 AM  
Posted By TristaJ on 08/13/2021 5:36 PM
Our management company has prepaid themselves until the end of the year. They had our board president sign the checks to ensure they are paid through the end of the year. Are they allowed? Would it be depending upon what is in the contract they signed with our HOA?
Law firms require retainers or payment in advance frequently. So it's not like this is unprecedented. How I would vote as a director: I would not support this for a management contract unless I thought highly of the manager and it was a dealbreaker for the manager.
MarkM19
(Texas)

Posts:844


08/16/2021 9:14 AM  
Barbara,
I totally get it that the PMC takes their fees first of every month. Not sure I have ever seen any pre payments term in any of the contracts I have signed as board president.

If the HOA is bordering on insolvency the board should have been aware of this many months before this happened. My Ca. before I became a board member was very low on cash. They made the decision to postpone contributions to Reserves for several months just to pay the bills. This was also back in 2008 when the Housing crisis in California.
MaxB4
(California)

Posts:1614


08/16/2021 9:32 AM  
Based on experience, I think it might be the management company in financial trouble. I've never seem a management agreement/contract with an acceleration clause in it.
MarkM19
(Texas)

Posts:844


08/16/2021 9:45 AM  
Max,
I think you are correct. The issue I have is if they are unable to Manage the Companies funds why would any HOA allow them to Manage it's Funds?
MelissaP1
(Alabama)

Posts:10595


08/16/2021 4:00 PM  
It's not unheard of nor "illegal" to do so. If you have signed a 1 year contract anyways, you have to honor it. No one says it has to be at the end, beginning or monthly. However, I do have to agree with others that the MC may be having financial troubles. May want to start interviewing other options soon.

Former HOA President
MaxB4
(California)

Posts:1614


08/16/2021 8:22 PM  
Posted By MelissaP1 on 08/16/2021 4:00 PM
It's not unheard of nor "illegal" to do so. If you have signed a 1 year contract anyways, you have to honor it. No one says it has to be at the end, beginning or monthly. However, I do have to agree with others that the MC may be having financial troubles. May want to start interviewing other options soon.



4. COMPENSATION
4.1 In consideration for Company's performance of the duties specified below in paragraph 6 hereof, the Association hereby agrees to pay Company a monthly fee
equal to _____________________________________ ($) for the Contract Period of
______________________________. The payment referred to above shall be paid to Company on or before the first day of each month in which Company is to perform
the services specified below.
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