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Subject: Assoc board officers making repair contracts with owners for Building repairs
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SueB9
(Alaska)

Posts:14


09/12/2020 9:19 PM  
First of all the association had a bunch of old timers on the board for 20 years, without raising dues money often enough, and not having an accurate actual replacement costs for building exterior roofs and siding. So reserves were not substantial enough to begin with. This year we got rid of all these ineffective board members and everyone is now newly elected. However, the new board went into panic mode this summer, and responded in that same way to making all kinds of repairs that became evident once some bad siding sections were exposed from these painters using power washing method instead of sanding on cheap T1-11 siding. Holes were made from the power washing and once the siding was removed the contractors discovered rot and mildew. The new board went to the other extreme and started spending all our money to fix everything all at once without a plan. Now our HOA reserves are depleted spending $217,000 + so far, and the operating budget is being tapped into for "what they call urgent and necessary siding repairs" discovered while painting. Now that the siding issues are probably more extensive, they have kept a contractor on sight doing time and material repairs to siding w/ water damage and have blown thru all our reserve money, plus some operating money. So the board thinks it's a genius of an idea, since one unit owner with water damage, wanted his damage fixed now before he leaves town for 6 months and offered the board to enter into an individual contract with him, to pay upfront for the association costs to fix it now. The contractor will assess the damages, then fix the exterior issues covered under our declaration's maintenance agreement, and the Association will pay back owner for those repair costs starting January 2022! Now about 10 others want to do that too, and since the association doesn't have that money yet to make those repairs too, until the association decides how to raise revenues quickly, they want to offer those people as well individual contracts for repairs to their unit they might need, based on that same contractor who is both evaluating the work, and then doing the work and getting paid time and materials for it!! First off...red flag for the Contractor deciding on the work needed to be done, visually and with his moisture meter, and then that same Contractor doing the work at time and materials!! Is that not a conflict of interest with no oversight other than the board members who are not qualified to be professional construction/project managers. We have a property management company but their contract does not cover contract supervision, only billing and accounting services.



According to my fellow board members it's a terrific idea for raising revenue now and spending it on other units needing exterior repairs and replenishing some reserve revenue. I say they are BAT SHIT CRAZY and totally irresponsible, for spending owners money like it's house money, with no safeguards or owner protections built in!!

COMMENTS ANYONE??
TimB4
(Virginia)

Posts:17008


09/13/2020 4:12 AM  
Posted By SueB9 on 09/12/2020 9:19 PM

First of all the association had a bunch of old timers on the board for 20 years, without raising dues money often enough, and not having an accurate actual replacement costs for building exterior roofs and siding. So reserves were not substantial enough to begin with.




Unfortunately, that does happen when reserves studies are not updated.

A good rule of thumb is that reserve studies should be reviewed and adjusted yearly and completely redone every 5 years.

Posted By SueB9 on 09/12/2020 9:19 PM

The new board went to the other extreme and started spending all our money to fix everything all at once without a plan. Now our HOA reserves are depleted spending $217,000 + so far, and the operating budget is being tapped into for "what they call urgent and necessary siding repairs" discovered while painting.




Unfortunately, this also happens when those who might have issues with budgets are in control.

I also suspect that you are utilizing cash flow (aka pooled) reserve method vs. component reserve method. You provide a perfect example of why I believe the component method is the right way to do reserves.

The proper way to handle things when reserves fall short is a special assessment.

Posted By SueB9 on 09/12/2020 9:19 PM

I say they are BAT SHIT CRAZY and totally irresponsible, for spending owners money like it's house money, with no safeguards or owner protections built in!!

COMMENTS ANYONE??




I agree.


Unfortunately, the Association doesn't seem to have the money for an independent contractor to evaluate the situation.

Personally, If I were you, I would consider moving before the special assessments start and annual assessments are raised.

If you choose to stay and try to fix the issue, you are going to have to educate your board and membership.
I would start by obtaining a new reserve study.

For more info on reserves, see the following thread on this forum:

Subject: Reserve Studies/Funds 101

Note: some early links in the above thread are broken but were corrected later in the thread.
Some links are simply broken (as that happens with old threads).
TimB4
(Virginia)

Posts:17008


09/13/2020 4:30 AM  
Let me try to summarize what Sue has posted (to make it a bit easier to read):

Old Board failed to properly fund reserves and bad choices resulted in a need for emergency repairs on siding.

Old Board was removed - New Board elected - Sue is on the new Board.

New Board spent all of the reserve funds to partially address the issue.

New Board also spent some operating funds to partially address the issue.

One Owner made a deal with the Board to make a loan to the Board so their unit could be repaired now and they could be paid back starting in 2022.

News traveled and now additional owners want the same deal.

Majority of new board thinks this is a great idea to address the issue.


Side notes:

No plan in place to replenish reserves or operating funds.

Contractor doing the work is driving the diagnostics of what work needs to be done.

Sue thinks the new board is acting irresponsibly (and I suspect many here would agree).



Sue, please correct if my summary is in error.
AugustinD


Posts:4160


09/13/2020 8:35 AM  
Thank you TimB4 for the easy to read summary. I am working a bit from it and then drawing from SueB9's post as needed in my responses.
Posted By SueB9 on 09/12/2020 9:19 PM
[...] one unit owner with water damage, wanted his damage fixed now before he leaves town for 6 months and offered the board to enter into an individual contract with him, to pay upfront for the association costs to fix it now. The contractor will assess the damages, then fix the exterior issues covered under our declaration's maintenance agreement, and the Association will pay back owner for those repair costs starting January 2022! Now about 10 others want to do that too, and since the association doesn't have that money yet to make those repairs too,


-- I agree with TimB4 that the proper way to deal with this is via a Special Assessment. SueB9, look at your HOA's governing documents for discussion of this.

-- The governing documents may also permit the HOA to assess each unit/building one at a time for work done. Once the money arrives, proceed to repair the next unit/building.

-- SueB9's HOA's governing documents might say that if an owner undertakes certain repairs at her or his own cost, then the HOA has no duty to reimburse the owner.

-- SueB9, is this a condominium?

-- SueB9, does the siding et cetera have to be repairs a.s.a.p. due to, say, leaks?

-- SueB9, respectfully, I for one find posts, emails, letters and so on that do not use all-caps; multiple exclamation marks !!!!; and other punctuation marks that emphasize; much more readable. These punctuation marks made the author sound not calm. The issues you raise are serious and in my opinion, require calm and careful thought. I hope this is not insulting. Two cents.
GeorgeS21
(Florida)

Posts:3279


09/13/2020 10:36 AM  
Others have noted - I will, as well.

Please use paragraphs - I did not read the post until Tim summarized.

And, in order to be effective, learn to NOT say things like: "...the association had a bunch of old timers on the board for 20 years ..."

Sounds like:
1. Not enough money in reserves - perhaps due to failure to have suitable reserve study?
2. This could have been a real surprise - wherein reserve study based assessments with reserves might not have had enough money - simply because it was early in the life cycle of the siding - in this case, it would require a special assessment
3. Special assessment may not be fair if done building by building, since some buildings and faces on those buildings could be oriented differently, completed by different crews on initial installation, etc
4. Emergency repairs need to be made, regardless of long term efforts to rebuild
5. Understanding the nature/complexity/size of the issue is required prior to starting on long term repairs - hire a competent inspector, then a project manager to obtain and assess bids
6. Start planning for special assessment - get help explaining it to the owners, if needed
SueB9
(Alaska)

Posts:14


09/13/2020 11:14 AM  
Thank you Tim,

The bullet points are exactly what is occurring!
Here is the new issue:
Board has wanted to remedy the financial deficiencies by applying for a state loan program for Associations; 15yr loan w/4.875% interest, and a required 75% owner approval.

The board will not get 75% approval from owners, as owners favor a combination interest free assessment imposed on each unit equally, plus a dues increase. Owners disapprove of the amount of interest compiled that goes back to lender for the loan, amortized 15yrs, will = between $180,000 to $241,000, depending on the principal amount loaned.

The board, still wants to spend as much as possible in 2020, hoping to persuade owners to approve the loan, to turn in a sizable expenditure amount, as the state assoc loan prom pays back to the association the money already spent, plus allows a matching draw for unfinished repair projects.

This is where I draw the line: The board has chosen in a 4 to 1 vote, to move forward with replacing a worn out roof this fall for $70,000, when the roof has no active leaks; without using that money to make the necessary repairs on the few active leaks reported by the owners, who want their units fixed now.

Instead the board has picked up on that one owner offer to pay in advance to fix his unit on his own dime before he leaves town for 6 months, and allowing the association to start paying him back with dues credits starting in January 2022. So now the board sees this idea as a windfall for the association to get money from owners up front, AND replace a worn roof on one of the 12 remaining buildings that needs roof replacement in the near future, to build up expenditures in 2020 for the loan application, and use this same general contractor instead of a roofing contractor to replace that roof, because all the reputable roofing contractors don't have time to schedule that job in, with the weather deteriorating, as it does here in Anchorage by October.
.
There is so much liability involved with these personal contracts, with little safeguards and protections built in for the owners or the association. Plus there is a huge conflict of interest in assigning the same contractor to determine the repairs, fix the repairs at time & material, and provide most of the oversight, along with 2 volunteer board members, who are enamored with the contractor!!

Problem is the owners have not decided yet, as to how they want to raise the funds to continue with needed repairs and slowly replenish the reserves and the operating funds the board has been depleting. Again not enough owners to approve of that 15yr association loan program (75%), because of the waste of interest money paid out on the principal amount.

Is this not almost a criminal act to manipulate the owners money, and allow 3 board members to put our association in a financial choke hold, without putting a plan in place first?
I asked my fellow board to take a pause, wait to see what the owners want to approve for increasing dues assessments and how to prioritize the repairs needed, then move forward. I want the board to step back, stop operating in "panic" mode, and start operating with a "planning mode".
JohnC46
(South Carolina)

Posts:10017


09/13/2020 4:41 PM  
Sue

Some docs allow a BOD to raise dues once a year by any amount they can justify. Now many will say no way just as some or our owners did last year when we raised Annual Dues 40%.

Read you docs closely. Our BOD can raise the dues by any amount we want to raise them but only once a year. We did not just lay it on our owners. We had mailings and Q&A sessions for 6 months prior to doing so, explaining the need to do so.

A brief explanation: When read closely, our docs allow the BOD to increase dues (no limit) by submitting the next year's budget, showing the dues increase on or before 12/01 to become effective 01/01. Owner have until 01/01 to convene a Special Meeting where 51% of all owners (I REPEAT 51% OF ALL OWNERS) must turn the new budget down. If they do, the present budget with 5% increase in dues stays in place. We could not get 51% of all owners to agree to anything......LOL

As I said, many out here and many of our owners said no way we could do it but we could. It simply took a "close" read of our Covenants and we got our lawyer to bless the BOD's decision.
SueB9
(Alaska)

Posts:14


09/14/2020 1:48 PM  
Owners are in support of raising dues and revenues by Special Assessments in accordance with our Declarations, but establishing individual contracts with owners is not defined as a way to raise revenues in our Declarations, other than a special assessment with 2/3 owner approval of attending owners at a special meeting held for that purpose only. The Special assessment is also applied equally amongst the entire unit owners of our association.
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