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Subject: How my HOA did a $1181 special assessment without a vote, Virginia
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PaulB12
(Virginia)

Posts:47


03/29/2021 11:04 AM  
Here is the budget letter, August posted this for me but thought I would try to give an update.

"To keep monthly assessments as low as possible, the Board is exploring the option of adjusting the Reserve balance from $274k to $174k. The purpose of such an adjustment would be to "reset" our reserve requirement and eliminate the deficit."

The rest of the letter:

Dear Members of Oak Valley HOA (made up name),

On October 27 the Board passed a resolution to increase monthly assessments from $118 to $130 beginning February 1, 2021.

The 2016 Reserve Study recommended a balance of $274k in our Replacement Reserve Account. This account is currently funded at $299k. The law and our governing documents require that funds in the Replacement Reserve Account be used only "for the maintenance, repair and replacement for Common Area Elements which may be replaced or require maintenance on a periodic basis."

Over the past three years, the HOA has accrued legal fees. As a result the HOA has an equity deficit of $126k. This is equal to about $1181 per home. This means the approximate cash value of the HOA's equity is currently $174k. This is well under the $274k that the 2016 Reserve Study recommends. The law requires the HOA to fund its reserves at the recommended levels to defray future infrastructure (clubhouse, parking lot paving, pond) costs without having any deficit. Consequently raising the HOA's equity funding, to eliminate this deficit, is necessary. Some members have suggested that the HOA impose a Special Assessment to refill the HOA's reserves. However, the equity deficit is due to legal fees, and not infrastructure costs. Because the legal fees caused the equity deficit, the law and covenants prohibit a Special Assessment.

The Board is re-evaluating its legal expenditures. But while the Board does this, the Board feels a 10% increase in the regular assessment is appropriate.

To keep monthly assessments as low as possible, the Board is exploring the option of adjusting the Reserve balance from $274k to $174k. The purpose of such an adjustment would be to "reset" our reserve requirement and eliminate the deficit. If the Board chooses this option, members must bear in mind that this action will not eliminate the HOA's requirement to add funds when the time arrives to make those future repairs. During such an event and depending on the state of our reserves, a special assessment may be necessary to offset any future increase in monthly assessments.

If you have any question, contact management.


Sincerely,

Board of Directors
Oak Valley Homeowners' Association (made up names<)


Not much anyone can do, I don't see any Virginia law broken. They simply adjusted the reserve which they used for legal fee's. They already used the money to pay legal fee's so the letter above is just some trick wording.

SheliaH
(Indiana)

Posts:3921


03/29/2021 12:25 PM  
So, your question is....what? Are you concerned that people will zero on on the "keep assessments as low as possible" and skip over the "tricky" wording regarding the legal expenses - which, by the way, IS a legitimate concern.

Obviously, we don't know the backstory behind whatever's been going on in your association, but in reading this, I'd want to know what he legal fees were for and how much they were. If they were incurred in pursuing delinquent homeowners, how successful were those efforts and did the association request the homeowner reimburse them for legal expenses and attorneys fees incurred to pursue the debt (something a prudent board would ask for - and it should be part of a decent collection policy that all homeowners should be educated on).

The letter also seems to indicate these guys and gals don't understand what a reserve fund is for. It's not a slush fund for the board to do whatever, and especially not for covering deficits in the operating budget. I've always been told reserves are for major repairs and replacement of the common areas (e.g. roofing if you live in a townhouse community or highrise). If you don't fund reserves properly, you risk being underfunded when the time comes. Don't think you don't have to worry about stuff like roofing because it's supposed to last 20 years - a tornado that comes through your neighborhood five years after you replaced the roof can turn all of that upside down.

So what to do about it? You may be right that no state law was broken, but that doesn't mean sit down, shut up and accept it. If you and other homeowners are upset about this, you can rally together the entire community and pressure the board to reverse its position. If they don't or refuse to, you call for a special homeowners meeting according to the instructions in your documents and recall the lot of them. Of course, you'll need to have some people at the ready to step up and take over if you succeed - and YOU may have to be one of them.

Maybe that's your real issue - you see what needs to be done and are waiting for someone else to do the donkey work because you don't want to or are afraid of how the board will react, along with the neighbors who are determined to "keep assessments as low as possible. Perhaps you don't want to get the revolution underway because it's a pain in the butt to walk around to meet your neighbors, see if they're equally pissed off and would be willing to help - because it IS tough to do all this alone.

So, do you accept it or rally together your neighbors - or at least go to the next board meeting, call them out on this doubletalk (in front of everyone) and see what happens next? That's up to you - good luck in whatever you decide.
JohnC46
(South Carolina)

Posts:10944


03/29/2021 1:16 PM  
Paul

Based on the legal fees causing the issue I am thinking your association has more problems then juggling, double talking the books. What caused the legal fees and how much were/are they?
PaulB12
(Virginia)

Posts:47


03/29/2021 1:44 PM  
Oh we're gonna rally people but most don't want to get involved, others don't want to get retaliation, each person that questions them gets the silent treatment from the HOA, some were under the impression the insurance will pay the legal fee's. Most questions like how did this happen are not answered for months.

Most of the old board is gone, a few trouble makers remain, this post was just about how blind most folks are to what HOA's do and get away with it legally, some neighbors think as long as they don't pay the fee's incurred, they're okay with it.

The biggest problem is, no matter who is on the board next, that board will have to some how get the reserves back to level and that deters new volunteers. Over $100k is gone from the savings account for legal fee's that were promised to be paid by insurance or a judgement. Judge denied the legal fee's because the HOA actually didn't win any case even though they brag to neighbors that they did, it was just a court ruling saying the elections were done improperly for years.

The reserves need to be funded another $150k-$175k just to get back to the correct level of the reserve study, who would want to be on the board to raise fee's. No one.

So whoever lives in this HOA and whoever volunteers would have to foot the bill today or some time in the future. The board left us in a mess. Over a dozen resignation's, in just over 100 homes, it's crazy how blind neighbors let this continue.

Don't let this happen in your HOA, if you do, you'll end up paying one day.
JohnC46
(South Carolina)

Posts:10944


03/29/2021 2:17 PM  
Paul

The letter does not say they are going to do a Special Assessment. The letter says they would like to decrease the Reserves to cover the Operating loss. Generally this is not allowed. I have seen associations borrow from the Reserves but there must be a repayment plan in place.

It does not sound like the need to eliminate the deficit is an immediate one so maybe the answer is maybe a long time deficit elimination based on increased dues versus a one time Special Assessment. The question is how can they do either?

If I believed the BOD now has things in control and knows what they are doing, then I would be for the one time $1200 Special Assessment. Maybe even set up a payment plan of say a Special Assessment of $200 per month for 6 months. Make it more palatable to some.
PaulB12
(Virginia)

Posts:47


03/29/2021 2:58 PM  
Posted By JohnC46 on 03/29/2021 2:17 PM
Paul

The letter does not say they are going to do a Special Assessment. The letter says they would like to decrease the Reserves to cover the Operating loss. Generally this is not allowed. I have seen associations borrow from the Reserves but there must be a repayment plan in place.

It does not sound like the need to eliminate the deficit is an immediate one so maybe the answer is maybe a long time deficit elimination based on increased dues versus a one time Special Assessment. The question is how can they do either?

If I believed the BOD now has things in control and knows what they are doing, then I would be for the one time $1200 Special Assessment. Maybe even set up a payment plan of say a Special Assessment of $200 per month for 6 months. Make it more palatable to some.




I know it's not a special assessment, it's just the wording that makes it sound they fixed all the budget problems by simply cutting out the deficit but their repayment plan makes no sense, even with the raise in dues they are only adding about $10,000 in addition to the regular yearly funding needed, so it will take 7-10 years to get back to the proper reserve level. They're just leaving it for the next sucker volunteer to repay the reserves.

Sucks.

MichaelS56
(Minnesota)

Posts:179


03/29/2021 4:35 PM  
PaulB, first of all your Replacement Reserve study is most likely out of date. Please check your state law as to how often your Association has to complete some form of Replacement Reserve study. The state of Minnesota requirement is every three years. Second of all what the present Board is suggesting could end up being a serious problem for future Boards that would need money to fix, maintain or replacement common elements. Not having enough money in the Replacement Reserve will then cause alternative methods of getting the money. These common elements are listed in your 2016 Reserve document.
PaulB12
(Virginia)

Posts:47


03/29/2021 7:40 PM  
Every 5 years, one is due this year. This board is going to get a rude awakening when the next study is done.

What is so mis-leading about this, it states the reserve is funded in the amount of $299k but then it says the equity is $174k. So the actual reserve is only $174k. Lie #1

Lie#2 "The law and our governing documents require that funds in the Replacement Reserve Account"
Truth: There is no law that states that any HOA in Virginia needs a reserve or that it needs to be funded. If someone can show me, I can't find it.

Lie#3 "Reserve Account be used only "for the maintenance, repair and replacement for Common Area Elements which may be replaced or require maintenance on a periodic basis."
Truth: If this was true then how did they use most of the reserve money for legal fee's. Fact is, a corporation can use it's money how it wants and our docs say "startup expenses" in one section.

Lie#4 "The law requires the HOA to fund its reserves at the recommended levels to defray future infrastructure (clubhouse, parking lot paving, pond) costs without having any deficit."
Total falsehood, there is no law that says a HOA is required to fund the reserve according to the study. I hope I'm wrong but I can't find it.

Lie#5 "Because the legal fees caused the equity deficit, the law and covenants prohibit a Special Assessment."
This may have some truth in it but in reality they don't have enough member votes to pass a special assessment, requires 25% majority at a meeting called for the special assessment.

TimB4
(Virginia)

Posts:17599


03/29/2021 8:53 PM  
Posted By PaulB12 on 03/29/2021 7:40 PM

Lie#3 "Reserve Account be used only "for the maintenance, repair and replacement for Common Area Elements which may be replaced or require maintenance on a periodic basis."
Truth: If this was true then how did they use most of the reserve money for legal fee's. Fact is, a corporation can use it's money how it wants and our docs say "startup expenses" in one section.




Note: it is permissible to borrow from the reserves.


PaulB12
(Virginia)

Posts:47


03/30/2021 7:21 PM  
Yea, they just told us, about 3 years too late, if owners had known sooner, perhaps they would of voted them out. Don't let this happen to your HOA.
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