Could you please explain the transition process to me? I've heard my neighbors talk about a transition but I'm not sure I understand what they mean.

When referring to the HOA, the transition signifies the moment when the homeowners assume control of HOA by electing a new Board of Directors and Officers represented by homeowners. Typically during the development phase of a community, the Association is in the hands of the declarant a.k.a. the developer. The developer has the authority to control the affairs of the HOA according to the powers granted to him in the Deed Restrictions (DRs). The developer and his partners may also be members of the initial Board of Directors.

The DRs are usually written in favor of the developer and he (not the homeowners) decides when he will transition the property (and the Board of Directors) to the homeowners. In some cases, the developer may choose to retain control of the HOA for several years if the DRs allow him to do so. The size of your HOA (# of homes) and the frequency of sales of the units are two important factors which will most likely determine when the developer may want to complete the transition.

In my opinion, homeowners often want to assume control of their HOA (via the transition) too soon. Homeowners should talk to their management company and the developer to learn more about the transition timeline for their community. I think it is best to determine the full scope of responsibilities the developer is obliged to complete before the homeowners allow him to relinquishes his responsibility to the HOA.

Have you been involved in the transition process before? What was your experience?

Board of Director meetings

A reader in Montana asked if meetings of the Board are open to non-Board members. It's not uncommon for Board member meetings to be held in closed session so that confidential matters related to finances or individual homeowners may be addressed.

Frequency of meetings

A reader recently asked how often her HOA should be conducting meetings. As I often do, I will ask you to consult the CCRs and/or the Bylaws of your Association. These documents should explain the minimum required meeting schedule of the HOA and the necessary steps the to be taken to properly notify homeowners of the meeting. Some HOAs conduct monthly meetings while others may meet quarterly or less often.

Lack of homeowner participation

I must admit that I'm pretty amazed at the level of apathy that I see in some of the communities. I continually stress to residents that based on my experience, the few are creating rules and implementing policy for the many. I typically see about 5-15% turnout in the HOA meetings and this is not the most favorable scenario for a well run community. In light of the current economy and the risk of foreclosures and budget deficits in the communities, the HOAs are highly dependent upon the proactive participation of the homeowners.

Can you please explain what an HOA is in simple terms? I thought our management company was part of the HOA.

Sure, an HOA is a Homeowner's Association. In simple terms you can think of your HOA as if it were a city within your city that is governed by a Board of Directors and Officers and is assisted by various committees. When you purchase your home in a deed restricted community you become a member of the Association and you cannot opt out. In other words, membership is mandatory.

The HOA exists in order to preserve and maintain the community where your city will not. The management company that works with your HOA is not part of the HOA and its employees are not members of the HOA. Only homeowners are members of the HOA. The management company is a contracted service provider that is hired to manage the affairs of the HOA on behalf of the members of the HOA.

The assessment in my HOA was increased by a large amount. How can the Board of Directors do this without my permission?

It's important to consider that several factors are involved when the amount of the assessment is evaluated. It's common for Board members to closely review the financials before deciding to change the assessment amount and they may not be required to consult with the other members of the HOA before doing this. It's possible that your HOA has the authority to assess different types of assessments, for example; a special assessment, a regular annual assessment or a water assessment. Each assessment serves a specific purpose and your HOA documents should explain each in full detail.

Let's use the following scenario as an example so I can make my points. In this imaginary community you are assessed 1 time per year and according to the deed restrictions, the maximum amount the regular annual assessment can be increased is 20% per year and the maximum amount of a special assessment is 30% of the regular annual assessment amount. The regular annual assessment is the "normal" assessment that you pay annually. A special assessment is called for by the Board for a special one time expense such as replacing a old fence surrounding the community.

Therefore, if your regular annual assessment is $500.00, the most the Board could increase it by would be $100.00 and the most the Board could call for with a special assessment would be $150.00. I realize that you think the assessment increase is large but you should be well informed when it comes to the financial status of your HOA.

Many of our HOAs are experiencing changes in their assessment rates due to the fact that the overall operating costs of the HOAs have increased. The governing documents of some HOAs allow for the members to dispute assessment changes and you should review these documents to learn more about your rights in this regard.

I am new to the Board of Directors in my HOA. What should the Board members look for when evaluating vendor contracts?

It depends on the type of service the contract will provide. It's common to get excited about a vendor that promises to deliver a service at a reduced cost. Before you actually sign on the dotted line, it would behoove the Board members to dig a little deeper into the details.

For example, let's say you are reviewing the landscaping contract. Depending on where you live (climate as a consideration), you should request a schedule of service for 1 year which includes the # of visits per month/year, the repair fees for your irrigation system/sprinkler heads (if applicable), the frequency of changing seasonal flowers and adding new mulch and fertilization frequency. Keep in my mind that this list is not comprehensive and you may need to ask for additional schedules.

Additionally, depending on your state's laws, your landscaper may need to be licensed to apply fertilizer and repair irrigation systems. Finally, insurance may also be required for the landscaper. I understand that the Board may want to control costs, but establishing a contract with a questionable vendor that has access to your community is a risk I would not take. To sum up, in my experience, you get what you pay for if you keep on top of the vendor's work.

I was not told there was not an HOA in my community when I bought my house and I don't think I should have to be part of it or pay an assessment.

I wish I had a euro for every time I have heard this from a new homeowner. The bottom line is that it is your responsibility to ask questions and closely read the documents you are signing before you purchase a home. If you have already purchased your home, check your closing documents and you'll see that you probably paid a partial amount (depending on your purchase date) of your assessment to the association when your purchased the home.

In my experience you can't opt out of your membership in the homeowners association and the excuse that you didn't know the HOA existed just isn't valid. Additionally, your deed restrictions will determine how you are assessed, the frequency of the assessment, the penalties for paying late and your rights and responsibilities as a member of the HOA. Whether you are a first time buyer or a seasoned investor, as the saying goes, buyer beware.

The Importance of Finances

I talk to many homeowners who do not realize just how important it is to understand the financial state of their HOA. In light of the downturn in the economy we have seen foreclosures and budget deficits that started in 2006 which are now causing serious problems. If one homeowner is late paying their dues or does not pay at all, the annual budget suffers. If there is a foreclosure in your HOA the annual budget will suffer.

The remaining homeowners are responsible for making up the difference by way of an increase in the assessment or a special assessment due within a specified period of time. As a homeowner, I suggest that you are proactive and do your best to understand your HOA's financials. Don't leave it up to your management company to "figure it out." Ask them and your Board of Directors to explain the financials to you. Chances are, your neighbors will be just as curious as you about the figures.

My development is still incomplete and the builder has abondoned us. What do I do now?

Last week I spoke to a distressed homeowner in Texas in a community where construction is still not complete. She said the community is only about 15% complete and the builder has basically abandoned her community. She and her neighbors have made several unsuccessful attempts to contact the builder and now she is very worried about what will happen.

I wish I could say this is a unique situation but it is not. 2 years ago our company was facing a similar situation where a builder we contracted with had serious financial problems and was not able to complete the development of several of their communities. Since we had the management contract for these properties, our company was forced to deal with a host of problems. Water and electric accounts still in the builder's name were disconnected without our knowledge and several contractors had not been paid by the builder so the contractors placed liens on some of the homes. Additionally, many homeowners refused to pay their assessment to the HOA since they felt they were not receiving "what they had paid for."

Confronting such challenges is well beyond our scope of services, however, we dealt with the problems to best of our ability. Unfortunately, since most of the communities were ultimately insolvent and we had not been paid in several months, we had to terminate our management contract. Some homeowners sold their homes, some moved and leased out their homes and others are still in their communities.

Who decides upon the amount of the assessment?

The Board of Directors typically decide upon the amount of the assessment. The management company of your HOA can make a recommendation to the Board based on their observation of the previous financial history of the Association (expenses, delinquent payers etc.) with regard to changing the assessment amount. However, the Board can approve or deny any such recommendation.

What happens if I don't pay my HOA dues?

A concerned homeowner in California who lives in a deed restricted community recently asked me what happens if he does not pay his HOA dues.

To begin, this is a serious matter and there are several important consequences to consider if you don't pay your assessment on time. Depending on the rules of your HOA, you could lose your voting rights since you would not be considered a member in good standing. This means that you are not allowed to vote with regard to all decisions impacting you as a homeowner within the community. Furthermore, the Association's annual budget would not be fully funded and the potential for a shortfall could arise which could cause a hardship for the community.

Another serious result of not paying your assessment is that you could incur late fees and interest. Some HOAs may even report you to the credit reporting bureaus and then hand over your account to the Association's attorney for resolution.

In the worst case scenario, depending on the laws of your state, you could possible loose your home to your HOA in the most serious circumstance. You should consult the covenants or governing documents of your HOA (the bylaws, the Deed Restriction, Rules, etc.) to learn more about your rights and responsibilities as a homeowner.