Many Community Managers and Board of Directors have a lot of tasks. Meanwhile, there are a number of things that are pressing but tedious and require a significant amount of time to accomplish. When you have homeowners who want to be involved, a great way to get participation is by suggesting that homeowners join committees based on topics those homeowners are interested in.
There are the Association's regular Committees, and then there are Ad Hoc Committees. The regular Committees are the long-standing Committees where Committee Members continue to work on projects regularly. Ad Hoc Committees are one-time committees to specifically handle a special project.
Some examples of regular Committees and the suggested function of members are:
Social Committee
Members could plan the community events. This Committee is key in creating a friendlier living environment while creating fun community events. In turn, member participation in social events actually results in members obtaining more information on what is going on in the community.
Budget / Finance Committee
Some Associations find this Committee useful for just a few months each year during the budget preparation process. The Committee members generally review the reserve study, offer guidance and feedback to the Board on the reserve study, and either review the budget draft as prepared by the manager or Board or prepare the initial draft of the budget to provide to the Board. For some Associations, the Committee members work year round by reviewing the financial statements and provide feedback or comments to the Board with respect to the Association's finances.
Rules Enforcement
Some homeowners are very concerned with governance and enforcement. Committee Members can work with a designated Board Member to determine the level of enforcement. Altneratively, Committee Members may accompany the community manager during site inspections.
Security / Safety
For Associations with camera systems, anyone who has operated the system knows that it is very time consuming to pull footage to find an incident. Committee Members can offer assistance in reviewing and burning camera footage when necessary. Members of this committee could also form a Neighborhood Watch, get City officials involved, reach out to Senior Lead Officers from the community's local Police Station, etc.
Some examples of Ad Hoc Committees would be:
Policy Revisions
If a community needs to revise Board Resolutions such as Rules and Regulations, a Committee could be formed for the sole purpose of working on the revisions. Once done, the Committee would present the final document and the Committee recommendations to the Board, and the Committee would then be disbanned.
Design Committee
A community may be undergoing some design changes, such as new carpet and wall coverings for the hallways. Chartering a design committee could give homeowners the task of researching various styles, but it also gives more members an opportunity to participate in an important aesthetic issue that everyone has to live with. Once the project is completed, the Committee would no longer be in existence.
Sometimes, it is challenging to get homeowner involvement, but knowing your residents gives you an advantage at specifically calling on people to help if you know it's an area of interest for them.
If you have any questions on this process, please feel free to contact me at Nedafirouz@gmail.com.
Friday, July 1, 2011
Monday, April 25, 2011
Adding Bad Debt and Contingency Line Items to Budgets
With the high delinquency rates in Associations, many Associations are not able to effectively collect dues from homeowners that are not paying. Several years ago, Homeowners Associations had better abilities to collect using the non-judicial collections process because more frequently, owners had equity in their units. Nowadays, not only do most not have equity, most are upside down.
What are the consequences of delinquent payments to a community? The Association's main source of income is to assess and collect from the members of the Association. Maintaining the common areas...the corporation's assets, depends on the assessments from the members. When members do not pay their portion, there are some detrimental affects to the Association:
1. Budgets have to be modified to include bad debt. In other words, the paying homeowners end up paying a bit more in order to cover the expenses for the individuals that are not paying their assessments.
2. Standard maintenance items become unaffordable. A lot of Associations have had to increase their dues but cut back on services. Homeowners who are not recognizing the adverse affects of this economy are not recognizing the reason for less service but needing more money.
3. One of the first areas that Boards....unfortunately....tend to cut back on a bit is the reserve contribution. Boards are fearful of increasing dues even when it is absolutely necessary. So, they subsequently fail to raise the dues enough to cover expenses and properly fund the reserves. Deferred maintenance becomes more prevalent, and future special assessments become eminent. I see this too often where Boards want to hold off on spending the reserves when they decrease the reserve funding. The property starts to appear run-down, but deferring maintenance is more costly in the long run! When the property is not maintained, the property values are also affected.
4. Any budget deficits are added to the next year's budget. However, once again, the first thing that is not paid when you have insurance, water, trash, electricity and other essentials, is your budgeted reserve contribution. So, not only did the Board slash the reserve contribution, now you can't afford to actually make the reserve contributions that were budgeted. At the end of the year, the Association has to notify the membership of this, but the following year leaves a bigger gap for the Association to catch up on. Again, more deferred maintenance, more of a need for a special assessment, and more appearance of the property being run-down.
5. Some Associations, if they have really failed to budget properly, will start borrowing money from the reserves to pay the operating expenses. The Association is required to pay back the monies borrowed within a year, or otherwise disclose to the members that the money was borrowed, the purpose of borrowing the funds, and notifying members as to why the money will not be paid back. Items 3 and 4 listed above just get worse.
6. Now Associations may turn to lenders to try to get loans to deal with capital improvements. The members have to vote to approve the loan, but often times, members are given somewhere around 1-7 years to pay off the loan. Some owners choose to pay off their portion of the loan up front, while others choose to maximize their payment options. This feels like a dues increase, because loans will usually add a big chunk to monthly assessments. The community value reduces with respect to sales prospects.
7. The quality of life of residents / owners suffers. People struggling with finances and deteriorating buildings are not happy. Usually, when a community gets to this point, this is when the politics among the members begin. These situations create rifts, adversarial groups, and a hostile environment for neighbors, managers and Board Members.
As managers reading this blog, we can all relate to this, and I sympathize with any going through this. As residents in a Homeowners Association, you may have experienced this and may have a better understanding of how things get unbearable. You may also have a better understanding now of why a 3-7% increase may not be ideal but is much better than continued cut-backs and improper budgeting just to keep members happy and in the dark about the true financial conditions.
All in all, those creating the budgets should be conscientious of bad debt expenses. If you currently have delinquencies, start factoring that in the budget. I always advise my communities that do not have fully funded reserves to maximize the reserve contributions. A few of my communities have asked me whether I advise them to decrease their dues or avoid increasing dues when it's necessary when looking at the real figures. I always advise my clients that proper funding and planning is the right way to go.
If you have any questions or would like to provide me with any off-line comments, please feel free to email me at NedaFirouz@gmail.com.
What are the consequences of delinquent payments to a community? The Association's main source of income is to assess and collect from the members of the Association. Maintaining the common areas...the corporation's assets, depends on the assessments from the members. When members do not pay their portion, there are some detrimental affects to the Association:
1. Budgets have to be modified to include bad debt. In other words, the paying homeowners end up paying a bit more in order to cover the expenses for the individuals that are not paying their assessments.
2. Standard maintenance items become unaffordable. A lot of Associations have had to increase their dues but cut back on services. Homeowners who are not recognizing the adverse affects of this economy are not recognizing the reason for less service but needing more money.
3. One of the first areas that Boards....unfortunately....tend to cut back on a bit is the reserve contribution. Boards are fearful of increasing dues even when it is absolutely necessary. So, they subsequently fail to raise the dues enough to cover expenses and properly fund the reserves. Deferred maintenance becomes more prevalent, and future special assessments become eminent. I see this too often where Boards want to hold off on spending the reserves when they decrease the reserve funding. The property starts to appear run-down, but deferring maintenance is more costly in the long run! When the property is not maintained, the property values are also affected.
4. Any budget deficits are added to the next year's budget. However, once again, the first thing that is not paid when you have insurance, water, trash, electricity and other essentials, is your budgeted reserve contribution. So, not only did the Board slash the reserve contribution, now you can't afford to actually make the reserve contributions that were budgeted. At the end of the year, the Association has to notify the membership of this, but the following year leaves a bigger gap for the Association to catch up on. Again, more deferred maintenance, more of a need for a special assessment, and more appearance of the property being run-down.
5. Some Associations, if they have really failed to budget properly, will start borrowing money from the reserves to pay the operating expenses. The Association is required to pay back the monies borrowed within a year, or otherwise disclose to the members that the money was borrowed, the purpose of borrowing the funds, and notifying members as to why the money will not be paid back. Items 3 and 4 listed above just get worse.
6. Now Associations may turn to lenders to try to get loans to deal with capital improvements. The members have to vote to approve the loan, but often times, members are given somewhere around 1-7 years to pay off the loan. Some owners choose to pay off their portion of the loan up front, while others choose to maximize their payment options. This feels like a dues increase, because loans will usually add a big chunk to monthly assessments. The community value reduces with respect to sales prospects.
7. The quality of life of residents / owners suffers. People struggling with finances and deteriorating buildings are not happy. Usually, when a community gets to this point, this is when the politics among the members begin. These situations create rifts, adversarial groups, and a hostile environment for neighbors, managers and Board Members.
As managers reading this blog, we can all relate to this, and I sympathize with any going through this. As residents in a Homeowners Association, you may have experienced this and may have a better understanding of how things get unbearable. You may also have a better understanding now of why a 3-7% increase may not be ideal but is much better than continued cut-backs and improper budgeting just to keep members happy and in the dark about the true financial conditions.
All in all, those creating the budgets should be conscientious of bad debt expenses. If you currently have delinquencies, start factoring that in the budget. I always advise my communities that do not have fully funded reserves to maximize the reserve contributions. A few of my communities have asked me whether I advise them to decrease their dues or avoid increasing dues when it's necessary when looking at the real figures. I always advise my clients that proper funding and planning is the right way to go.
If you have any questions or would like to provide me with any off-line comments, please feel free to email me at NedaFirouz@gmail.com.
Wednesday, March 30, 2011
HOA Restrictions on Signs
I was recently at a Community Association Institute seminar for California, when the subject of resident rights to post signs, flags and banners was discussed. Surprisingly, most of the managers in the room were unaware of the resident rights to display an array of signs and posters from their windows. Many managers assumed that because the signs / posters / banners were visible from the common areas, that the Associations had the authority to restrict signage. Civil Code 1353.6 - Displaying of Noncommercial Signs or Flags, is the section that pertains to the resident's right to display the signs, flags and banners. The Civil Code is actually very broad in that it permits just about any type of sign, and the size limits are pretty liberal as well. The Civil Code does permit Associations from prohibiting any penetration in to common surfaces in order to install a flag holder. Before Associations attempt to require the removal of a sign, flag or banner from a residence, I suggest that Associations review this Civil Code. If this section is still unclear, Associations may want to consult with legal counsel to determine the Association's authority. If you have any questions regarding this subject, please feel free to email me at Nedafirouz@gmail.com.
Saturday, March 12, 2011
Protecting Assets
We all have assets that we have invested in and cherish. That may be your home, your car, or even an ipod. Just like we all have our own assets, businesses have assets as well. A Homeowners Association is, in fact, a business. Those that are incorporated are non-profit Corporations.
Some of the assets in a Homeowners Association can be obvious, such as the chaise lounges at the pool, the computers in an on-site office, furniture in the clubhouse, etc. Most of us don't recognize the largest assets of the corporation, which are the components that are 
the most costly to replace. For example, we tend to personally take care of our largest investment, such as our homes or our cars, a lot better than a pair of sandals, right? So, what are some of the largest assets in a Homeowners Association? These could include the vertical plumbing lines in stacked condominium units, the roofs, roads (in planned unit developments), structural components (beams, posts, catwalks, decks), paint to protect wrought iron, stucco and wood, etc.
the most costly to replace. For example, we tend to personally take care of our largest investment, such as our homes or our cars, a lot better than a pair of sandals, right? So, what are some of the largest assets in a Homeowners Association? These could include the vertical plumbing lines in stacked condominium units, the roofs, roads (in planned unit developments), structural components (beams, posts, catwalks, decks), paint to protect wrought iron, stucco and wood, etc. Let's think of relating to this idea like we would our cars. We have routine maintenance, like changing our oil regularly, to protect our engines. We monitor transmission fluids to protect the transmission (both are two of the more costly components in a car, so we try to prolong the need to replace them). The same goes for our components. In order to prolong the life of the roads, for example, preventative maintenance is necessary. Planned Unit Developments should plan to add a slurry coat to the roads once every three or so years. In doing this, you are adding a protective layer to the roads to prevent premature deterioration. When compacted properly, a new road can last up to 15 years, but the lack of proper car can require replacement as soon as 10 years after it is done. A lot of communities consider painting to be an aesthetic component and usually put off the painting to get other projects done. Painting actually adds a protective coating on elements. On wrought iron, properly applied paint will help prevent rust and corrosion. On wood, the paint prevent dry rot.
Many homeowners struggle with the concept of slight increases in dues to properly fund for these types of projects. Just as we each don't want to have to replace our engines or transmissions within 7 years of having a car, the components in a community can also be maintained properly to avoid larger expenses when things completely deteriorate.
If you have any questions, please feel free to email me at Nedafirouz@gmail.com.
Friday, March 4, 2011
Operating Expenses vs. Reserve Expenses vs. Capital Improvements
Many residents and even Board Members do not know the difference between operating expenses, reserve expenses and capital improvements. Once people grasp the difference between the three, many don't know when homeowner votes are required for funding and/or expenditures. I'll be explaining the fundamentals of each.
Operating Expenses
These are the Association's day-to-day expenses. People should think of this as "repair" not "replace." Operating expenses include contracted services (i.e. landscaper, pool contractor, gate maintenance, management), insurance, utilities, taxes, administrative expenses (i.e. accounting fees, office expenses), and maintenance expenses (building repairs, plumbing repairs, lighting supplies). Association's use the pro forma budget to help create a map for the upcoming year's operating expenses.
The Association is required to distribute the budget package to the members every year. In California, the Board of Directors has the authority to increase the dues by 20% each fiscal year to cover operating expenses. Any increase beyond 20% will require the vote of the membership. The Board also has the authority to special assessment the members 5% of the gross annual income without the membership's vote. Anything beyond that would require the approval of the members. The Association would maintain a bank account as the designated operating account. The Board has the authority to enter into agreements and maintain the day to day operations...operating expenses.
Reserve expenses are the replacement of existing building components; not the repairs. So, we can compare a component and demonstrate whether it is an operating or a reserve expense. If a homeowner relays they have a roof leak and the roof is repaired, that would be considered an operating expense. If the Association replaces the roofs, the roof replacement is a reserve expense. Associations use the reserve study as a guide on how much the components would cost to replace, and what the useful remaining life on each component would be. Associations must also maintain a separate bank account that is deemed the reserve account. The best way of distinguishing the operating and reserve accounts is to think of the operating account as a checking account while thinking of the reserve account as a savings...or even almost a CD account. There are many restrictions on the Association's ability to use the reserve funds, as the reserve funds should be used for reserve expenses. If the funds are used for non-reserve items, there are a set of Association requirements that will not be explained in this article. The Board has the authority to cause the replacement of existing components as needed, assuming that the funds are available.
Capital Improvements
Capital improvements are projects where a new component is introduced to the community. It is a project that, once installed, will then create operating expenses and future reserve expenses. An example would be a community's desire to install a spa when that ammenity does not already exist. The rule of thumb for a capital improvement project is that the Association should obtain membership approval before undertaking a capital improvement project. Because this component does not already exist within your community, the Board will have to re-allocate existing funds to pay for this component, or the Board may need to special assess members to obtain the funds to undertake the project. This new component will have to be added to future reserve studies, and additional reserve funding will be required to maintain the component.
If you have questions on these topics, please feel free to email me at NedaFirouz@gmail.com.
Operating Expenses
These are the Association's day-to-day expenses. People should think of this as "repair" not "replace." Operating expenses include contracted services (i.e. landscaper, pool contractor, gate maintenance, management), insurance, utilities, taxes, administrative expenses (i.e. accounting fees, office expenses), and maintenance expenses (building repairs, plumbing repairs, lighting supplies). Association's use the pro forma budget to help create a map for the upcoming year's operating expenses.
The Association is required to distribute the budget package to the members every year. In California, the Board of Directors has the authority to increase the dues by 20% each fiscal year to cover operating expenses. Any increase beyond 20% will require the vote of the membership. The Board also has the authority to special assessment the members 5% of the gross annual income without the membership's vote. Anything beyond that would require the approval of the members. The Association would maintain a bank account as the designated operating account. The Board has the authority to enter into agreements and maintain the day to day operations...operating expenses.
Reserve Expenses
Reserve expenses are the replacement of existing building components; not the repairs. So, we can compare a component and demonstrate whether it is an operating or a reserve expense. If a homeowner relays they have a roof leak and the roof is repaired, that would be considered an operating expense. If the Association replaces the roofs, the roof replacement is a reserve expense. Associations use the reserve study as a guide on how much the components would cost to replace, and what the useful remaining life on each component would be. Associations must also maintain a separate bank account that is deemed the reserve account. The best way of distinguishing the operating and reserve accounts is to think of the operating account as a checking account while thinking of the reserve account as a savings...or even almost a CD account. There are many restrictions on the Association's ability to use the reserve funds, as the reserve funds should be used for reserve expenses. If the funds are used for non-reserve items, there are a set of Association requirements that will not be explained in this article. The Board has the authority to cause the replacement of existing components as needed, assuming that the funds are available.
Capital Improvements
Capital improvements are projects where a new component is introduced to the community. It is a project that, once installed, will then create operating expenses and future reserve expenses. An example would be a community's desire to install a spa when that ammenity does not already exist. The rule of thumb for a capital improvement project is that the Association should obtain membership approval before undertaking a capital improvement project. Because this component does not already exist within your community, the Board will have to re-allocate existing funds to pay for this component, or the Board may need to special assess members to obtain the funds to undertake the project. This new component will have to be added to future reserve studies, and additional reserve funding will be required to maintain the component.
If you have questions on these topics, please feel free to email me at NedaFirouz@gmail.com.
Budget Preparations - Start From Scratch or Not?
There are really two starting points in preparing your Association budgets. The first is to start from scratch and zero out all line items from the previous year. From there, contracts would be reviewed to determine the amounts to input in the line items, and all other known income and expenses would be inserted. The other starting point would be to use your prior history. In other words, you would work with your prior year's budget and tweak the figures depending on any known modifications to services.
When would you start from scratch on your budgets? My personal choice is to start from scratch once every three years, and to do the budget from scratch the same year the Association is conducting the full reserve study with the on-site inspection. There is a reason why statutes require Associations to conduct full studies every three years, and that is to maximize the accuracies of the report. We know the report will never be perfect. I can understand why statutes don't put such stringent requirements on operating budgets, as replacement of reserve components are far more costly than a lot of these operating line items. Nonetheless, it is good management practice and is a pro-active approach to budgeting.
At minimum, if a new Board is taking over from a prior Board, or if a new management company is in place, we should not assume that the work of the prior Board or company is accurate. We should be budgeting from scratch to verify that the budgeted figures are reasonable, and to see if we need to add or remove certain line items altogether.
I heard a story today where a community had been self managed for about 20 years and then hired a property manager. The professional manager worked for the community for 4 years and really assisted the community in conducting their reserve studies and help map the community's financial direction. After 4 years, the manager moved on to a different community. Meanwhile, the Board of Directors had noted that the reserve funding percentage was not in a desirable range. They arbitrarily decided to remove the reserve line item for their roofs, which of course substantially increased the reserve study funding. The Board instructed the reserve study company to completely remove the roof from the reserve study component list, and the reserve study company responded and advised against doing this because this would be blatant inaccurate reporting. The Board chose to disregard the reserve study company's advisement and pressed to remove the roofs. Another few years passed and the various new Boards and managers did not catch this removal. The Board's fiduciary duty is to rely on professionals to guide them, and instances where the Board of Directors opt to act in a manner that contradicts professionals is when Board Members can be deemed to be acting negligent or in bad faith. When the roofs finally needed to be replaced and homeowners were assessed over $25,000 each to fund the project, the Association pursued filing a claim on their D&O Insurance. When the insurance carriers subrogated the claim, the carriers were pursuing those individual ex-Board Members, who were personally liable. Remember that as long as Board Members use the business judgement rule and are acting in good faith, Board Members do have protections from being personally liable. In cases like this where they clearly took actions to cover up their funding percentages for whatever reason, they were acting in bad faith and were considered personally liable. My point in this story, is that had this community started from scratch when the new Board / Management came in, this would have been discovered well before the roofs became dilapidated.
The moral of the story is, while it may take us a little extra time to start from scratch, we should be pro-active and use our reasonable judgement to determine when it is necessary to prepare a budget from scratch.
If you have any questions regarding community management, feel free to contact me at NedaFirouz@gmail.com.
Tuesday, February 22, 2011
Delinquencies
Delinquencies are troubling Association budgets these days. When the real estate market was thriving, it was relatively easy to pursue collections on an owner that was not paying their HOA dues. Most had enough equity in their units, which permitted the Associations to pursue non-judicial foreclosure when necessary. In today's market, however, collecting has been very challenging. Property Ma
nagers, Board Members and collection agencies have had to be more creative and resourceful in determining methods of effectively collecting dues. Most homeowners do not have any equity left in their homes and are very comfortable with walking away and allowing lenders to foreclose on the units. Most often, once a lender forecloses, the Association cannot transfer the debt to the new owner. You should check your Governing Documents about this, because some do permit Associations to transfer a portion of debts (it's not common).
nagers, Board Members and collection agencies have had to be more creative and resourceful in determining methods of effectively collecting dues. Most homeowners do not have any equity left in their homes and are very comfortable with walking away and allowing lenders to foreclose on the units. Most often, once a lender forecloses, the Association cannot transfer the debt to the new owner. You should check your Governing Documents about this, because some do permit Associations to transfer a portion of debts (it's not common). 
A lot of Associations are left helpless. Some continue to pursue non-judicial foreclosure, but once the lender forecloses, not only do the Association dues get wiped out, so do the incurred legal fees. Some HOAs have been discouraged in even pursuing collections in fear of incurring more debt, but at the same time, the Association needs to protect its assets and make an attempt to collect the debts.
Our solution, while it creates more work for us, has been to handle each situation on a case by case basis. We do solicit the assistance of collection agencies to let us know if a Notice of Default or liens have been filed by any other entity. If it appears that the lender is at the final stage and is moving in to foreclose, we don't bother with the non-judicial system (to pursue the debt by attempting to collect from the unit's value by way of foreclosure to receive payment from the sale). Alternatively, the cheapest way is to pursue collections against the unit owner directly by way of filing a small claims suit. Often times, the debt does not exceed the small claims limit. If it does though, it still may be worth considering just pursuing small claims depending on how much is actually owed to the Association (again, check with legal counsel if there is a question about this). The easiest way to serve a unit owner is to attempt this while they still reside in the unit as opposed to when they have already moved out.
So, now the problem remains that if the unit owner did not have the funds to pay the debt and allowed the unit to foreclose, what will prompt them to pay the judgement? A judgement is valid for 10 years. Once a judgement is obtained, you can turn that over to a collection agency that will specifically work with the Association to monitor that individual and will search for assets. You may be able to garnish wages or pursue other assets that are founds. And, if you work with a strong collection agency, perhaps they won't be able to collect today, but 2-3 years from now when thing hopefully pick up with our economy, people will start to re-build assets and may be able to pay off their judgement at that time. The judgement may be worthless and may never be collected, but it's a better option then completely giving up once the lender has foreclosed.
Finally, another very effective option is suspending common area privileges when there are actually ammenities that residents rely on. I work with a high-rise in Century City that provides valet service, a gym, cable television and DSL connections for their residents, etc. Their policy is that if a homeowner is 30 days or more delinquent, the Board provides another 15 days to become current, or all common area privileges are suspended. For owners with tenants, this is disastrous. The tenant no longer receives internet connections, television service, use of valet services, the gym, etc. The threat of the loss of rent really keeps owners paying their dues.
In another Association I work with, we just instituted a whole new system. The community consists of 320 homes, so the only real ammenities are the pools. The pools were originally accessed with keys, but we modified it to a key card system. This allows us the ability to de-activate the key cards when common area privileges are suspended. Once again, owners and/or their tenants will not have access to the pools if they are not current on their dues. We also created a parking program that requires all resident vehicles to be registered with the Association. Any guests must use visitor permits to be parked on the streets. In order to obtain the guest parking permits, owners must also be current on their dues. So now, we have restricted those behind on their dues from using the pools OR having guests park on the streets. We issue new visitor parking placards at the start of each year, so we can have control over accounts if they start accruing more debt. This may be of interest to know that this Association in particiluar went from a 20% delinquency rate (undesirable to lenders and was considered high-risk) down to 12% now. FHA will consider approving an Association if delinquencies are 15% or better, so our delinquencies have drastically improved since the implementation of these projects. Sometimes it's worth spending a bit of money to expect a bigger return. The program is far more detailed than what I will share in this blog, but if you are interested in obtaining a copy of the parking rules or getting more suggestions on creative ways to get your delinquencies paid, leave me a comment on the blog, and I will contact you.
Neda Firouz
Friday, February 18, 2011
Transparency - Open Session Information
Many Associations I manage are concerned about the content of what is discussed in open session versus executive session. The Board of Directors of communities are faced with homeowners who request more transparency and the ability to hear more of the decisions that are being made, but then the Board Members must contend with the Civil Codes and requirements for Executive Session discussions.
I would like to preface this portion by stating that I am not an attorney. You may want to consult with your Association's legal counsel or your community manager for procedures with executive session information. I would suggest maintaining the standard executive session categories in executive session, which includes but is not limited to:
Personnel matters, member disciplinary issues, legal issues, delinquencies when discussing specific homeowners.
The area that I tend to recommend to discuss in open session is the formation of contracts, but within reason. If, for example, my Association is in need of terminating services with one vendor to retain another, this sensitive information should be discussed in executive session. If homeowners hear this information in open session and then discuss with the vendor in question in passing, this may be disruptive and cause issues with your vendors. If you were merely discussing proposals for a plumbing repair or adding a new service, talking about insurance renewals, etc., why not discuss in open session? Homeowners feel that they know more about the extraoridnary expenses, and it is specified in open session minutes. Contracted services are the fees that recur each month and are standard, so for any special projects that do not fall under the legal category or are not linked to an existing contract may be considered to be discussed in open session.
Again, you should proceed in a manner that is best suited for your community, but in my experience, homeowners are appreciative of the opportunity to be made aware of community decisions.
Neda Firouz
I would like to preface this portion by stating that I am not an attorney. You may want to consult with your Association's legal counsel or your community manager for procedures with executive session information. I would suggest maintaining the standard executive session categories in executive session, which includes but is not limited to:
Personnel matters, member disciplinary issues, legal issues, delinquencies when discussing specific homeowners.
The area that I tend to recommend to discuss in open session is the formation of contracts, but within reason. If, for example, my Association is in need of terminating services with one vendor to retain another, this sensitive information should be discussed in executive session. If homeowners hear this information in open session and then discuss with the vendor in question in passing, this may be disruptive and cause issues with your vendors. If you were merely discussing proposals for a plumbing repair or adding a new service, talking about insurance renewals, etc., why not discuss in open session? Homeowners feel that they know more about the extraoridnary expenses, and it is specified in open session minutes. Contracted services are the fees that recur each month and are standard, so for any special projects that do not fall under the legal category or are not linked to an existing contract may be considered to be discussed in open session.
Again, you should proceed in a manner that is best suited for your community, but in my experience, homeowners are appreciative of the opportunity to be made aware of community decisions.
Neda Firouz
Friday, January 22, 2010
Neda Firouz - Dealing with Deferred Maintenance
Many of the Associations I manage are currently faced with deferred maintenance issues. It's a difficult decision to make, as the economic climate attributes to avoiding special assessments to deal with capital improvements. What's important to consider is that while our homeowners may not be able to afford special assessments right now, labor costs are also at an all-time low.
My Association's are currently working on projects such as painting, roof replacement, road replacement, etc. These are all very costly projects, but we are finding that the proposals we are obtaining are significantly lower in comparison to proposals we received for the same scope of work from last year. Therefore, if you do have deferred maintenance, it may be a good time to consider a balance between special assessments and spending the funds for the much needed projects.
Keep in mind that in the long-run, deferring maintenance may save the Association from passing a special assessment today, but the cost of addressing the deffered maintenance and dealing with the residual damage as a result of not replacing your components timely will be significantly more.
Budgeting your operating AND reserve expenses are important to help stay organized. While we don't like to recommend changing vendors around frequently, it is a good idea to shop the services for your regular vendors to make sure that their services are comparable to today's current market value. If you find your vendors to be out of range, you can always negotiate the pricing to a mutually beneficial rate. The more you save from your operating budget, the more you will have to put away in your reserves.
My Association's are currently working on projects such as painting, roof replacement, road replacement, etc. These are all very costly projects, but we are finding that the proposals we are obtaining are significantly lower in comparison to proposals we received for the same scope of work from last year. Therefore, if you do have deferred maintenance, it may be a good time to consider a balance between special assessments and spending the funds for the much needed projects.
Keep in mind that in the long-run, deferring maintenance may save the Association from passing a special assessment today, but the cost of addressing the deffered maintenance and dealing with the residual damage as a result of not replacing your components timely will be significantly more.
Budgeting your operating AND reserve expenses are important to help stay organized. While we don't like to recommend changing vendors around frequently, it is a good idea to shop the services for your regular vendors to make sure that their services are comparable to today's current market value. If you find your vendors to be out of range, you can always negotiate the pricing to a mutually beneficial rate. The more you save from your operating budget, the more you will have to put away in your reserves.
Wednesday, September 9, 2009
Neda Firouz - Reserve Study Components
When reviewing a reserve study, it is important to keep in mind that reserve studies are only required to list components that have a 30-year life expectancy or less. Therefore, you will not see items like the foundation or other components that have greater life expectancies. For properties that were built in the 1970s, it is especially important for managers and Board of Directors to be vigilant of the component list.
For example, I worked with a community that was built in 1971. The community had 20 exterior, three-story staircases that were structurally failing. The plumbing was also in poor condition, but there was no consideration for plumbing replacement or the staircases in the reserve study. Upon inspecting their reserve study, I was able to determine that the study was lacking components that were costly but necessary to handle. After factoring those elements in the study, the Association needed an additional $5,000,000 to be able to address those issues. The reserve funding percentage had suddenly dropped from 31% down to 10%. This was not an ideal situation, but ultimately, it was necessary for me to address the matter. Reserve study companies often just use prior component lists and update them.
To avoid a situation like this, it is important to regularly review the components, ask your reserve study companies to be extra mindful of any items that were not included but may now need to be, and to discuss this with your community managers.
As usual, if you have any questions, please feel free to contact me.
Neda Firouz
For example, I worked with a community that was built in 1971. The community had 20 exterior, three-story staircases that were structurally failing. The plumbing was also in poor condition, but there was no consideration for plumbing replacement or the staircases in the reserve study. Upon inspecting their reserve study, I was able to determine that the study was lacking components that were costly but necessary to handle. After factoring those elements in the study, the Association needed an additional $5,000,000 to be able to address those issues. The reserve funding percentage had suddenly dropped from 31% down to 10%. This was not an ideal situation, but ultimately, it was necessary for me to address the matter. Reserve study companies often just use prior component lists and update them.
To avoid a situation like this, it is important to regularly review the components, ask your reserve study companies to be extra mindful of any items that were not included but may now need to be, and to discuss this with your community managers.
As usual, if you have any questions, please feel free to contact me.
Neda Firouz
Friday, August 21, 2009
Neda Firouz - Budget Time
In order to keep the operations of your Association running smoothly, it is a good idea to put together a calendar that includes your Association's deadlines for various disclosure statements and other maintenance schedules. According to Civil Codes, your budget disclosure package needs to be mailed out at least 30 days prior to the end of your fiscal year, unless your Governing Documents are more stringent.
Most Associations are on a calendar year. If this is true for your Association, according to Civil Code, you would then need to mail your budget disclosure package no later than December 1st. The best way to handle your budget process is to start early to give yourselves ample time to really focus on the figures.
In order to determine a schedule for your budgets, you can your way backwards:
1. December 1st deadline to mail out budget and all disclosure statements.
2. Approval of the budget by the Board of Directors in an Open Session Meeting (preferably no later than the middle of November in order to provide ample time to mail the package to your members).
3. Final approval of the drafted budget to be completed by the budget/finance Committee, designated Board Members and/or community manager by the beginning of November.
4. Obtain copies of the completed reserve study and financials to commence the budget drafting process by mid to late-September. Note: in order to keep the budgeting fresh in your mind, weekly or bi-weekly budget meetings is in order until it is completed. Also, each budget meeting can be used to focus on specific categories of the budget (i.e. income, utilities, etc.).
5. In order to get your drafted reserve study, you will need to approve the proposal from your reserve study company. Most reserve study companies base their fees on your required turnaround time. Usually, the cheapest fee schedule is offered when you give the reserve study company at least 8 weeks. That means that you should select the company to conduct your reserve study and approve the proposal by mid-July.
All in all, the process needs to start around 6 months before your fiscal year-end in order to avoid higher fees with your reserve study and also make sure that you have enough time to look at cost-cutting solutions for the various line items in your budget. If you are not on a calendar year, you can still apply these timelines to fit your community.
If you have any questions about budgets, feel free to contact me.
Sincerely,
Neda Firouz
Most Associations are on a calendar year. If this is true for your Association, according to Civil Code, you would then need to mail your budget disclosure package no later than December 1st. The best way to handle your budget process is to start early to give yourselves ample time to really focus on the figures.
In order to determine a schedule for your budgets, you can your way backwards:
1. December 1st deadline to mail out budget and all disclosure statements.
2. Approval of the budget by the Board of Directors in an Open Session Meeting (preferably no later than the middle of November in order to provide ample time to mail the package to your members).
3. Final approval of the drafted budget to be completed by the budget/finance Committee, designated Board Members and/or community manager by the beginning of November.
4. Obtain copies of the completed reserve study and financials to commence the budget drafting process by mid to late-September. Note: in order to keep the budgeting fresh in your mind, weekly or bi-weekly budget meetings is in order until it is completed. Also, each budget meeting can be used to focus on specific categories of the budget (i.e. income, utilities, etc.).
5. In order to get your drafted reserve study, you will need to approve the proposal from your reserve study company. Most reserve study companies base their fees on your required turnaround time. Usually, the cheapest fee schedule is offered when you give the reserve study company at least 8 weeks. That means that you should select the company to conduct your reserve study and approve the proposal by mid-July.
All in all, the process needs to start around 6 months before your fiscal year-end in order to avoid higher fees with your reserve study and also make sure that you have enough time to look at cost-cutting solutions for the various line items in your budget. If you are not on a calendar year, you can still apply these timelines to fit your community.
If you have any questions about budgets, feel free to contact me.
Sincerely,
Neda Firouz
Sunday, August 16, 2009
Neda Firouz - Water Conservation Can Save you Money
We've discussed methods of producing more income for your community (and you as an an individual), but utility expenses are inevitable. In most Associations, water bills are one of the largest expenses. Again, these tips can also be considered and applied to your own individual lifestyles, so continue reading to find tips on conserving water in your own homes as well. We have various scenarios to factor:
1. Planned Unit Development (single-family homes)
2. Condominium Complexes
3. Townhomes
4. Co-ops
This blog will focus on water conservation in planned unit developments, but stay tuned this week for additional information on the other types of communities.
The first type of community to consider is a planned unit development. Generally speaking, the homeowner is responsible for the exterior and interior of their units, which includes water bills. In planned unit developments, you do find a lot of common area landscaping. Maintaining that landscaping includes making sure that your plants are watered. You also may have common area bathrooms in facilities such as community pools or in a clubhouse.
With regards to your landscaping, many communities are on timers. With multiple controllers throughout the complex, it is a tedious job to constantly be vigilant and adjust those timers depending on the weather. Nonetheless, this is something that needs to be delegated to either a maintenance person, your landscaper, your Board Member, or your manager if he or she is willing and able to handle this task. When the climate is cooler or rain is expected, the water timers need to be adjusted accordingly. If this seems like it is too much work, you may also consider installing a satellite-controlled irrigation system. According to some studies, this system has saved up to 80% in water consumption over the conventional irrigation system. This system works with a satellite that essentially is notified about weather conditions and will adjust the plant watering accordingly. Again, this is a great tip for HOAs AND individual homeowners. For individual homeowners, just think of how much money a system like this can save you in the long-run. If you're on vacation, you do not have to go through the hassle of hiring a house sitter to water your plants while you're gone. Your satellite-controlled irrigation system will handle it for you. If you would like further information on the system, please feel free to contact me.
Aside from watering, you may also seriously want to consider installing drought tolerant plants. Utility companies such as LADWP are offering cash incentives for individual homeowners to plant the drought tolerant plants. Remember that aside from the "cash incentives," your long-term watering will be significantly cut by making this conversion. Here is a link to an article in the LA Times regarding the DWP program: http://latimesblogs.latimes.com/lanow/2009/06/water-savings.html
There are actually some really great looking drought tolerant plants. Here are a few pictures of drought tolerant plants:
For a complete list of drought tolerant plants in the LA area (or any other vicinity in California), please visit the following site:
http://www.laspilitas.com/garden/Drought_resistant_plants_for_a_los_angeles_garden.html
As for other minor water conservation tips in planned unit developments, please stay tuned with my condominium complex water conservation tips that will be posted within the next several days. This includes areas to save INSIDE the home or common area facilities.
If you found this blog insightful or useful, please let me know. Feel free to leave any comments on what you would like to see, and I will incorporate my professional expertise on the subject.
Sincerely,
Neda Firouz
1. Planned Unit Development (single-family homes)
2. Condominium Complexes
3. Townhomes
4. Co-ops
This blog will focus on water conservation in planned unit developments, but stay tuned this week for additional information on the other types of communities.
The first type of community to consider is a planned unit development. Generally speaking, the homeowner is responsible for the exterior and interior of their units, which includes water bills. In planned unit developments, you do find a lot of common area landscaping. Maintaining that landscaping includes making sure that your plants are watered. You also may have common area bathrooms in facilities such as community pools or in a clubhouse.
With regards to your landscaping, many communities are on timers. With multiple controllers throughout the complex, it is a tedious job to constantly be vigilant and adjust those timers depending on the weather. Nonetheless, this is something that needs to be delegated to either a maintenance person, your landscaper, your Board Member, or your manager if he or she is willing and able to handle this task. When the climate is cooler or rain is expected, the water timers need to be adjusted accordingly. If this seems like it is too much work, you may also consider installing a satellite-controlled irrigation system. According to some studies, this system has saved up to 80% in water consumption over the conventional irrigation system. This system works with a satellite that essentially is notified about weather conditions and will adjust the plant watering accordingly. Again, this is a great tip for HOAs AND individual homeowners. For individual homeowners, just think of how much money a system like this can save you in the long-run. If you're on vacation, you do not have to go through the hassle of hiring a house sitter to water your plants while you're gone. Your satellite-controlled irrigation system will handle it for you. If you would like further information on the system, please feel free to contact me.
Aside from watering, you may also seriously want to consider installing drought tolerant plants. Utility companies such as LADWP are offering cash incentives for individual homeowners to plant the drought tolerant plants. Remember that aside from the "cash incentives," your long-term watering will be significantly cut by making this conversion. Here is a link to an article in the LA Times regarding the DWP program: http://latimesblogs.latimes.com/lanow/2009/06/water-savings.html
There are actually some really great looking drought tolerant plants. Here are a few pictures of drought tolerant plants:
For a complete list of drought tolerant plants in the LA area (or any other vicinity in California), please visit the following site:
http://www.laspilitas.com/garden/Drought_resistant_plants_for_a_los_angeles_garden.html
As for other minor water conservation tips in planned unit developments, please stay tuned with my condominium complex water conservation tips that will be posted within the next several days. This includes areas to save INSIDE the home or common area facilities.
If you found this blog insightful or useful, please let me know. Feel free to leave any comments on what you would like to see, and I will incorporate my professional expertise on the subject.
Sincerely,
Neda Firouz
Saturday, August 15, 2009
Neda Firouz - Increasing Income in HOA Budgets
HOA Budget - Increasing your Income by Neda Firouz
As a community manager, I have come across many homeowners associations, each of which have unique needs. Lately, we have found that interest rates have plummeted! This does not just affect homeowners associations, but each of us as individuals. If you do not live in a homeowners association, you may be able to learn a few tips from this blog, so keep reading...
With more stringent reserve measures, Board of Directors are faced with the difficult task of properly budgeting not just for the upcoming year, but for the general future of the community. Often times, this may require dues increases and/or special assessments. With a steady incline in delinquencies and the current economic climate, increasing assessments and collecting funds have become more difficult. With a little research and work, producing more income without assessments is possible. Here are a few areas to focus on that may have tremendous impacts on your budget:
Many communities invest their reserve funds with brokers, but interest rates have not been as competitive as they were in the past. If you are an individual reading this blog, you may have experienced that your bank is also not offering competitive interest rates. If you are currently earning less than 1%, you may consider researching alternative options. The CDARs program has been one solution for some Associations (and individuals). Many of the banks that offer this program offer interest rates at 2% or more, and you can invest up to 50 million dollars and still be protected by FDIC insurance. For more information, you can visit http://www.cdars.com/_docs/news-articles/SmartBusinessCDARS.pdf. When working with various banks that participate in the CDARs program, many of them offered to first open a CD account at a much higher rate. The highest I found was 3.25%. As you know, the FDIC Insurance limits have been increased to $250,000, so you can invest somewhere around $240,000 with the bank directly, then invest the rest of your reserve funds through the CDARs program. Alternatively, if you need to keep some funds liquid, there are banks that have HOA departments that offer rates of 2.25% or greater for Money Market accounts. For homeowners associations, you can contact banks that have HOA departments. If you want references to those institutions, feel free to send me a comment.
Other income producing methods include locating vending machine companies that will offer a percentage of their sales back to your community. You can also promote paid advertisements in your community newsletters as a means to generate more income, or at least offset your printing costs.
Then, there are those communities (predominantly condominium Associations) that have limited storage space within the units, and they also have strict Rules and Regulations regarding patio/balcony storage. One of the suggestions that has worked for homeowners AND the Associations is to have the Association purchase fire proof storage spaces for the subterranean garages. There are construction stores or products offered online that sell the storage spaces from anywhere between $500-$2,000 per space. Remember that it is important to find fire proof spaces because of the possible fire hazard. Also, before purchasing the storage spaces, make sure to talk to your insurance agents to confirm that your carriers will not have liability issues. In any event, depending on the demand in your community, the general storage rates range between $50-$100 per month. Your Association can earn back the initial investment in as little as ten months, then generate income for the future. Lastly, remember that this would be a new component that the Association would be responsible to maintain and replace, so if you decide to implement this suggestion, let your reserve study company know so that the storage spaces are added to your reserve study and factored.
Also, take a look at some of your utility expenses. There are many rebates and free products available to help cut your utility usage. I will be blogging about utility expenses in the near future.
Again, if you have any questions above the CDARs program, banking options, income generating ideas, etc., please do not hesitate to leave a comment.
Sincerely,
Neda Firouz
As a community manager, I have come across many homeowners associations, each of which have unique needs. Lately, we have found that interest rates have plummeted! This does not just affect homeowners associations, but each of us as individuals. If you do not live in a homeowners association, you may be able to learn a few tips from this blog, so keep reading...
With more stringent reserve measures, Board of Directors are faced with the difficult task of properly budgeting not just for the upcoming year, but for the general future of the community. Often times, this may require dues increases and/or special assessments. With a steady incline in delinquencies and the current economic climate, increasing assessments and collecting funds have become more difficult. With a little research and work, producing more income without assessments is possible. Here are a few areas to focus on that may have tremendous impacts on your budget:
Many communities invest their reserve funds with brokers, but interest rates have not been as competitive as they were in the past. If you are an individual reading this blog, you may have experienced that your bank is also not offering competitive interest rates. If you are currently earning less than 1%, you may consider researching alternative options. The CDARs program has been one solution for some Associations (and individuals). Many of the banks that offer this program offer interest rates at 2% or more, and you can invest up to 50 million dollars and still be protected by FDIC insurance. For more information, you can visit http://www.cdars.com/_docs/news-articles/SmartBusinessCDARS.pdf. When working with various banks that participate in the CDARs program, many of them offered to first open a CD account at a much higher rate. The highest I found was 3.25%. As you know, the FDIC Insurance limits have been increased to $250,000, so you can invest somewhere around $240,000 with the bank directly, then invest the rest of your reserve funds through the CDARs program. Alternatively, if you need to keep some funds liquid, there are banks that have HOA departments that offer rates of 2.25% or greater for Money Market accounts. For homeowners associations, you can contact banks that have HOA departments. If you want references to those institutions, feel free to send me a comment.
Other income producing methods include locating vending machine companies that will offer a percentage of their sales back to your community. You can also promote paid advertisements in your community newsletters as a means to generate more income, or at least offset your printing costs.
Then, there are those communities (predominantly condominium Associations) that have limited storage space within the units, and they also have strict Rules and Regulations regarding patio/balcony storage. One of the suggestions that has worked for homeowners AND the Associations is to have the Association purchase fire proof storage spaces for the subterranean garages. There are construction stores or products offered online that sell the storage spaces from anywhere between $500-$2,000 per space. Remember that it is important to find fire proof spaces because of the possible fire hazard. Also, before purchasing the storage spaces, make sure to talk to your insurance agents to confirm that your carriers will not have liability issues. In any event, depending on the demand in your community, the general storage rates range between $50-$100 per month. Your Association can earn back the initial investment in as little as ten months, then generate income for the future. Lastly, remember that this would be a new component that the Association would be responsible to maintain and replace, so if you decide to implement this suggestion, let your reserve study company know so that the storage spaces are added to your reserve study and factored.
Also, take a look at some of your utility expenses. There are many rebates and free products available to help cut your utility usage. I will be blogging about utility expenses in the near future.
Again, if you have any questions above the CDARs program, banking options, income generating ideas, etc., please do not hesitate to leave a comment.
Sincerely,
Neda Firouz
Neda Firouz - Managing Diverse Associations
As published in a Community Association Management magazine in November of 2006, here is an article by Neda Firouz regarding Managing Diverse Associations:
As a community manager, it sometimes seems like we need a psychology degree - especially since we are always interacting with people who have a multitude of different personalities and who come from many dissimilar backgrounds. The reality is that one of the most difficult issues for managers to deal with (and one which may not initially be apparent) is the diversification within each community.
I have come across more than one hundred homeowners associations, in locations from Calabasas Park to Santa Monica, and from Los Feliz to Long Beach. Each association is unique in terms of its needs and the demographics of the area. One of the factors which has contributed to my success as a community manager is my sympathy for and awareness of the various needs and personalities within each community. My experience has shown that there is one thing which all these people with different backgrounds have in common: they merely want you to listen. The key for managers is to differentiate how to listen and react with a mixture of different people.
One of my experiences included a community with over 500 units, which includes a very diverse group of residents. My method of communicating with the members was very different, depending on the circumstances. For example, when I would speak to a college student, I would tend to communicate more casually. If I seem like a very strict authoritative person with these younger groups, I am not well-received. When I deal with various ethnic backgrounds, sometimes I find that it helps for me to relate to them with my own personal diverse background and upbringing. In the end, however, all people simply want to feel is that they have been heard. Even if I cannot accomplish what the resident exactly wants, if I have truly listened to all concerned persons and have taken into account their respective needs, the underlying problem or issue is much closer to being resolved.
By Neda Firouz
As a community manager, it sometimes seems like we need a psychology degree - especially since we are always interacting with people who have a multitude of different personalities and who come from many dissimilar backgrounds. The reality is that one of the most difficult issues for managers to deal with (and one which may not initially be apparent) is the diversification within each community.
I have come across more than one hundred homeowners associations, in locations from Calabasas Park to Santa Monica, and from Los Feliz to Long Beach. Each association is unique in terms of its needs and the demographics of the area. One of the factors which has contributed to my success as a community manager is my sympathy for and awareness of the various needs and personalities within each community. My experience has shown that there is one thing which all these people with different backgrounds have in common: they merely want you to listen. The key for managers is to differentiate how to listen and react with a mixture of different people.
One of my experiences included a community with over 500 units, which includes a very diverse group of residents. My method of communicating with the members was very different, depending on the circumstances. For example, when I would speak to a college student, I would tend to communicate more casually. If I seem like a very strict authoritative person with these younger groups, I am not well-received. When I deal with various ethnic backgrounds, sometimes I find that it helps for me to relate to them with my own personal diverse background and upbringing. In the end, however, all people simply want to feel is that they have been heard. Even if I cannot accomplish what the resident exactly wants, if I have truly listened to all concerned persons and have taken into account their respective needs, the underlying problem or issue is much closer to being resolved.
By Neda Firouz
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