Guest Post By: Michael Rome, JD, and Julie Rome of Cobb Management Group, Inc.
This article is not a substitute for consulting with legal counsel in your State regarding the specific fact situation.
It is important to successfully turnover control of an Association from the developer to the homeowners. Inheriting numerous problems can make a new Board’s transition very difficult. (See “An Association’s Guide to Successful Turnover” Georgia Commons, 3rd Quarter 2001.)
Assuming that the new Board is in place and that turnover has gone well; what should the new Directors do next? The first year of homeowner control can set a tone for the life of the Association by establishing precedents for new routines.
One of these routines is the scheduling of regular Board meetings. Directors should be able to plan for their attendance well in advance of the meeting date. Boards might try something like “the second Tuesday evening of each month”. I have seen Boards spend much of their precious time trying to set a new time each month that fits everyone’s schedule. If a particular Board member cannot make a meeting, they often have the option of giving their Proxy vote to another Director on an upcoming issue.
Another good habit is setting an agenda for the meetings. The agenda can be simple, but it helps keep the proceedings organized and on-track. Otherwise, Board members can easily spend two hours or more wandering over different topics.
Board members can find it unpleasant to police their neighbors, but it is crucial to consistently enforce Architectural Guidelines from the start. It is easy to let violations go, and realize a year later that the neighborhood has gone downhill. Just as bad, the homeowners may now have a legal defense to the assessment of penalties due to the delay in attempting enforcement. Associations in this situation need to consult legal counsel.
Another vital area is communication. Homeowners need to be kept informed of a Board’s major decisions. Newsletters and websites are great tools. An exit sign is a wonderful place to post announcements, along with basic contact information for residents and real estate agents. A welcome package for new residents should contain at least the governing documents, modification request forms, and a letter from the President of the Association.
One of the most significant duties of the Board is control of the budget. An excellent beginning to a well-planned Association is a Reserve Study. This will let the Board know what amount to set the annual dues based on the projection of future expenses. In other words, it is important to start a reserve fund (savings account) right from the beginning. This way it may not be necessary to charge residents with a large special assessment when funds fall short. Once the base reserve study is completed it can be updated on an annual basis for a small fee.
Other considerations during the first year are legal review of the governing documents for possible amendments, and review of the property tax assessments for the common areas. These taxes should only be a minimal amount. This is because the valuation on the individual lots already includes the right to usage of the common areas. Associations can spend years overpaying on property taxes, which are in effect double taxation.
Speaking of taxes, the first year is a an excellent time to start the annual practice of having an accountant review the Association’s financial records, and file the Federal and State tax returns. It can be comforting for the residents and the Board to know that a third party has looked over the books.
The preceding is not a comprehensive list of things to be done during the first year, but hopefully this article highlights several points that will help the new homeowner Association get off to a great start.