Property Management Professionals (PMP)

Rapid rise in homeowner fees hits communal nerve

Dr. HOA,

I have lived in my HOA for nearly 10 years, and the monthly dues have never gone up.

Recently, a new board of directors was elected and we received notice that dues were going up almost 18 percent. To make matters worse, the landscaping looks terrible, and the clubhouse is run down.

The nerve of this new board to raise dues in this economy when some of us are having trouble paying our bills is unbelievable. As a homeowner, what are my rights, and what can I do to fight this increase?

— J. Walker

Hello J. Walker,

I can understand your frustration. Increasing an association’s assessments is never an easy or popular decision for a board of directors to make, especially given the current economic climate.

Because I am not intimately familiar with your particular association and the justification behind the recent assessment increase, I will speak in general terms regarding possible reasons for assessment increases and how I often advise associations when drafting their annual budget.

Many associations have been severely impacted by the economy, resulting in high foreclosure rates and unprecedentedly high assessment delinquency rates, forcing many associations to have to increase assessments to cover operating and reserve expenses.

Not only do assessment delinquencies directly impact an association’s revenue, they also increase expenses as communities aggressively pursue collection efforts against the delinquent owners. In many cases, if a significant number of owners are not paying their assessments, the association may be forced to increase assessments to cover expenses.

I have also seen several instances where an association’s board of directors is so strictly averse to raising assessments that they put necessary, incremental, inflationary assessment increases off until they have no other choice, resulting in a large annual increase, creating a burden for homeowners.

Due to inflation, it is unrealistic to believe that assessments will remain stagnant forever. Inflation, or the persistent, substantial rise in the general level of prices for goods and services over time, historically runs at approximately 2.5 percent per year.

Generally speaking, this means if associations are not increasing assessments annually by approximately 2.5 percent, over time it will catch up to them and a larger, much more burdensome assessment increase will be necessary.

I advise associations when they are preparing their annual budget to carefully consider small, inflationary increases as necessary to avoid the shock of a double-digit percentage increase in the future.

The most disappointing scenario, which based on your question may be the case at your association, is when a board actually begins cutting necessary association maintenance and repair services in an attempt to keep assessments stagnant, resulting in deteriorating common areas and ultimately negatively impacting the value of the community.

One of the primary responsibilities of the association’s board of directors is to properly maintain the community’s common areas. By cutting critical community maintenance and repair expenses to avoid assessment increases, the board may be undermining the well-being of the association, while breaching their responsibility to the members of the community.

In such cases, newly elected board members who are made aware this unsustainable practice may be forced to make unpopular and difficult decisions, including assessment increases, to restore the association’s common areas and rebuild the association’s long-term fiscal health.

Associations are legally permitted to raise assessments up to 20 percent in any given fiscal year without a vote of the membership.

To learn more about justification for your association’s assessment increase, I encourage homeowners to review their association’s annual budget mailer, which must be distributed to the entire membership at least 30 days prior to fiscal year end.

It is often helpful to compare the current budget with the previous year’s budget to better understand the variances that may have contributed to the need to increase revenue by increasing assessments.

If after reviewing your association’s budget mailer you are still unclear as to the justification for the increase, I encourage you to schedule a meeting with your professional community manager or your board of directors to discuss the budget in detail.

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