Habit #2— Manage the Association in a Business-like Manner

Why?

A properly run subdivision association helps protect the neighborhood‘s property values and promote the concept of community. All residents who buy into a community with a mandatory homeowners association have the obligation of paying assessments and following the covenants and restrictions set forth in the indentures. In turn, trustees of the association are obligated to see that common properties are maintained, assessments are collected, and the association is managed in accordance with its governance documents. To be successful, associations must be properly run by its trustees and have some level of participation by its members. A properly run association reduces its risks by exercising sound business judgment and following established management practices.

Key Points

Hold an annual meeting – Homeowner associations are typically required to hold an annual meeting. The primary purpose of the annual meeting is to elect new trustees/directors. It is also an opportunity to present the annual budget and address other important association business. A well run annual meeting will maximize the opportunity for trustees to present information to the homeowners and for homeowners to provide input.

Conduct open, fair, well publicized elections – It is the responsibility of the trustees to manage the business of the association and, therefore, their selection is vitally important. While some associations suffer from the ―trustees for life‖ syndrome, it is prudent to make the election of trustees a priority. An association that is managed smoothly will be able to attract potential candidates more readily than one that is characterized by strife and disorganization. The process of elections is usually described in an association‘s trust indentures or bylaws.

Prepare an annual budget and year-end financial statement – Every homeowners association should have a financial plan that sets forth the year‘s anticipated revenues and expenses. The financial plan, or budget, is the foundation for the association‘s operation and stability. Members of the association should be made aware when the budget is to be adopted. Depending on its governing documents, an association‘s budget may need to be approved either by a vote of the membership or by the board. At the end of the year, a complete accounting of the association‘s finances should be made available to the membership.

Secure adequate insurance coverage - For many homeowner associations, one of the more significant financial responsibilities is to provide adequate insurance coverage for the association and the common property. Types of insurance coverage for associations to consider include casualty (property) insurance, liability insurance, and Director‘s and Officer‘s (D&O) liability insurance. If an association has any employees, worker‘s compensation insurance is required.

Put collection procedures in writing – It is the fiduciary responsibility of the trustees to notify homeowners of their annual and special assessments and collect them. Many associations contract with a collection agency to handle notification and collection of assessments. Typically, homeowners are notified on an annual basis to pay their assessments by a specific date and a follow-up form letter is sent to those who do not pay by the due date. The best and most successful collection methods are those in which action is taken early and consistently to collect outstanding assessments. Associations are advised to review their governing documents, consult an attorney if necessary, and put their collection procedures in writing.

Maintain minutes and records – A record of the association‘s meetings and important documents should be properly maintained and available for inspection by the membership. Examples of documents to maintain include: minutes of annual, board, and committee meetings; annual budget, financial report, and balance sheet; copies of federal and state income tax returns; copies of insurance policies, leases, contracts and permits; copies of any personal property owned by the association; original recorded legal documents and any amendments. Official records should be in the custody of the officers who are responsible for them and passed on to new officers when elected.

Maintain common properties – One of the most important reasons for the existence of a homeowners association is to maintain common properties for the benefit of all property owners. The level of maintenance depends on the size of the budget and the amount of assessments allocated for maintenance. The level of maintenance should be sufficient to protect and preserve property values by preventing deterioration.

Solicit bids openly and fairly – It is highly likely that an association will have the need to enter into contracts, especially for the maintenance and repair of common properties. Depending on the type of common property in the subdivision, contracts may include mowing of common ground, pool maintenance, and landscaping. In soliciting bids or proposals from contractors, at a minimum the association should require: 1) contractor‘s license number; 2) number of years in business; 3) a bank reference; 4) name of their insurance carrier and amounts of coverage; 5) a list of subcontractors; and 6) a list of comparable jobs completed. It is important to solicit multiple bids and to follow through with reference and insurance checks.

Use an attorney when necessary – Associations are sometimes reluctant to use an attorney due to cost. However, an attorney knowledgeable in the area of community association and/or real estate law can be an extremely valuable resource to trustees. The legal nature of an association‘s governing documents means that there will be circumstances under which the expertise of an attorney becomes necessary. An association can consult with the Bar Association of Metropolitan St. Louis to identify potential attorneys.

Self Assessment

Annual Meetings

Do you hold an annual meeting? _____Yes _____No

Election of Trustees

Do you have annual elections of one or more trustees? _____Yes _____No

Do you regularly have new people stepping forward to run for trustee? _____Yes _____No

What percentage of your residents would you say regularly vote in trustee elections? _____<25% _____25%-50% _____>50%

Budget

Do you prepare an annual budget? _____Yes _____No

Is your budget approved by _____Board of Trustees _____Members _____Don‘t Know

Is your budget presented to your residents at an annual meeting? _____Yes _____No

Insurance

Does your association have insurance? _____Casualty/Property _____Liability _____Director‘s and Officer‘s

Assessments

How much is your annual assessment? __________

How are residents notified of their annual assessment? _____________________

What is your collection rate for subdivision assessments? _____<25% _____25%-50% _____>50%

Are your assessment and collection procedures in writing for your residents? _____Yes _____No

Do you use a collection agency to handle notification and collection? _____Yes _____No

Minutes & Records

Do you maintain records of regular meetings? _____Yes _____No

Who is responsible for keeping the subdivision‘s official documents? ___________________________________________________________

Professional Services

What types of services do you regularly contract for? ___________________________________________________________

Do you have a regular process for soliciting bids for professional services? _____Yes _____No

Have you consulted an attorney to review subdivision documents or for other subdivision matters? _____Yes _____No