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Ask the HOA Expert: Limited Common Elements, Quorum Rules

Ask the HOA Expert: Limited Common Elements, Quorum Rules

Question: Does the board have the right to grant exclusive use of common areas to one or a few members? Several of our owners have requested to expand the size of their decks or patios.

Answer: Common elements available to one or several members (instead of all) are referred to as "limited common elements". This means they are common but limited to exclusive use of one member (as in the case of a unit deck) or designated members (as in the case of a private street).

These limited common elements are typically identified on the legal plat and cannot be expanded without encroaching on common areas which belong to all owners in an undivided interest. So, the board has no authority to allow such requests. Changing this requires a vote of members which may be up to 100%.

Question: At our recent annual meeting, an issue was brought up and a motion was made on something that was not on the agenda for the meeting. The president allowed the motion to be made, seconded and voted upon. But, there were not enough members represented to constitute a quorum. Was this an illegal vote?

Answer: The vote was illegal due to lack of quorum even if it had appeared on the Meeting Agenda. Without a legal quorum, no business may be transacted or elections held. You might have a lively discussion but nothing official can take place.

Lack of quorum is an all too common scenario than can be cured by proxies. A proxy is the written authorization by one member given to someone to act on their behalf at the Annual Meeting. Proxies must be distributed well in advance of the meeting and collected before the meeting to ensure a legal quorum. Getting folks to return their proxies can be challenging and multiple requests may have to be made, including going door to door to collect them if necessary. There is a sample Proxy in the Meetings section of www.Regenesis.net

Question: We recently had our unit chimneys cleaned. A board member accompanied the contractor and opened and secured units upon exiting. As a result of this process, it was discovered that one of the units was jammed with stacks of newspapers, garbage, furniture blocking hallways, piles of clothing and cases of cans. The resident is clearly suffering from a hoarding problem.

Should the board get involved in this situation? No neighbors have complained of any noxious smell. The area outside her condo is tidy. She keeps to herself, is pleasant to the staff and not a smoker.

Answer: Turning a blind eye to a hazardous situation is not the way to go. A letter to the resident (and landlord if applicable) is in order. When garbage isn’t being disposed of regularly, it is only a matter of time before there is vermin problem. The fire hazard potential sounds great as well so the letter should include a request to remove or store flammables.

Question: Can the board offer discounts to members that prepay a special assessment rather than participate in a payment plan?

Answer: No discounts should be offered since they would cause a shortfall. It is appropriate, however, to charge late fees to those that don’t pay as agreed.

However, it is a bad idea for HOAs to finance special assessments at all because of the increased administrative costs and the likelihood of dealing with delinquent payments. For example, If you have a 30 unit condo and allow 24 monthly special payments, you have 720 payments to track and 720 potential collection problems. Instead, require each member to provide special assessment funds from whatever source they have available. Some have cash, some has an equity line of credit or credit card. The HOA should not finance the special assessment or borrow the money.

Question: Our homeowner association is made up of condominiums built in a townhouse style. The HOA has the responsibility for all exterior repairs and maintenance. Our board has allowed several of the members to replace their own unit roofs and repaint their units since they wanted to sell. This doesn’t sound right.

Answer: It’s a very bad idea to allow individual unit owners to do or pay for this kind of work directly because of:

1. Quality Control. Is the person doing the work experienced? Is the material being used of good or superior quality?
2. Risk Management. Is the person doing the work properly insured for injury and liability?
3. Owner Still Financially Responsible. Doing this kind of work does not relieve a current or future owner from paying his normal share of regular and special assessments.

Question: What kind of expectations or working relationship should an HOA manager have of the client’s board?

Answer: The board should:

1. Support the manager's decisions unless a clear mistake has been made.
2. Not undermine the manager's actions in rules enforcement and collections.
3. Carefully consider the manager's advice since it comes from experience and training.
4. Be respectful of the manager's busy schedule.
5. Allow the manager to execute the terms of the management agreement without micro-managing.
6. Remember that the manager works for the board.

For more innovative homeowner association management strategies, subscribe to www.Regenesis.net

Student Loans Proving a Barrier to Homeownership. We Have Solutions.

Student Loans Proving a Barrier to Homeownership. We Have Solutions.

The role student loans play in denying would-be buyers from getting into a home of their own has grown to staggering levels. According to the 2018 Homebuyer Profile report from the National Association of Realtors®, “Almost one in four homebuyers this year had student loans, which made it harder for them to save for a down payment and delayed their purchase," said USA Today.

“Among buyers rejected for a mortgage from a lender, 40 percent had college debt, the NAR found.” Per the same study, 80 percent of millennials don’t own a home, and 83% of those non-homeowners said student loan debt was a barrier to buying.

The NAR found that “Two in five buyers, like Jodi Meyers, cut out luxury or nonessential items to save up for a home,” said USA Today. Her family, in the midst of paying off Meyers’ $55,000 in student debt, cut out all necessities and purchased outside of their preferred area to be able to afford a $249,000, four-bedroom home in Lakeland, Florida. The upshot: “It’s not my dream home, but it got my foot in the door, and now I’m building equity,” she told them.

Of course, compromise is nothing new when it comes to buying a home, especially if it’s your first. Few of us can go out there and purchase the waterfront mansion of our dreams, but that doesn't mean we don’t aspire to do so someday from our starter home in the ‘burbs.

Check out a site like Student Loan Hero and you’re going to read about things like front-end ratios and back-end ratios and it can all get very confusing. And, the truth is, the average person doesn’t need to know the nitty-gritty. The important takeaway is that, in your lender’s eyes, your income needs to be sufficient to cover a mortgage and all associated expenses when all your debts are taken into account. Having student loans in the hundreds of dollars per month can make it harder to qualify.

So what CAN you do if you’re looking to budget and buy a home, but student loans are holding you back? There are options.

Amass a higher down payment.

“If you can save a 20 percent down payment, your student loans are far less likely to affect your loan process,” said Student Loan Hero. Your lender should be able to give you details of what loans allow your down payment to come from gift funds from a family member.

Pay off your debts.

Talk to your lender about this. You may be surprised that a scenario in which you redirect some of your down payment funds to smaller debts that can be cleared out could make it easier to qualify for a mortgage. “Paying down that high-interest credit card balance, for example, is a great place to start,” said Dave Mele, president of Homes.com on Bankrate.

Get a side hustle.

If you can’t negotiate a raise, find other ways to make more money so you can add to your down payment or use it to pay down your student loans. “If education debt is making your debt-to-income ratio too high, consider looking for ways to pay off your student loans faster. There’s no penalty for prepaying student loans, so you can make extra payments anytime,” said Student Loan Hero.

Switch to an income-driven repayment plan on your student loans to make payments more affordable.

“An income-driven repayment plan sets your monthly student loan payment at an amount that is intended to be affordable based on your income and family size,” said Federal Student Aid. Fannie Mae changed underwriting rules around income-driven repayment plans last year, making it easier for those on these plans to qualify for a mortgage. “Depending upon the plan, your monthly payment could be capped as low as 10% of your discretionary income,” said Forbes. “And if your discretionary income is low enough, your monthly payment could be as low as $0.”

Get creative with your loan type.

While many first-time buyers opt for an FHA loan because of the low down payment (as low as 3.5%) and generous credit score requirements (as low as 580), there are other options. “The Fannie Mae HomeReady™ mortgage is another loan available to borrowers with student loans,” said The Mortgage Reports. “Via HomeReady™, buyers can show a debt-to-income of up to 50%, with certain off-setting factors; and a down payment of just three percent is allowed. The minimum credit score to get approved for a HomeReady™ home loan is 620.”

Will the New Congress Compromise on Flood Insurance or Are We All Going Under?

Will the New Congress Compromise on Flood Insurance or Are We All Going Under?

Among the many other issues tied up in the result of the midterm elections and the ensuing new Congress—and one of the major issues on the minds of homeowners across the country—is what’s going to happen flood insurance. As it currently stands, The National Flood Insurance program, which Inman calls “an ailing 49-year-old insurance plan” will lapse in December “without re-authorization or partisan support of the so-called ‘21st Century Flood Reform Act.’”

Part of the issue that has led the bill to “languish in the Senate since late last year” is, not surprising: Republicans and Democrats are on opposite sides. “The GOP-led House voted in favor of the bill 237-189 despite significant opposition from coastal Democrats, who believe premiums on high-risk properties could skyrocket under the reform initiative,” they said.

So what’s really at stake? A lot, potentially.

Premiums—If the “21st Century Flood Reform Act” passed as is, “premiums, which on average cost homeowners $650 annually but can spin out of control in coastal regions, would be capped at $10,000,” said Inman.

A lapse—If the program lapses without signoff by November 30, the National Flood Insurance Program wouldn’t be able to sell or renew flood insurance policies. “Right now our financial position is okay – but we wouldn’t be able to borrow from the U.S. Treasury to pay claims for our existing policies,” said David Maurstad, chief executive of the National Flood Insurance Program, on the Texas Standard.

Even more people could end up without flood insurance—Despite the risks associated with having a home in a coastal area, many people still opt to forgo flood insurance in places where it is not required by law. “One recent study suggested about two-thirds of people in areas that have a 1 percent chance of flooding in a given year do not have flood insurance,” said the Citizen-Times.

Common reasons laid out by the publication include: homebuyers “don't recognize the risk” because they don’t understand “flood maps and may never inquire whether they have anything to worry about; Banks and mortgage companies don't always require it; there's a myth that the government's going to bail you out; and they think their homeowner's insurance will cover flood damage. Almost all policies exclude claims from flooding.”

Flood insurance may ultimately have to look to privatization—Some say this is a much better answer, anyway. “The National Flood Insurance Program’s (NFIP) financial woes stem from the fact that it consistently fails to charge program participants rates that cover the full risk of flooding to their properties,” said Inside Sources. “As a result, the NFIP’s revenues from premiums don’t even cover its claims during an average year. The Congressional Budget Office has calculated that the program is bleeding $1.4 billion annually. In years of catastrophic flooding, the NFIP has needed to borrow from the U.S. Treasury to honor its commitments to policyholders. Its debt now stands at about $20.5 billion, and that’s after Congress forgave $16 billion of the program’s debts last fall. Unless action is taken, the NFIP’s finances will only deteriorate in the wake of the 2018 hurricane season and with each passing year.”

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