Month: August 2021

As Boards of Directors prepare their annual budgets, important tips should be followed to ensure accuracy and comprehensiveness. A well-crafted budget goes beyond mere numbers; it forms the financial backbone that supports the entire association. This budget guides decision-making throughout the year, ensuring that resources are efficiently and effectively allocated to meet community needs. Furthermore, a robust budget helps maintain financial stability, allowing both short-term and long-term goals to be confidently achieved.

Reviewing the Timeline

One of the first critical steps in this process is reviewing the timeline for budget completion and Board approval. This step is not only essential for organizational purposes but also for compliance with the HOA’s Governing Documents. These documents often outline specific distribution requirements, making adherence to timelines vital. Timelines are more than just formalities; they ensure the budget is prepared, reviewed, and communicated in a timely manner. This practice fosters transparency and trust within the community, both of which are crucial for smooth operations.

Adhere to Governing Documents

For example, some HOAs’ CC&Rs require the budget to be mailed or delivered to homeowners 30 days before its effective date. Meeting these deadlines is essential to prevent last-minute rushes and ensures all stakeholders are informed and prepared for the upcoming year. A well-prepared budget provides a clear financial plan that reflects the association’s priorities and strategic goals. It also helps anticipate potential challenges, allowing the Board to address them proactively.

In addition to meeting deadlines, it’s important to regularly review and adjust the budget as necessary throughout the year. This flexibility allows the association to respond to unforeseen circumstances while maintaining financial health. By carefully considering these factors, Boards of Directors can create a budget that not only meets the current needs of the community but also lays the groundwork for future success.

While keeping these critical deadlines in mind, consider the following items to help make the HOA budget preparation process successful:

 Download our latest guide on HOA Budgets HERE

Each association is different, and its governing documents drive the HOA transfer fees collected at the close of escrow. 

Examples of fees that could be charged at the closing are: 

Working Capital/Initial Capital Contribution/Community Enhancement Fee

• The association collects this part of the transfer fee and deposits it into its operating account for the board’s use. If the governing documents do not require a reserve fund fee, the board often designates the working capital fee to fund reserves. The CC&Rs or a board-adopted resolution specifies the amount collected. The buyer typically pays this fee at closing

Reserve Fund Fee

• The association collects this fee to fund the reserve account. It supports the maintenance and replacement of capital improvements outlined in the CC&Rs. The association deposits the fee into the reserve account for future use. The Board of Directors hires third-party vendors to identify assets and develop funding strategies to maintain them. The buyer typically pays this fee.

HOA Transfer Fees

• The association collects this fee, and the board of directors decides how to use it. Governing documents grant the board this authority. The board may allocate the fee to reserves or the operating account. In some states, the fee offsets the cost of updating owner records. The buyer typically pays this HOA transfer fee.

Resale Disclosure Fee/Statement of Account Fee/Certificate of Assessment

• The managing agent typically collects this fee, with the amount determined by the management contract negotiated by the board. State statutes often set the fee amounts. The seller usually pays this fee.

The fees listed above do not count as advance payment of assessments and are not refundable for future property sales.

While HOA transfer fees may initially seem complex, understanding their purpose and how they are allocated can simplify the process and reduce surprises during closing. Whether negotiated between buyer and seller or dictated by the HOA’s governing documents, these fees ensure the smooth transition of ownership and the continued financial health of the community—an investment that benefits all residents.

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