Risks of Self-Managed HOA’s

With the wave of foreclosures, business closings and record high unemployment, there is increasing pressure on homeowners and condominium associations to lower dues.   If your Board is considering whether to hire an North Carolina property management company (also known as a community management association), a South Carolina Property Management Company or whether to opt for lower cost self-management, you may want to consider the risks and rewards of your decision.

Self-Management Risks.

1.  Not Enough Volunteers Willing to Do The Work. Self management can be done if you have a group of committed volunteers who are willing to do the work.  It’s easy to find people in the neighborhood who are willing to vote in favor of self-management if it means lower dues.  It’s much more difficult to find a pool of ready, willing and able volunteers who are prepared to do what it takes to effectively manage your homeowners or condominium association.  The burden of self-management and the duties and responsibilities that go along with it have to be shared among a strong core of volunteers in order for self-management to be successful.  Absent that support, the work will fall on a handful of people, who will quickly burn out and realize they are being taken advantage of by neighbors who are never there when you need them to do something.

2.  Too Big An Infrastructure for Volunteers to Oversee. Self management is fine in theory but what about when you have entrance gates, a lake, swimming pool, private roads, clubhouse, tennis courts, detention ponds and landscaping that has to be maintained?   Are you prepared take on the day-to-day challenges of working with vendors to make sure nothing falls through the cracks?  Do you have enough knowledge to maintain the resources you have in your community or are you prepared to invest in the education of your Board members to get them up to speed?

3.  Insufficient Knowledge and Understanding of the Covenants and Bylaws. If you choose to self-manage, your Board members need to get a thorough education on homeowner associationmanagement to develop the know how to properly manage your North Carolina (NC) community association.  You need to fundamentally understand what the Covenants and Bylaws are and how they impact your community before you can begin to self-manage.

4.  Inability to Keep Up With the Bookkeeping. Do you have the software, filing system and storage space to manage the receipt and deposit of your community association’s funds and the timely payment of all expenses and maintenance of all association books and records?  Funds should be deposited daily and checks should be written at least once a week.  And a full and complete accounting system should be in place to record all transactions and make monthly financial reports available to your community association.   If you are self-managed, it’s vitally important to put a system of checks and balances in place and to review all bank statements and financial reports every month to full account for all income and expenses.

5.  Failure to Comply with Federal, State and Local Laws. Being self-managed doesn’t mean you can forget about properly incorporating, paying annual corporate registration fees and skip filing federal and state tax returns. You still must require your vendors to sign a W-9 tax form and you must issue 1099s to vendors at the end of the year. Overlooking the business of managing an association can be very costly to an association if you end up paying penalties for failure to comply.

6. Unwillingness to Confront Your Neighbors. When your community association becomes self-managed, you can no longer push off the dirty work of confronting your neighbors when their grass isn’t being mowed, their flower beds are overgrown and they erect a backyard gazebo in violation of the Covenants.  You must be prepared to send your neighbors collection letters if they fall behind in their dues and file a lien against them if they become seriously delinquent.  You have a fiduciary duty as a Board member to enforce the Covenants and act in the best interests of your community association even if it means that doing so may undermine your relationship with your neighbors.

7.  Failure to Put controls In Place. When you are self-managed, you have a duty to protect the association’s assets in the event of theft, embezzlement or accident.   You not only need Directors and Officers Insurance but you should put a bond in place for everyone who has any responsibilities for handling the receipt or payment of association funds.  You should also have an insurance rider that covers dishonesty, theft and embezzlement or some other crime resulting in the loss of association funds.  And if you should consider covering Board members for potential liability when they are doing the association’s business, such as attending educational seminars or driving through the neighborhood and doing property inspections.  One uninsured claim against your association could wipe out any savings you have in a New York minute.

If you have that rare combination of committed volunteers and resources to tackle self management notwithstanding the risks, you may reap the reward of more hands on  management and lower dues.  If you don’t have what it takes to be self-managed, you want to choose a property management company that can manage your community association  efficiently without breaking the bank.  Here are some of the benefits of hiring a professional community association management company in North Carolina or South Carolina.

1.  You Don’t Have to Be the Bad Guy. If you hire a professional property management company, you no longer have to worry about confronting your neighbors about their late payments, unkempt property or architectural modifications.  Your community manager will be the one to field the nasty phone calls from your neighbors and will take the heat when there are complaints about Board policies.   You wont have to worry about what the neighbors will think because your property manager will be the “bad guy” responsible for enforcing the Covenants.

2.  Your Management Company Is Fully InsuredLet’s face it.  Who wants to pay a huge insurance premium to protect against management mistakes and errors?  When you hire a professional property management company, you don’t have the added expense of insuring for management mistakes or bonding Board members in the event of crime or embezzlement.

3.  Your Management Company Is On call 24 Hours A day. Unless you relish being awoken in the middle of the night to handle complaints or emergencies, you want to pass on those responsibilities to a property management company accustomed to handling water breaks, malfunctioning entrance gates and neighbors who want to discuss a violation letter or late notice at midnight.

4.  Your Management Company Will Fully Account for All Financial Transactions Once a Month. Professional property management companies have specialized accounting and bookkeeping systems to handle all receipts and payables and to full account for all transactions once in month in clear, concise financial reports.  Your property management company maintains all the books and records and can be called upon anytime you have a request, need to see a copy of a check or have a question about an invoice.  They handle a myriad of accounting transactions, such as the assessment of regular dues and late charges on past dues accounts, so you don’t have to.

5.  Your Management Company is Licensed and Regulated by the State. Professional property management companies are licensed by Community Associations Institute (CAI) and subject to state rules and regulations.  They are required to maintain all books and records and must be able to furnish back up documentation in the event of any state inquires or investigations.

6.  Your Management Company Will Comply with Federal, State and Local Laws. Property management companies make sure your community association’s federal and state taxes are filed on time, 1099s are sent to all vendors at the end of the year, and the association is in compliance with local laws on detention ponds, swimming pools, fire sprinklers and other safety regulations.

7.  Your Management Company Will Oversee All Vendors and Property Maintenance. Your professional property management company will solicit new vendor bids upon request and will deal with vendors on a daily basis in the event of any concerns.

As much as homeowners complain about paying association dues and question the need for a management company, they are truly taken aback when they sit down and think about everything  property management companies do for what they charge each month.  Be sure you are prepared to take over these responsibilities before you decide to become self-managed.

Community Association Management is a Homeowners and Condominium Association management company management company proudly serving Charlotte, Asheville, Greensboro, Raleigh, and all of North Carolina. Community Association Management is also an expert South Carolina association management company and high rise Condominium association management company. To find out more about Community Association Management and why it is one of North Carolina’s fastest growing property management companies, go to www.CommunityAssociationManagement.com. You’ll be glad you did.