The HOA is your friend...really, it is! Part 2.

For last week's blog I started my interview with John Colen, Sunrise Alejo HOA President.  There was so much to cover that it spilled over into another interview, which starts below...

Palm Springs Condo Living: So last week, John, you were saying that people should be sure that Condo Living is for them.

John Colen: That's right, and they should also make sure that when they do choose they select a condo where the association has a reserve fund.

PSCL: What's a reserve fund?

JC: A reserve fund is a fund the home owner's association holds with money to replace things that break down or need repairs...things like pools, spas, heaters, roofs, lighting, asphalt, painting, etc.  A HOA should have a repair list with items that will need replacement in time, and these would be paid for out of the reserve fund.  Additionally, an HOA should do a reserve study to calculate the lifespan of a community feature, like a pool, and then determine how much you have to save each month to purchase a new one or make the necessary repair at some point in the future.

PSCL: What about more regular, expected expenses like pest control or lawn mowing?

JC: Regular monthly expenses would be paid via the operating fund.

PSCL: So there's a reserve fund for unexpected or more long range expenses and an operating fund for more expected or regular expenses?

JC: That's right.  When added together the operating fund and the reserve fund should equal the dues coming in each month.

PSCL: What happens when the dues don't equal (are less than) the operating fund and the reserve fund?

JC: Assessments!  If the HOA is not bringing in enough money to pay it's bills, those from operations and those in the reserve, it must charge the individual owner's an assessment to get the work done.

PSCL: Ouch, that must hurt the homeowners.  Any way assessments can be avoided?

JC: Sure.  You need a really well run HOA to eliminate or keep assessments to a minimum.  When people are considering a condo development to purchase in they need to look at the financials of the HOA.  They need to make sure there are not too many delinquencies, meaning people that are not paying their HOA dues.  They also need to check the reserve fund to make sure that it's adequate to cover the lifespan of what's on the HOA's repair list.  Finally, they should talk to other residents in the complex to get a feel for how the HOA is run.  When well run, an HOA can increase the value of your property.

PSCL: You mentioned that there shouldn't be too many delinquencies.  What does an HOA do when a homeowner isn't paying their dues?

JC: Well, each HOA is different, but after a certain number of months of non-payment, maybe 6 months, the HOA needs to put a lien on the property of the non-payer.

PSCL: A lien?  That sounds pretty serious.

JC: It is, and it's expensive too because the lien will include lawyers fees to be paid in addition to the non-paid monthly dues.  But the HOA must do it for the sake of the other residents that are paying their dues every month.  If dues were not paid the HOA would be in big trouble very soon, so receipt of monthly dues is a key in the proper functioning of an HOA.

PSCL: In terms of expenses, it seems like the cost of everything is going up, what do you think is going to be the big expense item as we move forward?

JC: That's easy...water.  Water rates are increasing dramatically.  The Desert Water Agency (DWA) now has a five-tiered rate plan for us here in Palm Springs.  Tier 1 is the cheapest and it includes desert landscaping which doesn't use much water.  Tier 5 is the most expensive and it's basically an all grass yard which requires a lot of water given that this is a desert.  In the future, anyone that wants an all grass yard is going to pay big money to maintain it.  At Sunrise Alejo, we have a large grassy yard area, but we're making a lot of changes to try to lower our water usage.  First of all, we've changed some of our grass area for more desert landscaping.  Second, we're currently replacing a lot of our older water sprinklers with newer models that use less water or use it more efficiently.

PSCL: One final question, John...what do you think residents can do to help an HOA run smoothly.

JC: Go to meetings.  Participate.  Don't just complain, come up with ideas or solutions that will help everybody.

PSCL: Thanks for your insightful answers today, John.  I'm sure we all appreciate your help.

JC: My pleasure.

If you have any questions, concerns, or comments about Palm Springs Condo Living please contact me...I welcome your input!

Alan Wilke
condos@PalmSpringsCondoLiving.Com
760-464-6693