There’s no denying that everyone makes mistakes. But some errors are most costly than others. When you’re a member of an HOA board, you don’t want to make a decision that could be costly to the community, the other board members, or yourself. But it happens. Here are some of the most costly mistakes made by HOA boards so you can save some unnecessary trouble.
10 Costly Mistakes Made by HOA Boards
1. Not Learning and Following the Governing Documents
As an HOA board member, it’s vital that you learn and follow your governing documents. Those docs tell you what you can and can’t do, as well as the proper procedures for every action. A common mistake HOA boards make is not adhering to their own rules. For example, homeowners have a right to attend board meetings in most cases, but many aren’t advised of the meeting dates and times. This can call into question decisions made at those meetings.
2. Working Outside the Board and Your Authority
Your HOA board is meant to work as a unit, meaning no single person should be acting on their own. Board members should avoid meeting with community members or vendors without other board members present. Going back to the first mistake listed, it’s important to act within your authority.
3. Not Communicating Effectively
Communication is vital when it comes to being a part of an HOA board. When you fail to communicate with your residents and fellow board members, it can lead to all kinds of misunderstandings. The best way to communicate is in writing, so you have a verifiable record.
4. Failing to Collect Fees on Time
Some homeowners won’t pay their HOA dues on time. One of the HOA board’s jobs is to collect the money, so the association remains solvent. As an HOA board, it’s important to send out prompt reminders and establish consequences for nonpayment.
5. Neglecting to File Tax Returns
HOAs are viewed as non-profit corporations in the eyes of the government. As such, they must file annual tax returns using specific forms, or they could lose their status. To avoid this mistake, make sure you add this to your annual checklist or outsource the work to a professional.
6. Not Carrying Adequate Insurance
One of the principal jobs of the HOA board is to carry updated and adequate insurance. But some neglect to do this. If they fail to do this, it could result in a special assessment to cover damages and even a lawsuit from community members.
7. Embezzling HOA Funds
It should go without being said, but it happens — fraud can be an issue with HOA boards. Theft and embezzlement are criminal acts with severe consequences. One of those consequences can be HOA insolvency. You can prevent some of these issues with strict oversight and transparency.
8. Disregarding the HOA Budget
Maybe one of the most serious mistakes HOA boards make is not to budget properly. Your annual budget is meant to guide the association’s finances. If the projections aren’t accurate, you could end up with inadequate reserves or charge members too much each month.
9. Inconsistently Enforcing Rules
Homeowners watch what the HOA board does closely. They will notice if a neighbor is permitted to put in a circular driveway and will get resentful if their request is denied due to “rules.” Make sure you are enforcing rules consistently, otherwise you may find yourself in legal trouble.
10. Failing to Ask for Professional Help
Let’s face it, managing HOA boards isn’t simple. And a small misstep can have significant legal consequences. Even if you partner with an HOA management company, it also makes sense to have a working relationship with an accountant and an experienced HOA attorney.
The Clarkson Law Group, P.C. devotes a large portion of its practice to HOA law matters in South Carolina and Nevada. We assist clients by developing effective strategies to minimize risk and resolve disputes quickly and affordably. Contact our office today to schedule an initial consultation to discuss your situation.