LATE CHARGES

I conducted an informal survey regarding late charges. While some use the postmark for imposing charges, it is a minority position and seems to be limited to the IRS and to associations and management companies that handle funds without using lockbox services.

The majority of HOAs and management companies use lockbox services and do not track the postmark--they impose late charges based on the date payment is received (as do credit card companies). Some noted that online banking has also become a factor. In online banking, payment is counted when received by the bank, not when transmitted. Accordingly, charges are levied on the 16th or later. If the 15th falls on a weekend, most allow an extra day and then apply the late charges if the payment is not received on the Monday following the 15th.

Jeffrey Farnsworth, Director of Operations for Steward Property Services, offers a good explanation for how his company handles late charges:

Due to lockbox handling of our payments, we also are in the group that cannot monitor postmarks as qualification for timely payment. Our practice is to wait until all the deposits have been downloaded for the 15th before assessing late payments on the 16th. Many of our boards have policies to allow waiving one late fee per year per account, when requested, so we find that communication with the owner is the best way to deter late payment. Once an owner contacts us in protest, we try to work with the owner to educate them that the dues are actually due on the first and late after the second of the month, but that the association allows a grace period of fifteen days before levying a penalty. Many seem to think they are not due until the 15th, but we try to express that the association has monthly bills to pay and this is why they penalize for delinquent remittance. If an owner protests and wants more than one late fee reversed, we ask them to write a letter to the board for consideration.

RECOMMENDATION: Both policies for applying late charges are acceptable: using the postmark for when payment is sent as well as using the date when payments are received. Boards need to work with their management companies to pick one of the above policies and then make sure the collection policy is in writing and annually distributed to the membership. Thank you to everyone who responded to the informal survey. -Adrian Adams

WHAT IF THE CANDIDATE DIES?

QUESTION. What if you have a candidate running for the board and he dies with enough votes to win. Does the board fill the vacant seat?

ANSWER: It depends on when he dies. If he passes prior to the counting of ballots, his votes are removed from consideration. The remaining candidates with the highest votes win the election. If he dies after the election results are announced, the board appoints a replacement (unless the bylaws specify otherwise).

ATTORNEYS AT BOARD MEETINGS

QUESTION. Are attorneys required to attend the HOA's monthly board meetings? What happens when no members want to be on the board of directors; because previous law suits have been filed against them, no one wants to take on that responsibility.

ANSWER: There is no law requiring that attorneys attend board or membership meetings. However, boards will frequently ask legal counsel to attend meetings whenever someone starts threatening directors. Because board members are unpaid lay people who are not versed in the complexities of corporate law and the Davis-Stirling Act, it is not unusual that they would seek help by asking legal counsel to attend meetings until the crisis passes. I am always amazed at the ability of one person, whether a fellow director or a member of the audience, to generate chaos and drive up legal expenses. Their ranting, defamatory communications, and threats can force good directors off boards and create a large spike in legal expenses, which are ultimately paid by fellow owners through special assessments and higher monthly dues.

SURPLUS BUDGET FUNDS

QUESTION. We just ended the year with a surplus which we wish to transfer to the current year. Can this occur by board action or do we need an owner vote?

ANSWER: Since HOAs are nonprofit, any excess income at the end of an association's fiscal year (a budget surplus), must be applied to next year's budget or refunded to the membership. Revenue Rulings 70-604 and 75-371. Although boards approve next year's budget and the carryover of surplus funds, revenue rulings require a membership vote on the carryover so as to avoid taxation issues. Most associations vote on an excess income resolution at their annual meeting. The resolution may be included on the ballot along with the election of directors or done by voice vote at the meeting and recorded in the minutes of the meeting. For a more detailed explanation, see Gary Porter's article on this issue.

FEEDBACK

Satellite Dishes. HOAs should consider installing dishes owned by the association to the benefit of the members. We are two structures, 132 units. We installed dishes on both structures for both satellite companies in our area; DishNetwork & DirecTV, through a local company TrueDigital. The total cost to the HOA was $3,000 with a rebate if a specific number of residents joined. The lines run into our existing cable rooms. Owners now have a choice of cable or satellite, and we've avoided the installation of personal dishes and provided reasonable assess for members to have a choice. -Joseph L.