Before You Decide on Self-Management - Read This
More than 95% of all homeowner associations in Southern California are managed by professional management companies. There are many good reasons for this. Of the 5% that are self-managed, most are very large associations that hire professional on-site managers and accounting staff. The remainder are mostly small associations that think they are saving money by self-management. Upon analysis, association boards will find that they are substantially increasing the risk to both their association and members while saving little or no money long term.
Board members who self-manage should ask themselves these questions:
- Do you fully understand the Davis-Stirling Act and do you keep current on the annual changes to the law? Do you stay informed of new court cases that affect homeowner associations?
- Are you an expert at interpreting your association’s CC&Rs which are often ambiguous and confusing, and are you aware of what provisions in your CC&Rs have become obsolete due to changes in the law?
- Are you a construction expert capable of dealing with contractors on their level while protecting your association against poor quality work, one sided contracts, and mechanic’s liens?
- Are you an expert at negotiating and drafting contracts with maintenance providers such as landscape maintenance and elevator companies?
- Are you an insurance expert? Can you competently compare insurance proposals and policies to assure that your association is getting the complete coverage protection it needs at the best price? Can you determine whether a low priced insurance proposal or policy is low because of incomplete coverage?
- Do you fully understand what legal rights members of your association have, and the risks associated with violating their rights? Are you willing to have owners and renters come directly to you with their HOA issues?
- Are you fully capable of competently dealing with roof leaks, deck leaks, plumbing leaks, sewer backups, and mold claims? Does your HOA have a 24/7 emergency response service?
- Are you aware of the association’s year-end legal disclosure requirements and the penalties for failing to comply with the various laws affecting your association?
- Do you generate monthly financial statements that include a balance sheet, a delinquency report, a statement of cash receipts and disbursements, a check register, and a general ledger, using a double-entry system with all required checks and balances? Do you distribute year end reports to all owners as required by law and file state and federal tax returns?
- Are you aware of the potential liability for not handling your association’s responsibilities accurately in connection with owner sales and loan refinances? Do you know how to prepare escrow demand letters that will protect your association?
- Do you know the required procedures for making certain that any operating rules established by your association are enforceable in a court, or would the association lose a court case if a rule was challenged?
- Do you know how to properly deal with people who fail to pay their assessments on time? Are you aware that assessment collections are subject to both state and federal laws that are strictly enforced and that severe penalties apply to violations of the law?
- Are you aware that your association can be held liable for crimes committed within the common areas, and inside units under certain circumstances, and that you must reasonably protect against this potential liability?
- Can your association obtain the benefit of price discounts that management companies can demand because they provide competent, reliable contractors and vendors with a steady stream of business? In the event something goes wrong, does your association have the clout to get a contractor or vendor to remedy the problem quickly?
- In general, do you know how to minimize your personal liability, the liability of the board, and your association?
HOA Financial Management Services