3 Common Misconceptions about HOA Management Companies

When it comes to managing homeowner associations, you're going to find a wide variety of opinions on the subject, as well as HOAs in general.

Some board members refuse to have an outside company and insist on doing everything themselves. Other board members are too busy, too inexperienced, or too burned out and want to have a company.

Whatever the reason might be for hiring an hoa management company for your homeowner or condominium association, is to understand WHY you want to hire one, weigh the pros and cons, and then make an informed decision.

Unfortunately, we've seen many people have misconceptions about HOA management companies and we hope to clear the air a bit. First, we'll start with intent.

Intent

Some board members, and even homeowners, view the management company as "the bad guy." Angry homeowners will blame the management company as the overbearing rule enforcer who's making their lives miserable and is just there to take the money from the homeowners.

While there may be some management companies who exhibit some negative traits, the truth is that most of them are actually trying to help. In fact, the services they provide to the community are paid for out of the association's funds. The homeowner does not pay the HOA management company for services (except for certain circumstances, like replacing a key or fob, requesting resale documents and certificates, etc.)

When a homeowner sends their payment, the payment should be made payable to the association and the management company should be depositing those checks into an account owned by the association. Those payments should NOT be made to the management company and the management company should not be posting those payments to their company account. If this is not the way it's done with your association, then there may be a problem!

It's also not the management company's intent to make life miserable for the residents. While they are paid to enforce the covenants, it is important to remember that homeowners agreed to certain covenants, rules, and regulations, when they purchased a home in the community. The management company is required to enforce those covenants, conditions, and restrictions, in a fair and consistent manner.

Responsibility

The second misconception, is somewhat related to the first one, and that is responsibility.

Many board members hire a management company in an emotional driven decision because they're frustrated with circumstances they want to change in the community. The management company is responsible for enforcing the rules of the community and helping the board by handling the business affairs of the association like paying the bills, collecting fees, sending out notices, working with vendors, etc. It may even be a part of the contract that they send out violation notices and assist the board with rule enforcement.

The keyword here is assist. It is not the management company's responsibility to take over the association or to do everything because the board just wants to do nothing. We've received many requests over the years from board members who are on the brink of burnout that want to hire a management company to "take over."

That's not how it works. The board is still responsible for the association and to serve as the fiduciary of the association's assets. While the management company may be responsible for handling the day-to-day bookkeeping and monthly financial reporting, your board (especially your treasurer), should be reviewing bank statements and financial statements every month.

We cannot tell you how many times we spoke with board members who were stuck with an association in financial distress because nobody on the board was checking behind the management company and what they were doing. Yes, blame be placed on the management company, but if a homeowner were to file a lawsuit for the association, they could sue the board for negligence or malfeasance.

Your board should also be approving large expenditures prior to payment. It is normal (and common practice) for routine expenses like utilities, insurance, and even monthly services like waste pickup to be paid by the management company. Any ad-hoc invoices or large charges should ALWAYS be approved by your board prior to a payment being made.

It is also not the management company's responsibility to vote or make decisions on behalf of the board or the association. Which leads us to our third point...

Authority

We have spoken with many boards over the years who wanted to hire a management company to replace the board. Often times, it was a one person operation that was doing everything on the board because nobody else wanted to volunteer and they wanted a management company to take it over.

By legal definition, the management company is not a member of the association, therefore, they cannot be a board member of the association, and therefore do not have the authority of an officer of the association.

The management company's responsibility should be to ADVISE the HOA board ADVISE the HOA board on issues based on experience, knowledge, and expertise, but ultimately, it is the board (and homeowners by way of voting) who have any authority to make decisions or sign contracts on behalf of the association.

We hope this clears up any misconceptions you may have about hiring a management company. If you are unsatisfied with your current company, or perhaps your self managed and need a helping hand, then Numerus may be able to assist you. Please contact us today for more information!