A reader recently asked "What's your opinion on people of BLMH who rent their units?" Now that's a really interesting question and certainly one which could create some excitement. The topic of rentals in an HOA can be a polarizing issue. The person who wrote this question did so as "anonymous" and so I can't say if they had an ulterior motive in doing so.
When I purchased my unit over a decade ago I was aware of the specific language regarding rentals at BLMH. This is in the official documents and I did obtain a copy prior to purchase. To my knowledge, today's language is the same as it was in the 1970s when BLMH was built. I've attended quite a few board meetings and I am aware of several board discussions about rentals, rental caps, etc. These discussions apparently went nowhere. Some boards have been incapable of action if even a single owner who was present objected during the discussion.
In 2001 and prior to purchase my spouse and I read the entire declarations, bylaws, rules & regulations and discussed these. We did discuss the up side and down side of owning in this association; don't all potential buyers? Rentals was one part of the discussion. Low reserves was another. Unreasonable expectations of owners we met on the property and interviewed was a third and that was our greatest concern. Why? Boards are comprised of owners; it was quite possible that the money attitude was pervasive at BLMH. We have discovered that some HOAs are run as a popularity contest. Those two ingredients, popularity and finances, can create a toxic stew. Our fears were realized in 2008.
Are Rentals A Major Issue?
In my time here rentals have not been the main issue. Most of the complainers I am aware of have been about fees and personal grudges against boards or specific board members. The complaints revolve around money and rules enforcement. These are the root causes of problems and the issues which occupy the boards.
Boards of course are the people who levy the fees. They are also the ones who, with management, set collection procedures. As fiduciaries they are supposed to do this. Not everyone agrees, including board members from time to time. In other words, it should not be a surprise if the board are "bad people" according to some who have been delinquent or run afoul of rules enforcement. Of course, the rest of the owners don't want the higher fees and the financial consequences of delinquencies and foreclosures and so fiscal responsibility will prevail in the long run. That is not to say there will not be rancor, enmity and financial pain along the way. The tension created by these financially opposed groups is probably the larger issue in an HOA.
Most differences and disputes that I am aware of have been between resident owners, or owners and the boards, or owners and everything association. Most disputes have been about money. BLMH is actually a generally peaceful HOA which has nonetheless had some serious infrastructure issues and financial issues. The inability to successfully and completely resolve these issues reverberates through the HOA to this very day. Some boards have refused to take the necessary steps to address this, preferring to pass the problem on to other boards. "If we don't spend money we don't have to collect it" has been one popular position. Of course, that becomes self defeating. If a HOA doesn't collect and save sufficient reserves, it then becomes impossible to do all necessary maintenance. Maintenance delayed becomes an issue for future boards to deal with, and for future owners to pay for. With insufficiency, money will be spent but not universally and there will be winners and losers. Such an approach is fraught with peril. Who decides who is a winner or a loser in such a situation? Why the board, of course. Astute owners know this and so do the boards. Let the games begin!
The best policy? Avoid creating a situation in which it is necessary to select winners and losers. Do long range planning, collect and save adequate fees in accordance to these plans, rely on the professionals and do use competent professionals. Do thorough and frequent condition surveys, re-evaluate plans annually, incorporating "on the street" first person survey information and regularly updated reserve studies prepared by competent firms. Keep the owners informed and then spend the money carefully. Be prepared to respond to breakdowns and have realistic expectations. Be prepared for backlash from some owners. It is reasonable to expect that some owners will be unhappy. The unhappy ones can be really, really nasty. So can I, and I will return "fire with fire." A board member once announced "I am Switzerland." That is not me. I have concluded, based on real observation, that some owners are up to no good; life at BLMH is not a fairy tale and BLMH isn't La-La Land. Am I surprised by recent events? Not at all; the reader may recall I encountered "unreasonable expectations" when I interviewed owners in 2001. Why would anyone expect a change by 2014? We have the same culture and many of the same owners. Altering the culture would make for an interesting post. However, as boards are elected, the politicians among us will always strive to win, the shills will back them up and the rest will be unawares or simply complain. In fact, what the 80% get for their lack of involvement is higher fees. Exactly like the situation in my home state of Illinois. Currently in Illinois some complain about the tax bill. The real tax bill has not yet arrived; it will be for future residents of Illinois to pay it. Fortunately, BLMH has had a few board members over the years who were willing and able to correct deficiencies and stem the tide. However, with the 80% mostly invisible, the motivated fringe will resurface and so the cycle continues .
Here's a small dose of reality. I'll save the issues of delinquencies for a separate post. On assuming a position on the BLMH board I corralled management and we did a number of surveys over a period of months. Driveways, garage floors and patios were inspected. I did the work on the driveways alone. Roofs were evaluated and re-evaluated. Streams, pumping systems and large common area patios, walks and bridges were reviewed. Costs were estimated and plans put in place for board action. As an owner I had advised several boards of imminent problems on Lakecliffe. So what to do? I recall observing a discussion about how sealcoating would solve the problem and improve the appearance. Painting the street is what some owners have called this.
In the first year I was able to get some previously delayed but needed repairs underway. I was also able to avoid a "snipe hunt" promoted by the president. I was supposed to check each and every dryer vent on the property. The board had decided that this was the first and foremost thing I could do for this HOA. To this very day that episode disturbs me. There were some really serious matters to deal with. How was it that this problem was considered to be the major issue? One possible explanation: This task was intended to get me out of the way and keep me busy. Another, more ominous one (and I shudder with the thought), checking dryer vents was considered by that board to be the paramount issue in my HOA. Gasp! Reserve issues, delinquencies, the street, etc. were of little significance and should wait for a rainy day. After all, it was a fact that street replacements at BLMH were not to begin until after 2021. For that board there was no desire in 2010-2011 to alter these plans.
It was the position of the board that fees had to be kept low as possible, not "as high as possible." Even with the January 29, 2010 opinion I had provided about the imminent failure of this street, still a board failed to act and replacement remained at 2021 or later. In my eyes the condition continued and the street degraded. The board procrastinated and avoided the problem. I persisted and was able to get the attention of management and with management support to begin repairs, most via an extended and renegotiated warranty, In other words, at no cost to the HOA. For the board, street replacement funding would remain a problem to be solved later and by someone else. Why was that? Such funding would require a re-evaluation and re-alignment of fees, a change in plans and MONEY. I had spelled it out. $100,000 within 5 years, and that was with the assumption the base and curbs were good. But the board faced additional problems. The study prepared by the hand-picked consultant had recommended a special assessment and a large fee increase; this was completely unexpected and contrary to the popular position and oft repeated refrain that "We have enough money". It was obvious that a period of 0% fee increases or lowered fees would not be possible. A closer scrutiny of delinquencies and the financial consequences thereof made it impossible to continue to avoid taking serious steps to deal with the issue. Management was empowered. There was pressure from all sides and the situation was becoming far more difficult and contentious than expected. Some people in the HOA would be really upset and unhappy about this. Some would feel they had been betrayed. So what is a compliant board to do when faced with this dilemma? One solution available to the board member is to walk. All that is necessary is to find a suitable pretense or pretenses. And so they did.
Of course, boards in place 2012 and beyond would have to deal with the problems. A new board takes some time to start-up and, believe it or not, there were other, serious problems to deal with in 2010 and beyond. That is for another post, one of the series on "reality checks." The street problems first discovered in 2008-9 continued and would worsen, and did. "Entropy is the natural state of the universe." It had taken until 2013 to get the necessary pieces into place. With a new board in place a true engineering survey of the worst portion of Lakecliffe was finally approved and with the knowledge gained from the study a decision was made. The street problems were worse than anticipated and my worst fears were realized. Repair was not the issue and replacement was the requirement. The initial plan of simple asphalt removal and base remediation in 2013 was scrapped. The project had become one of street replacement including portions of curbs which would impact driveways. It would be necessary to create engineering drawings and more elaborate specifications. There was insufficient time remaining in 2013 to do this and proceed before winter weather. Instead, in the late fall patching of the street was done (again). During the winter of 2013/2014 the engineering plans were made. An unusually harsh winter exacerbated the street problem. It was considered to again patch the street. Instead the board decided to move forward vigorously with a spring replacement. As usual, circumstances intervened. Replacement target slipped, weather intervened and another water main break in that street created yet another delay. Meanwhile, with the full magnitude of the problem on Lakecliffe finally revealed, the board agreed in 2014 to commission an engineering survey of the remaining streets. Now, that wasn't so difficult, was it?
I'm being facetious, of course. The Lakecliffe problem was undeniable in 2009. It took another four years to overcome the resistance and the noise and get the pieces into place so the board could act. Today owners come and complain to the "clean up" board about the condition of the street. Some who promoted the "do nothing" board and did everything possible to squash forward movement now come to meetings and harangue the board. I have no patience for them or the shills they bring along as backup. I'd say the noise is a much larger problem than the HOA rental issue. Does that mean HOA rentals are to be ignored? Of course not. The "head in the sand" approach didn't work on Lakecliffe and it won't work well about rentals. Here's a little secret. Avoiding problems seldom leads to successful conclusions.
I would like to think that courage, perseverance and hard work will always triumph. That is not necessarily so. If I ever, ever come to the conclusion that this is impossible at BLMH I will sell or rent my unit. I don't have to live here and neither do any BLMH owners. Some prefer to rent their units and live elsewhere. That is ultimately what is so about rentals. Some people prefer to own a unit but live elsewhere.
Several years ago I was appalled to discover that about 15% of the roofs had been replaced and yet the average age of the remaining roofs was 17 years. This HOA did not have the necessary reserves, and yet board members were reassuring owners "We have enough money." A roof has a potential lifespan of 15 to 20 years and so it was reasonable to assume our roofs were very near end of useful life. At least one was 21 years old. At that time condition surveys and cost appraisals of driveways, garages and patios had not been undertaken. Why not? Let's all say it together "If we don't spend money we don't have to collect it." Reserving for street replacement were at a pace to begin in 2021 or later. Were we gambling as a HOA? I'll let the reader draw their own conclusions.
It had been policy to only replace two to four roofs per year. It had been stated that other roofs would be repaired. In other words, the goal was to replace roofs at the pace of reserve collections and when no other option remained. Roof replacements would be delayed while funds accumulated. This is exactly what a HOA must do if it lacks sufficient reserves or has board issues. It was stated that roofs would be repaired rather than replaced unless repair costs per roof incident exceeded a specific amount. Hopefully, roofs would survive long enough for the necessary reserves to accumulate. It is unfortunate but that idea had several possible flaws. Simultaneously other board members were promoting lower fees and pressing to reduce fees. With delayed maintenance would that create a problem? Would infrastructure repair delays create a backlog? Would infrastructure fail before sufficient funds were collected and saved? Was the HOA creating future problems and would future boards be held accountable for this type of planning? Of course they would be. As I have repeatedly stated, on assuming a board position I've been cleaning up a lot of messes created by others, many of whom have moved on to better things. Fireplaces are merely the latest in a long list of problems; but that one was created by the builder and the City of Wheaton. Some owners have added it to the long list of problems they say were created by the board, or should be dealt with by the board..
Procrastination is not a good thing. I've told several managers over the years that it's my opinion that if a large HOA such as BLMH ever falls behind in its finances and/or maintenance it becomes nearly impossible to catch up. They have agreed. Owners and boards do know this, but there is a tendency to believe that someone else will make it work, or that we can escape the bill. Really? Who is going to clean this up? Who is going to levy the fees and pay them? The same owners who argue "my fees are too high?" And at what time will owners say to the board "Oh, it's fine. Just increase my fees and send me a bill and a special assessment." Dream on, Virginia. The reality is, the only way to escape the bill is to sell before it comes due. Over the years have owners who argue against fees and saving reserves been planning to do just that? The "great recession" began in 2007 and with it the residential real estate market collapsed. When that occurred some owners complained that they could not sell their units for what they "knew" was a reasonable price. Is it merely a coincidence that in 2008 some owners instigated an uprising at BLMH and the predominant issue became high fees? And voila, for a short time we we were back to lower or 0% fee increases. Yet, we had those infrastructure problems. We had aging roofs. We had driveway and garage floors in disrepair. Lakecliffe was suspect. So where was the money to come from?
In 2008 and thereafter some people would attend HOA meetings and provide a rosy or hopeful opinion about the residential real estate market. It was said that the real estate market would bounce back "in a year or two." Reading between the lines, those who wanted to sell would then have the opportunity. In other words, financial problems could be delayed and would be left to future owners to deal with. If fees increases were delayed the unhappy could avoid them. It was unfortunate but those rosy predictions were absolutely wrong. So two years are now seven years going on eight. And the infrastructure continues to age. It became impossible to escape the bill.
In my opinion Lakecliffe Blvd is a poster child for the consequences of procrastination and poor planning. It is wonderful example of the consequences of a failure to act. It is also a powerful statement of why skimping on project management, engineering and oversight is not a good idea for capital projects. It has provided the impetus for the current board, which is the "cleanup board" to make some difficult and costly decisions. Those who saved some money for the association at the time this street was installed are gone. Those who decided to pass this problem to future boards are oblivious or are practicing the art of "obfuscation." I'll be putting together a separate post on this street and the project at a later date.
The delay approach is what was been argued for roofs and streets and everything else. Now if the roofs had been delayed as promoted how would that have turned out? How much inconvenience would that generate? In the winter of 2013-2014 BLMH had severe icing conditions and a few roof leaks. The worst roofs were the old roofs. That was to be expected. Remember, the roofs are now about 20 years of age. That's why I have been pressing for four years to accelerate the roof replacement program. But we could have continued with the original plan. That was argued as a "good plan." Simply do repairs until we collect enough money under the 2008 fee level; that would keep fees low. Do two or three roofs a year. If there was enough money, do four in a year. In 12 years, maybe by 2022 we'd be done and everyone would have a new roof. That is if nothing else went wrong; no water main breaks, no dead trees, no stream failures, etc. Meanwhile, just spend $20,000, $30,000 or more each and every year on street repairs, and patch roofs and patch driveways and forget about garage floors and failed patios. Don't replace garage floors and don't finish the driveways. That would keep "fees as low as possible." But apparently the board that was promoting this didn't get all of their followers on board. How could they? There were expectations of new driveways and new roofs and painted streets. After all, "We have enough money" they said. "Unreasonable expectations" by owners will work against all boards. Telling owners "We have enough money" is like pouring gasoline on a fire.
So how did the "delay until failure" and "don't spend it and we won't need to save it" approach turn out? Was that approach effective? Do we have any shining examples as evidence? Well, lo and behold! We can use Lakecliffe as an example! Where are the boards and the people who argued to delay, lower our fees and so on? Where are the followers who said "Yes!" Why are they now unhappy with Lakecliffe? How can that be? They got what they have been arguing for since 2007. The street was ignored until 2010 when repairs finally began. In 2013 an engineer was hired to do a study. Hmm, seems the base is gone, the asphalt gone, some curbs were improperly installed, inadequate crown and we had poor drainage. "Don't make excuses." "Don't bother us with the facts or the details, just fix it." "It's all the board's fault." "We have a bad board." "Our fees are too high." "The other board did better." "The board should have known." "How could this happen?" "What do we get for our money?" Blah, Blah, Blah. Blah.
HOA Rentals - Issues and Complexities.
I've alluded in previous posts that rentals create issues and complexities. In my brief life here at BLMH I've encountered dissatisfied residents, both tenants and owners. I've also encountered dissatisfied landlords. There are differing perspectives:
- The Association
- The Landlord
- The Tenant
- Other Onsite Owners
- Management
The Association
BLMH is a "Home Owner Association" or HOA. It was designed as a place for community living by owners. Be that as it may, HOA bylaws usually permit rentals. To the extent that they do, from the HOA's perspective rentals are legitimate. So it is at BLMH.
There are however, trade-offs. A former manager stated several years ago that he had seen an increase in costs at certain buildings when a unit becomes a rental or a new owner took residence. He stated that this appeared to be due to move-in and move-out damage, but new resident owners when purchasing frequently made request for all sorts of small improvements, from carpeting to paint touch-up. This was discussed by a board several years ago, but there was no conclusion. I'm unaware of any other statement by a BLMH manager about rentals, per se.
Are there any benefits for an association? For the association, it is best to have all units occupied. If an owner relocates and chooses to rent his or her unit, that is preferable to an empty unit which could become a foreclosure. In other words, collecting fees on each and every unit is the best way to ensure the full income to a HOA.
Boards should treat all owners equally. In other words, boards will not run the landlord's business for him. If a tenant has a personal issue or a problem with the landlord, the board, management and HOA contractors should not intervene. However, I would think it's appropriate for the association to treat renters as surrogates or representatives of the landlord. In other words, the tenants are placeholders and must abide by rules, treat other residents civilly and so on.
BLMH was not designed as an upscale apartment complex. It lacks the security systems inherent in many such buildings. There is no doorman, or security cameras and systems. HOAs face challenges in all areas and one of the challenges is maintaining the entire property and avoiding unnecessary expenditures.
The Landlord
I've never been a residential property landlord, but my parents were and one of my sons has been. I'm very familiar with the trade-offs. In a HOA the landlord is fully responsible for his/her tenant. In other words, the association management and board is not a surrogate for the landlord. There is no superintendent and the HOA will not manage the tenants for the landlord. It's entirely up to the landlord to manage his/her tenant.
The landlord is fully responsible for briefing the tenant about the rules and regulations. The landlord is responsible for securing keys. The landlord is responsible for keeping the peace between the tenant and other residents, and if he or she cannot or will not then if necessary the HOA management will become involved. The landlord is responsible for all unit maintenance, insurance and payment of all fees just as any owner is. The landlord is responsible for keeping and upholding the rules of the HOA. At BLMH that includes specific notifications to management about tenants, census forms and insurance. It also means establishing good communications with the tenant, educating him/her and communicating with other residents in the building. If there is a violation by the tenant, the landlord will be given a violation notice and if not corrected there will be a violation fee or fine. It is the responsibility of the landlord to deal with such violations and correct them.
All owners have certain responsibilities. It is the landlord's responsibility to be aware of what is going on in his or her unit at all times and to take immediate action in the event of unit element failures that could damage adjacent units or common elements. However, the HOA may also take steps to protect the common elements and property of others. Plumbing issues, for example, have a potential for serious damage. The HOA may at its discretion take steps with its own maintenance personnel or contractors to assure safety and well-being of all residents in any building. Such steps may also have the purpose of minimizing damage to common elements and thereby HOA costs and ultimately owner fees. However, in all matters offsite owners and onsite owners will be treated similarly.
For example, the HOA provides snow melt for resident use on driveways and at entrances. Trash containers are to be brought in and out of the garages in accordance with the rules. In the winter, specific steps are to be taken to avoid freezing pipes. Garage doors must be kept closed, etc. If the landlord is not on site to do this, then his/hetr tenant needs to do this. If there is a water main break or other infrastructure failure then the tenant as onsite representative of the landlord should contact management ASAP. Tenants must be informed of such requirements and must perform them.
Landlords, as owners, have the same rights and privileges as other owners. However, arguing for less snow removal, less maintenance and so on might not be greeted well by onsite owners who view this property as their home.
It is understood and appreciated that the landlord is running a specific kind of business and desires to make a profit after paying the mortgage, taxes, fees and upkeep. That might be the overwhelming concern of the landlord. However, the HOA is not an apartment complex and onsite owners purchased a unit to live in. It could be argued that onsite owners paid a premium to own a unit and expect certain amenities. Not all offsite landlords may appreciate this, nevertheless it is true.
The Tenant
I've been a tenant. One of my landlords didn't even contract for snow removal and so on bad days we'd all be in the parking lot digging cars out and making a car wide path to the street so we could get to work. So I can say that there are pros and cons to being a tenant. On the other hand, I'd love to be a tenant at BLMH. No board duties, no owner responsibilities. Just that landlord to deal with, carry out the trash and spread some snow melt in the winter. Sounds good to me.
For the tenant, the landlord is "the superintendent" and is fully responsible. That means if the tenant has issues, he or she should notify the landlord. In an emergency the HOA management should be notified. In some cases, both should be notified. For example, if the hot water heater leaks or other plumbing issues occur in the unit then both should be notified. Why? Because damage to the common elements may occur and/or other residents may be disrupted. Landlords have an obligation to assure tenants know and understand this. Tenants need to be aware of their obligations.
The tenant has the responsibility to know, understand and keep the rules of the HOA. The HOA is not an apartment complex and so the rules are more complicated and there are higher expectations of all residents by other residents.
The tenant needs to understand that he or she is a surrogate for the owner and are expected to live accordingly. The landlord has specific obligations but because the landlord is not present in the unit 24/7, then it is the tenant's responsibility to act in the landlord's stead. It could be said that the tenant represents the landlord and acts in his place. The tenant is a goodwill ambassador for the landlord. However, the landlord as owner attends HOA meetings and votes.
Other Onsite Owners
Onsite owners expect to live in a Home Owner's Association, which is an association comprised of owners who many think should be living in their homes. However, the bylaws of many HOAs permit rentals and so we have rentals at BLMH.
There is no question this had created tension. However, what's worse? A lousy onsite owner or a lousy tenant? In either case, some owners will have conflicts with their neighbors who don't keep the rules or create disruptions or other nuisances. I would suggest that most of this can be managed by the landlord. However, such management is entirely optional, just as most behavior of other residents is optional.
Unreasonable expectations and intolerance play a part. Our buildings and neighborhood is exceptionally quiet. This can create problems and conflicts can erupt. Stairs will creak as residents enter and leave the building. Taking a shower may rattle pipes. Opening the garage door may reverberate through the building. Laughter on the balcony will travel quite a distance. Slamming doors may seem like an earthquake. Of course, these things have nothing to do with tenants. They are a normal part of living in our Manor Style Homes.
The greater problem for owners living alongside tenants is who does some of the simple chores? For example, who spreads that snow melt? Will the tenant who is paying rent be willing to do this? If not, then the burden falls to the remaining residents.
Some residents may feel they are unwilling members of the landlord's business plan. Doing simple chores makes the other residents surrogates for the absent owner. Doing chores may be construed as contributing to the bottom line and profit of the landlord. Some residents may say "Hey, if I wanted to be a landlord I'd be one" and "If I wanted to live in an apartment building I wouldn't have purchased a condo." These arguments may have a ring of truth. However, if a man or woman wants to have exclusive rights, obligations and benefits, then a single residence is the only way to go. Living in a Manor Style Home in a HOA means giving up some rights and privileges.
Management
I can't speak for our management and I won't. As I stated earlier in this post "A manager stated several years ago that he had seen an increase in costs at certain buildings when a unit becomes a rental or a new owner took residence. He stated that this appeared to be due to move-in and move-out damage, but new resident owners when purchasing frequently made requests for all sorts of small improvements, from carpeting to paint touch-up. This was discussed by a board several years ago, but there was no conclusion. I'm unaware of any other statement by a BLMH manager about rentals, per se."
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