Moving Communities Forward
Official Publication of Advance HOA Management, exclusively for board members
Board Newsletter | Issue 4
Fannie Mae and Freddie Mac Announce New Lender Requirements
Board Member Basics
The Role of an Effective Board Member
Members of the Board of Directors are elected by their fellow homeowners and bear the responsibility for operating the community on behalf of its owners. It is the role of the board to set the policies, standards, procedures, programs and budget of the association. The board works closely with Advance HOA Management to execute its decisions. To help set the foundation for your role, we hope the below provides some basics that will help you be an effective Board member. As the year progresses, we will continue to share educational information and tools to support you as a Board member.
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Responsibilities and Authorities. Most governing documents provide authorities, duties, and responsibilities, including, but not limited to:
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Establishing a budget, and assessing and collecting assessments
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Establishing good governance policies
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Establishing and enforcing rules and regulations
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Contracting and regulating physical management of common areas
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Hiring, discharging, and supervising employees, independent contractors and agents
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Maintaining records
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Creating committees
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Legal Basis: Community Associations work under a legal hierarchy, as listed, below. If there is a confict between a Declaration and a Federal Law or policy, Federal Law wins. If there is a conflict between the Declaration and the Bylaws, the Declarations win. Within some documents, the Declaration may trump the Map/Plat.
1. Federal Laws/Public Policy
2. State Laws - Non-profit Act and CCIOA (Colorado Common Interest Ownership Act)/ Public Policy
3. Court Decisions
4. Governing Documents:
a. Map/Plat. Drawing of footprint or layout of the community showing location of units/lots, common areas, and easements. Any amendment to the Plat Map requires owner vote.
b. Declaration. Binds all owners to the association, provides for funding of the association, outlines owner’s rights and obligations, establishes maintenance responsibilities, and defines ownership of elements in the community. Any amendment to the Declaration requires an owner vote.
c. Articles of incorporation. Initially creates the corporation under state law.
d. Bylaws: Provisions concerning actual association operations such as meetings, elections, and duties of the Board. Sometimes covers the same topics as the Declaration. Certain amendments to the Bylaws require owner vote.
e. Policies & Resolutions: Affects owners’ rights and obligations, internal processes, and apply to an individual situation. These policies are often impacted by state statutes. These policies can be adopted by the Board without owner vote.
f. Rules and Regulations: Boards can implement Design Guidelines, Landscape Guidelines, Rules and Regulations, etc. that clarify and explain restrictions. These documents cannot contain information that contradicts or conflicts with anything found in other governing documents (such as the Declarations).
Board Member Offices. No one position has more voting power than the others. All officers have equal voting power and officers are elected by the Board, typically as part of the organizational meeting. Below is a quick summary of the duty for each officer position.
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President: Leader of the Board and the official spokesperson. The president will execute contracts and preside over meetings of the association. The President is allowed to vote.
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Vice President: Will step into the role of the president in the absence of the president.
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Secretary: Maintains records/minutes of meetings. May be needed as secondary signature on association documents.
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Treasurer: Approves invoices, coordinating the annual budget, reviews financial reports, and acts as custodian of the association’s funds.
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Member at Large: Duties vary based on the needs of the Board.
Best Practice Safety Nets
Scope of Authority: Directors owe a duty to their associations and to their members to perform their duties in accordance with the authority granted to them by statute and in their governing documents. If directors exceed this authority and damage results, the directors may be personally liable for their unauthorized actions.
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Duty of Care: Boards must give the business or their associations the same degree of care and diligence that prudent persons would exercise in their own affairs in similar circumstances The duty of care requires directors to invest time and attention in association business, make reasonable inquiry into association matters to enable informed decision making, and take reasonable, not arbitrary or capricious, actions.
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Duty of Loyalty: Directors have a duty to the association and its members to act for the association’s benefit only and with an eye on its best interests, without regard for any personal interest the directors may have. The Board’s fiduciary duty mandates a good faith effort to work for the association’s benefit and not to use the position of director to enhance one’s personal interests.
There is so much more involved with being a Board Member, so our hope is that this helps set the foundation for your position. You do A LOT for your community and your fellow homeowners are fortunate you have stepped up to help make your community a great place to live.
The Annual Calendar
A Key Component of Community Success
An annual calendar is a great resource for both board members and community managers and often gets overlooked. This proactive tool includes strategic planning and maintenance scheduling to form a roadmap for the year. The calendar should be reviewed by the board at every meeting to help keep all accountable for the tasks that need to be completed and to ensure the association is on track with upcoming meetings and maintenance items. The calendar is included in the management report and your community manager will update the calendar for 2024 and add all necessary items by month. This will help prevent last-minute planning.
The annual calendar facilitates strategic planning by highlighting key dates that board members need to be cognizant of throughout the year for decision making and execution. These may include:
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Board Meetings (set them for the year)
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Insurance Renewal
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Contract Renewals/Expirations
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Financial Deadlines (CD terms, loan repayments, budget discussions)
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Community Events
As part of the Annual Calendar, include the routine maintenance items that take place in the year. This will not only keep the community looking beautiful but may also save money by being proactive rather than reactive. Key maintenance items to items to include are:
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Annual Inspections (roofing, concrete, backflow, boiler, elevator, etc.)
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Exterior Maintenance (painting, power washing, carpentry repairs)
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Landscape (Spring walk, Fall walk, pond maintenance, perimeter fence staining & repairs)
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The Annual Calendar is more than just a scheduling tool, it is an asset that promotes effective and proactive governance and will contribute to the overall satisfaction of the community. Make 2024 a great year by working with your fellow board members and community manager in planning out the year!
Board Member Ethics
Fundamental Steps to Ethical Board Governance
As an elected board member, you are in a leadership position in which you work on behalf of and for the benefit of the entire community, and therefore, you are expected to conduct yourself in an ethical and fair manner. It’s not always easy to separate personal interests from what is best for the entire community.
To help your board ensure that it is conducting itself in an ethical and fair manner, we recommend that you consider adopting a Code of Ethics for your board. By adopting a Code of Ethics, a set of guiding principles are established that focuses Board Members on areas of ethical risk, provides guidance to help them recognize and deal with ethical issues, fosters a culture of honesty and accountability, deters wrongdoing, and avoids conflicts of interest.
Below is a framework you can use as a guide. At Advance HOA Management, we have several codes that have been adopted by Boards, along with the Community Association’s Institute Model Code of Ethics that will serve as an excellent framework.
1. Board Members Should Serve the Best Interests of the Community
Board members have a duty to serve the association. As such, they should always prioritize the best interests of the community and never put their personal interests first. Board members should make decisions that are for the best of the community even if it means they will personally suffer consequences.
2. Board Members Should Make Decisions Using Sound Judgment
Board members should always use sound judgment when deciding on matters of the association. They should consider all the available information, resources, and circumstances before making a business decision.
3. Board Members Should Act Within the Scope of Their Authority
There are two things that give board members their authority: the law and the governing documents. If neither the law nor the governing documents permit the board to do something, then the board has no power to do it.
4. Board Members Should Allow Residents an Opportunity to Comment on Decisions Facing the Community
Residents have a right to speak their concerns and comments, but they have no way of doing this if the board does not give them the opportunity. Thus, board members must give residents a chance to give their feedback on issues facing the association.
5. Board Members Should Never Act on Bias
Board members must always carry out their responsibilities without bias for or against any individual or group of owners or non-owner residents. They should also enforce the rules consistently and fairly, without personal judgment or favor.
6. Board Members Should Avoid Conflicts of Interest
When there is a conflict of interest, board members must disclose any personal or professional relationship with any company or individual who has or is seeking a business relationship with the community.
7. Board Members Should Conduct Fair Elections
Elections must always take place openly and fairly. The board must also publicize the elections well so that all homeowners are aware.
8. Board Members Should Present a Unified Front
Speak with one voice, supporting board decisions. Even if they do not agree with the unanimous decision, board members must support the final decision and never challenge the board publicly. A divided board will only make homeowners feel uneasy.
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9. Board Members Should Practice Confidentiality
Board members should never disclose any private, sensitive, or confidential information to any homeowner, resident, or third party. Unless otherwise authorized by the board, any discussions involving such information should take place behind closed doors (i.e. during the executive session).
10. Board Members Should Not Make Unauthorized Promises to Third Parties
Board members should never make unsanctioned promises to vendors, contractors, or bidders. Making a promise, such as promising to hire a certain contractor or promising a certain fee, will only put the association in jeopardy.
11. Board Members Should Not Accept Gifts
Board members are volunteers, which means they receive no compensation for performing their duties. This includes any gifts from homeowners, residents, or third parties. Even with the best of intentions, accepting a gift from a supplier or resident does not look good for the board as there are certain implications involved.
12. Board Members Should Always Operate on Facts
When conducting association business, board members should always represent known facts. There are far too many unknowns, and making assumptions can only lead to complications for the board.
13. Board Members Should Not Harass, Threaten, or Attack Others
There is absolutely no room on the board for someone who behaves inappropriately. Board members must never attack, threaten, or harass anyone, including employees and fellow board members. Using aggressive behavior not only makes residents feel uncomfortable but can also open the association to lawsuits.
Set the standard as a Board so you may work more harmoniously and with less confusion. Again, if you would like assistance in preparing a Code of Ethics, please reach out to your Manager and samples will be provided.
Navigating Year-End Financial Reports
Ensuring a Financially Stable and Prosperous HOA
It’s that time of year where Advance HOA Management prepares your December 31, 2023 (Year-end) financial reports. To ensure all expenses for the year are appropriately reflected, Advance HOA holds pushing the final button an extra week. Once you receive and review your year-end reports, please make note of any adjustments and report to your Manager. For example, you might have discovered that a landscaping project was not coded to the correct general ledger account. When the reports are completed, the Board will approve the reports and the Manager will then post them to the community website.
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1. Balance Sheet Analysis:
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Begin with the balance sheet to assess the association's assets, liabilities, and equity.
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Review cash and reserve accounts to ensure they align with the association's budget and future needs.
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Identify any interfund loans and understand expectation for paying down.
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Verify the accuracy of accounts receivable and payable, identifying any outstanding balances. You can reference the Homeowner Aging Detail and AP Aging Detail report within the financials for a breakdown of the totals.
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Review each fund’s year-end Net Income. (When the year is closed, this balance will roll into that fund’s retained fund balance and the new fiscal year will reset.)
2. Income Statement Budget Analysis:
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Analyze the operating fund’s income statement to understand the association's revenue and expenses over the fiscal year.
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Identify any significant variances from actual vs budget, and ensure you have an understanding of the reasons behind them. Investigate where necessary.
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Evaluate the overall variance for the year.
3. Reserve Fund Assessment:
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Examine the reserve fund balances and annual expenditures to ensure it aligns with the association's long-term maintenance and repair needs.
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Verify that contributions to the reserve fund have been made in accordance with the budget and reserve study.
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Discuss potential projects, improvements, and community enhancements that align with the financial health of the association.
4. Audit or Review Engagement:
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Consider engaging a certified public accountant (CPA) to conduct an audit or review of the financial statements.
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An external examination adds an extra layer of assurance and can uncover any issues that may not be immediately apparent.
5. Communication with Homeowners:
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Foster transparent communication by sharing a summary of the financial statements with homeowners.
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Address any concerns or questions they may have, promoting a sense of trust and community involvement.
By following these steps and taking additional measures like engaging external professionals, communicating openly with homeowners, and planning for the future, board members can contribute to a financially stable and prosperous homeowners association.
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