We also found ourselves in a situation where our asphalt shingle roofs needed to be replaced, as they had reached their full life expectancy and the Association was experiencing problems with leaks. In fact, leak repair is what had seriously depleted the already inadequate reserves. The Board of Directors did not want to deal with this issue. It took six months before we got a new board in place that was prepared to address the challenge of taking appropriate actions to resolve the maintenance deficiencies that existed. I worked with the new board to put the reroofing project out to bid. The cost came in at 2.8 million. For those of you intent on working out the cost per unit, be aware that these were small units and were stacked in an over / under two-story arrangement.
Next was the issue of how to raise the money. Ultimately, all funding comes from the members. The board recognized this and worked to come up with a special assessment financing plan that would allow those who could afford to pay the opportunity to pay the special assessment in full. Other members had an option of paying the assessment over a five-year period of time.
One missing piece of the puzzle was the reserve study. The Association had unwisely ignored California law and failed to have regular reserve studies performed. We didn't need a reserve study to tell us that we needed new roof. We needed a reserve study to document the funding that should have been in place and also to set a plan for the future.
Although this board accepted the challenge of this overall process, they resisted my attempt to guide them through communicating with members about the process. Instead, they insisted on handling it in their own manner. Once the reserve study was complete and we had the contract numbers in hand and options worked out for the special assessment, it was presented to the homeowners in a special newsletter. The result was predictable: outrage in the community, blame directed at the current Board of Directors, and many tales of woe from those who stated that they would never be able to pay their special assessment.
The board decided to have a town hall meeting of residents to explain the actions taken, the current condition of the roof, and the limited options available to the Association. It was a grand meeting with almost 300 people in attendance. To characterize this as a hostile mob would not have been an understatement. As the town hall meeting was called to order, the Board President stated that first the board would conduct an overall presentation, then the roofing contractor would address the technical issues relating to the project, followed by the reserve professional who would discuss the financial issues and proposed funding plan for reserves from this point forward. The treasurer would then discuss the special assessment and payment plans available. Only at that point would the floor be made available to members to raise any questions or matters they would like to discuss.
Literally as the opening statement was completed, a member in the front row stood up, pointed at the Board of Directors, and asked the question, “Where has all the money gone? Which one of you has been stealing it?” There was a loud uproar from the members in apparent support of that question.
As manager I had been relegated to the role of observer for purposes of this meeting. One thing I observed was the president gritting his teeth and attempting to control his own emotions, having just been accused of stealing Association funds. I'm sure I'm not the only person in the audience who watched the emotions play over his face in the few seconds before he responded. Although I had been very frustrated with this board in attempting to guide them in the manner in which they handled the situation, I have to admit I was impressed with the president's control, his ability to maintain a calm demeanor, and his response.
He stated that no funds were missing, no funds had been stolen, that the Association had received a clean audit report annually for more than 20 years, and that if the member wished to see where the money had gone he had but to look at the audit reports which had been distributed annually to all members. He also stated that if the members would just bear with the board for a few minutes to listen to the presentation, they would see exactly the situation that this board had inherited. That response, but more importantly the manner in which it was delivered, calmed down the crowd enough so that the meeting could proceed.
The presentation by the vice president discussing the situation the board had inherited (a roof that had already reached its full useful life and the failure of spot repairs over the last few years to provide any meaningful relief to the problems) set the initial stage. The roofing contractor then explained the technical issues, using a slide show presentation (this was before the days of PowerPoint) to show graphic photos of some of the damage that occurred and what could be expected in the future. The reserve professional presented only a couple of exhibits, explaining the purpose of a reserve study and showing how the future 30-year funding plan would get the Association back into an adequately funded position after the roofing project and special assessment had been completed. The unfortunate part was that to cover the current shortfall, the reserve assessment needed to come in at more than triple what had been assessed in prior years.
For their part, the audience had been respectfully listening to the outside professionals up to this point. When the treasurer took over to discuss the special assessment, he was barely allowed to finish before the members started peppering the board with questions. Voices were raised and little rational conversation ensued for the next 30 minutes.
At this point an elderly gentleman in the back of the room stood to speak and shook his pointed finger at the board, stating, “I don't know what you think you guys are doing. I was president of this Association for the first eight years that it existed, and I never raised the dues once. Our assessments were low and everybody was happy. Now you guys want to hit us with a special assessment of $5,300 per member.”
I was watching the president to see how he would respond to this issue when the reserve professional reached over, placed his hand on the president’s arm, and said, “Let me respond to this one.” He stood, shook his finger back at the gentleman who had just spoken, and said, “You sir, are the problem. Had you done your job properly 25 years ago, you would not be facing a special assessment today. You failed to raise the assessments to an appropriate level to conduct future repairs. And you never conducted a reserve study. As part of my work, I did a simple calculation to determine how much assessments would have had to have been increased to avoid the special assessment. It works out to about $15 per month per member. I don't think anybody in this room could legitimately argue that they couldn't afford $15 a month. But, I can understand anybody stating that $5,300 is a significant problem. However, whether it is a problem or not, the fact is that the roof needs to be replaced. Nothing is going to change that. Assessing blame is not going to change that. You are where you are, and you simply need to work your way out of it in the best way possible. This board has created a flexible special assessment funding plan that will accommodate all members.”
This response was perfect. First of all, it came from one of the outside professionals, not from a board member, so was not so easily disputed by resident members. Second, it placed the blame directly back where it belonged, to the prior boards who had failed to determine a proper assessment. You couldn’t dispute that logic.
Those comments effectively took the wind out of the sails of the members as the reality of the situation settled in. The meeting concluded shortly thereafter, and I was surprised to see several members come up to address the board to thank them for handling a tough situation and coming up with a reasonable solution.
I asked the reserve professional to join me in a discussion to address how this situation could have been handled better, knowing that he had worked through a number of special assessment situations already. I already knew what my own positions were, and it turns out we mostly agreed on what could have been done differently in this situation.
First - as the board began its investigation into the reroofing project, it should have informed members through newsletters that it had become apparent that the 25-year-old roof was probably in need of replacement and that the spot repairs of the last several years were no longer being effective. This information could have been disclosed even without knowing what the final cost or timing of the project would be. The purpose for this would have been simply to remove the element of surprise for the members. This disclosure process would have been the first in a series of communications that would effectively allow the entire membership to “listen in” on what the board was doing; in other words, it would have treated them as colleagues rather than as subjects being dictated to.
Second - the board should have retained a roofing consultant in addition to the contractor to oversee the project. The board did not have the appropriate knowledge themselves to oversee this project, and relied too heavily on the contractor. This would have eliminated some of the questions raised at the town hall meeting.
Third - as cost numbers began to become available, the board should have shared with the membership through newsletters the potential cost ranges, along with appropriate statements that the board was considering all options to minimize costs while still effectively completing the project.
Fourth – the board could have begun to discuss financing options that they were considering, and the reasons that funds were not available for this project. This would have allowed members time to digest and process the information. One of the options that the board did not consider in this process was obtaining a commercial loan to allow the special assessment to be easily spread out over time and still get the project completed as swiftly as possible.
These few steps would have been played out over a period of at least six months, as the board went through this process to reach their final decision. This six-month time period would have given the membership plenty of time to come to grips with the reality of the situation and would have defused much of the anxiety that was created by springing this on the membership as a single, completed action.
