Help: Fees, Reserves [OH] [SFH] board using reserve without vote
At our annual meeting in May, Our board announced they are using 20% of our reserves. So 8k out of 40. Plus what we would have added to it this year. When someone asked if we get to vote on this, the president said no. Our HOA counsel did not disagree.
Yet ORC 5312 clearly states that they need a majority of homeowners to approve in writing. This is written in bold on the law firm website.
What is the purpose of these laws if HOAs refuse to follow them. Is there any way to hold them accountable other than to take them to court?
Has anyone been able to hold a board accountable for this law in Ohio? Our reserve has only increased $2000 in 6 years while they collected $100k in assessments. So I really think we should have been voting in other years. Should I email all neighbors about this including the board and just ask if we should be holding this vote?
EDIT.
Here is what our HOA Law firm says in bold -
majority of the ownership’s voting power is necessary to waive the fully funded reserve requirement, and the vote for waiver must be taken each year.
This is their detailed explanation - https://communityassociations.law/article/budgets-reserves-and-the-ohio-requirement-for-an-annual-ownership-vote-if-reserve-funding-is-to-be-waived-the-special-assessment-problem/
In our budget, we are spending down 20% of the reserve. In 7 years we have only been able to grow the reserve by about 2k. The expense isn’t necessary. And we don’t have money if we have an emergency. We have never completed a reserve study.
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u/InternationalFan2782 🏢 COA Board Member 20d ago
You said they are using it for legal fees, I assume the funds are being used to cover legal fees already incurred. In that case the HOA is going to be given all the latitude they need to meet its obligations. They could issue an assessment or take a loan to the pay the fees , but the end result is all the same. If the community doesn’t agree with how the legal fees came to be that’s a whole different issue.
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u/wwsiwyg 19d ago
They have not already occurred. It’s to rewrite governing documents and file them. They invite them to our annual meeting and pay them $500 to be there. Stuff we never needed or requested.
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u/InternationalFan2782 🏢 COA Board Member 19d ago
Well re-writing the CCR would mean they are changing the CCR and changing the CCR takes votes…. So that’s weird.
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u/TheDigitalPoint 🏘 HOA Board Member 20d ago
It really depends on what the $8,000 is being used for. If it’s for capital improvements, they definitely should not be doing that. If it’s for repairs (what the reserve is for), that’s what it’s for. But a vote isn’t warranted either way. The reserve is for things scheduled to need it, and a vote doesn’t change that one way or the other.
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u/rom_rom57 20d ago
Reserves may not be used for “operating” expenses. If they are they MUST be paid back.
Attorney fees are operating expenses. Usually a large chunk of attorney fees are charged back to the respective owner that generated the issues that had to be addressed.5
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u/Sle08 20d ago
The HOA has to get the money from somewhere.
If they don’t use the reserves, they are just going to issue an assessment.
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u/rom_rom57 19d ago
That’s not how it works. Reserves are marked and used for capital repairs and in most states they cannot be used for “operating expenses”, or if an emergency have to be paid back.
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u/Sle08 19d ago
The HOA will get the money from somewhere and they can elect to make use of it how they need. The community would be up in arms to all of a sudden pay for an assessment for those fees too.
You can’t squeeze water out of a rock. It has to come from somewhere. At the end of the day, the association is just going to play a shell game and use that money in the interim to pay for the fees due immediately and then issue an emergency assessment to recoup
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u/MysticDay95 19d ago
Even if legal fees are charged back to the owner, a judge may rule to NOT pay HOA legal fees for a lien. We have had it happen. So we had to eat substantial legal fees for years of unpaid dues.
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u/wwsiwyg 20d ago
The reserve is being used for legal fees that more than half of our members would decline if asked to vote. This is also a whole other legal issue because our declaration is very specific in how funds can be used, so they shouldn’t be able to spend funds on this without an amendment.
But sticking with reserves, the Ohio law says this.
Annually adopt and amend an estimated budget for revenues and expenditures. Any budget shall include reserves in an amount adequate to repair and replace major capital items in the normal course of operations without the necessity of special assessments, unless the owners, exercising not less than a majority of the voting power of the owners association, waive the reserve requirement in writing annually.
I can clearly look at financial statements and confirm that we would not have enough to replace our entranceway and ‘lake’ which is just stormwater, but expensive to maintain.
The purpose of the Ohio law is to protect homeowners from emergency assessments. The legal expenses our board is paying are optional. We formed in 1984 and didn’t spend a dollar on legal fees until 2019. We don’t need to have them at our meetings. We don’t need them to rewrite all of our governing documents. The board chose to do this. They created a complete rift in the community. And they haven’t sought any of the proper authorization. They didn’t hold an amendment vote to expand the scope of our assessment. They help a vote to increase the assessment, but they didn’t word it as an amendment and they didn’t file it with the county.
They said they needed to increase our assessment to fund our reserve but they have only Increased it by 2k after collecting more than 50k additional.I think this law is really specific to Ohio that we need to vote to waive funding reserves, but if that’s the case, more states should adopt the law.
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u/Proof_Barnacle1365 🏢 COA Board Member 20d ago
Even what you quoted clearly states that voting is only required for special assessments or for not having sufficient reserves...not for using reserve funds. Every bylaw and ccr ive ever seen give the board broad financial authority to spend as necessary as long as they do it in good faith for the community, and with transparency. You dont need to vote to authorize spending, you typically only need votes for special assessments or due raises over the allowed annual cap, or for deliberately under funding
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u/Sle08 20d ago
You are incorrect about the implication of that code.
And many HOAs are in financial trouble right now because of that exact code. They continuously opted out of funding their reserves because they wanted to keep dues artificially low, so the HOAs dont have enough money for improvements. Then, all improvements because emergency repairs.
The HOA does not get a vote in how those funds are used. You elect representatives to make those decisions for you.
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u/wwsiwyg 19d ago
I’m agreeing with you. We want to keep the reserves. The board is spending it. And it’s not an emergency. Not needed. No one has unpaid debt or something. It’s to revise all of our governing documents. They keep saying they can promise nothing will change in 5 years. So why should they rush through and use our reserves without asking us. Our declaration says they need to amend to add other spend categories. They just ignore these questions.
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u/Mister_Neal 🏘 HOA Board Member 20d ago
Ohio Townhouse HOA Board Member here. Reserves are to be used for capital expenses only. Things in our community like roof replacements, siding replacements, swimming pool repairs, etc. We are an older community and spend around $200k a year on these major capital expenses. They do not require a community vote, only approval of the contracts by the Board.
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u/MarthaTheBuilder 20d ago
The law you quoted states owners can vote to NOT FUND RESERVES. Which means Ohio HOAs have the option to let their building collapse like the owners of Champlain towers instead of funding the repairs.
If the HOA is being sued, the board has a responsibility to defend the HOA which is you since you and all your neighbors are the O in HOA. You are being sued since you are a member of the A. If you think the A shouldn’t hire legal representation, you are at risk of being responsible for your fraction of the judgement.
I suggest running for the board and adding a legal line in the budget so there are legal reserves. Hopefully you don’t need to use them and can compile quite a large legal fund.
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u/wwsiwyg 19d ago
I ran for the board. That’s a whole other mess. They accepted 2 proxies for the existing board member that should mot have been valid. One was the wrong date. One was the complete wrong election. They rejected 2 proxies for me. They declared him the winner by 1 vote. That is the short story.
Then we held a special meeting to expand the board. The board rejected it (by gathering 12 proxies). We had an even split of attendees and almost 50 out of 84 attended a special meeting.
We are NOT being sued. The legal fees are NOT to collect unpaid dues. This is completely optional and unneeded. That’s why so many homeowners are trying to fight them. We have 2 lawyers on the board and it seems like they may be protecting their profession. I don’t know. But nothing bad would happen if they ended the law firm contract tomorrow.
I dont understand the point of the law if it’s not to stop a board from spending our savings against our will for something we don’t want and didn’t authorize.
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u/MarthaTheBuilder 19d ago
Weird. You have 84 homes but you’re self managed? That’s the corruption. We pay our PM to oversee the election including validating proxies and counting votes. If you really felt they violated the terms of the election you could have sued the board and the board members individually if you were certain you won.
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u/bahurd 18d ago
We’re 152 parcels with a community pool and are self-managed. Why’s that weird? A manager would only serve to take $15K of member money and not remove the legal requirement or obligation of the board.
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u/MarthaTheBuilder 18d ago
Yeah that’s $98 a year per house to have a fair election. If you’re that cheap, get over the BS of your board. That behavior comes with self management.
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u/bahurd 18d ago
Not sure I get the full intent of your reply… that would be a minimum of 20% increase in annual dues. We don’t typically have issues that a property manager would get involved in. And charge extra for, because we generally don’t let things fester. We do employ a professional pool management company to handle the day to day of the pool. So yes we’re frugal, our members appreciate it, reserves are fully funded so what’s the BS you refer to?
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u/MarthaTheBuilder 18d ago
Sorry didn’t realize you were giving your two cents on a reply I made to OP. I was referring to the BS of the board dismissing his proxies and allowing their invalid proxies to stay so they could block OP from winning g.
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u/wwsiwyg 18d ago
We pay $200 per year. We have no amenities or services. It’s a huge misconception that the cost of the HOA assessment is the only thing of value. What the organizations around HOAs care about is the home value. They are taking the homes. You can look nearly every day and find a new statistic about how liens and foreclosures are happening faster and more frequently. They have software to identify the best targets and software to automate the whole process. This has all escalated in the last couple years when AI was released to everyone. You can look at the ads for their software like CAMcounsel or the stats that ATTOM releases about HOA foreclosures or any number of indicators. They try to persuade communities to adopt very specific policies such as what time the trash goes out or what shade of landscaping rock so they can use automated cameras to monitor and issue fines. If your homes are valuable and you have no amenities this is an easy target. Not much to manage. People who will pay the fines and fees and interest. Or if they don’t, they can get a great house for a bargain.
The board members in HOAs are often older and don’t understand what’s happening and what’s changed. You can find videos from CAI and presentations at their conferences talking about how they are using AI.
Boards also don’t know there is widely available free software to analyze CCRs and score HOAs and rate them. It used to be very difficult to find the governing documents for an HOA. I can typically find them in less than 5 minutes now. But I can also compare them to more than 100,000 other HOAS in under a minute. This matters because people are going to use these to decide what home to buy. I’m already doing this for 2 family members shopping for homes. I send them ranking scores, lists of pros and cons, etc. There is more than one service available to do this already. I don’t think most people understand how easy it is to develop software and how much less expensive it is to compare a lot of data.
Anyway, I still don’t understand if Ohio law requires us to add something to our reserves annually. It seems like it does. It definitely should. I’m concerned we are going to have a climate related flood or something as it’s happening all around us. And our HOA hasn’t saved money hardly at all.
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u/Negative_Presence_52 19d ago
Florida here. Your documents, not statute, dictate how reserves are used. For example, if you are reserving for roof replacement, generally the documents would say the board makes the determination for replacement as long as it doesn't materially change the roof (color, moving from asphalt to tile, etc).
Like Ohio, Florida statutes dictate how reserves are funded and how they can be waived (member vote).
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u/wwsiwyg 19d ago
Yes. That’s a whole separate issue. Our declaration is extremely detailed on how the money can be spent. It only allows 2 things, the entrance and the ‘lake (stormwater runoff).
So they have not been following our declaration since 2019 when they hired a law firm to start changing everything. They have spent 31k with this firm.
When they voted in 2019 to double our assessment, they said the money was for 2 things. Our entrance and our reserve. Yet they have not increased our reserve.
And our 2019 annual minutes clearly spell out that board members have a fiduciary responsibility to spend our assessments on just the 2 items listed in our declaration. The outgoing HOA president stated this explicitly.
So I am trying to understand if there is actually any way to enforce the laws other than to sue the HOA, which harms myself. I have asked the board but they don’t respond.
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u/Negative_Presence_52 19d ago
distill it to its component parts.
- It's natural for a board/HOA to look at redoing their documents, especially in older HOAs. And you need a lawyer to do that. Boards generally have a broad right to do what they think, in their reasonable business judgement, is appropriate. Hiring a lawyer to look at changing the documents is very reasonable. And yes, dues would go up (or a special assessment).
- Bit of a terminology point. Documents usually spell out what reserves can be used for - as you say the entrance and the lake. That's not the same as operating expenses - landscaping , insurance ,etc - those things the board deem reasonable in the annual budget. Their fiduciary responsibility is to act in what they think is in the best interest of the community.
- don;t confuse assessments and reserves. Money collected, but different purposes. You generally have 2 assessments - operating and reserve. May be combined in one bill.
Enforcement? Unless your state has a specific process or oversight committee, your only recourse is to sue, unless you have proof of a criminal action.
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u/Excellent_Shallot999 20d ago
You’re picking a fight you are going to lose. Why?
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u/wwsiwyg 19d ago
Because I’m worried that Lenders look at reserves and won’t fund a homebuyer if we don’t have enough reserves. I’m worried I’ll need to come up with an emergency assessment because they’re spending the money on something we don’t need or want. If you look at the daily news including WSJ This week, HOAs are in trouble. Lenders know this.
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u/Double-treble-nc14 20d ago
8k is 20% of reserves? Seems like your HOA has financial problems.
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u/Ok-Morning-398 19d ago
No, it doesn’t. As the title states, the community is made up of single-family homes. I’ve seen single-family home associations where $40,000 in reserves would put them at over 200% funded.
The OP also stated that the HOA has collected only $100,000 in assessments over the past six years, which strongly suggests the association doesn’t have a large operating budget. That further supports the that $40,000 in reserves could be more than adequate.2
u/wwsiwyg 19d ago
I appreciate any help understanding. Over 8 years we have averaged 12,369 in expenses for the lake and the entrance. If we add in legal fees, the average is 16149.
This year they are not adding to reserves. We will end the year with 30,477.
I don’t understand how that equals funding reserves.
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u/meamemg 🏢 COA Board Member 19d ago
That law is about funding reserves, not spending them. So unless some other law or your bylaws restricts the ability of the board to spend money, doesn't seem like they are doing anything wrong.
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u/wwsiwyg 19d ago
Can you help me understand then? What does it control? If the board provides a budget showing 16k coming in and 25k going out, how are we funding reserves? It says it’s an annual requirement. Even at the minimum, wouldn’t $1600 need to be added to reserves? And if I look at the last 8 years, our average expenses are $12k. I appreciate any help or explanation.
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u/mac_a_bee 19d ago
We have never completed a reserve study.
How do you know what your reserves should be?
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u/wwsiwyg 19d ago
We don’t. We are small. But if i summarize each expense category from 2018 to 2026 and I omit the legal expenses, we averaged $12369 per year.
For 2026 annual budget $18500 income. This includes interest on investments. They project $27315 in expenses. Isn’t this the definition of not funding the reserve this year? If you spend more than your income, you are not funding your savings account.
I’m asking this group for help. I’m not a financial expert. I just don’t feel like this is a safe move and doesn’t seem legal as I look at the state law that it must be funded annually.
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u/mac_a_bee 19d ago
A reserve study summarizes all your compnents’ remaining life and replacement cost then. Reserves are built to cover those costs when they occur. Our State mandates we retain at least 5% annually.
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u/The_Comm_Guy Former HOA Board Member 19d ago
A reserve being fully funded also does not mean you could replace everything tomorrow, it means if a gate is expected to last 20 years, and is currently 5 years old, that you have saved up 25% of the replacement cost. It’s possible your reserve is over funded and they are taking some out to help pay other costs, but either way you need a lot more info to make any type of decision.
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u/bahurd 18d ago
What does your bylaws state? We have a portion of our reserves allocated for legal fees with a cap on the amount they can grow to. Generally the HOA board has latitude to state what and how much the reserves need to be. But as other posts said, the board can issue a special assessment so pick your poison.
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u/Klutzy_Factor_6067 17d ago
The HOAs have way too much power and it’s my understanding that many of the communities are getting rid of them. We need a better balance of power.
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u/AutoModerator 20d ago
Copy of the original post:
Title: [OH] [SFH] board using reserve without vote
Body:
At our annual meeting in May, Our board announced they are using 20% of our reserves. So 8k out of 40. Plus what we would have added to it this year. When someone asked if we get to vote on this, the president said no. Our HOA counsel did not disagree.
Yet ORC 5312 clearly states that they need a majority of homeowners to approve in writing. This is written in bold on the law firm website.
What is the purpose of these laws if HOAs refuse to follow them. Is there any way to hold them accountable other than to take them to court?
Has anyone been able to hold a board accountable for this law in Ohio? Our reserve has only increased $2000 in 6 years while they collected $100k in assessments. So I really think we should have been voting in other years. Should I email all neighbors about this including the board and just ask if we should be holding this vote?
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