Tuscany Bay HOA

The Force Behind the Budget: Maintaining Community Quality

by Kathy Danforth

Tuscany Bay of Boynton Beach, approaching their tenth anniversary, is also celebrating the honor of being named a Community of Excellence winner for Financial Innovation in the smaller communities division. This association of 395 homes has vigorously tackled collections as well as cost-cutting to keep their community services and appearance flourishing even during the economic downturn.

Stephen Kirschner, current Board Treasurer and a past Board President, has owned his home in the community since its initial development, and says, “One of the advantages we have is that we were built when the first buyers were paying a reasonable price. Most of the original residents did not buy at the peak, and my house is probably back to what I paid for it. On the other hand, most of the people who bought residences in 2007 and 2008 were more impacted.” Kirschner works in the CPA field, auditing and reviewing financial documents for associations, and comments, “I’ve seen communities where a third or more of the houses were in delinquency.” Kirschner estimates that their community has not experienced delinquency rates over 10 percent at any time.

“We don’t have massive debt, and we’re on top of it,” Kirschner states. “We don’t like to be aggressive with those in trouble, but as soon as something becomes an issue, we move quickly. If somebody comes to us and says they have a problem, we try to work things out. Everybody’s a neighbor, but they have an obligation to carry their weight with everybody else.”

The association’s current collections policy was formalized six or seven years ago. Kirschner explains, “Originally the developer set maintenance fees due on the first of the month, becoming delinquent on the first of the following month. We changed the documents so that fees are delinquent on the fifteenth of the month they are first due, so the property manager sends a delinquency notice on the sixteenth. That extra 15 days really accelerates things so you know when you have a problem. And human nature being what it is, with a technical requirement to pay by the thirty-first, some people would wait because they felt like it. This moved cash flow up by two weeks and you could address it rather than wait.”

“At the end of the month, delinquent accounts go to the attorney,” Kirschner says. “If someone wants to work the system as a resident, they can drag this out. That’s why we have to do things as quickly as we do.” The association also has added a monthly administration fee of $25 per month for late payment, where they had previously only had an interest fee of 18 percent per year. “That little bit makes a difference,” Kirschner reports. “At $25 per shot, if they’re three months delinquent, it’s $75. It’s an incentive.”

The association changed their position on waiting for banks to proceed with foreclosure about three years ago. “The critical issue as I see it is that the banks have no real incentive to foreclose,” Kirschner observes. “Our attorney told us we’re behind the bank because they’re the senior creditor. We now have taken one property and are renting it out. In the interim, while we’re waiting for the bank to proceed, we’re collecting rent.”

“We have several properties currently in this process,” Kirschner notes. “We’ve learned with other communities that once the bank decides to do something, it’s still at least six to nine months before they take title.” Another issue they have encountered is dealing with neglected units. Kirschner points out, “If you have a property in disrepair, do you want to take it if it would cost $10,000–$15,000 to fix for rental? A recommendation by a real estate agent was that you have more leverage if you take title, even if you don’t rent it. This has been a learning process!”

Another avenue Tuscany Bay considers is pursuing recovery of funds from assets other than the property. “We will do a search and go after other assets if necessary,” according to Kirschner. “Usually, it’s not much of an issue because most people who are underwater with their house are either good citizens and pay their bills or they really don’t have outside assets. If you see fancy cars and they have other property, you may find everything’s in a shell corporation. But, you’ve got few enough bullets in your gun that you want to use whatever you’ve got.”

Background checks for new owners have always been a requirement for the community. Though it would be difficult to turn down an applicant without clear cause, it still works as a screening process. “The fee is paid by the applicant, so if they’re not confident they will pass, they’re likely to back out,” Kirschner observes.

An initial capital assessment fee for new association residents has been instituted to replace the clubhouse fee originally charged by the developer before the clubhouse was turned over to the association. This generates additional revenue, and Kirschner does not feel that it has deterred sales in their community.

Though communities may disagree on the practice, Tuscany Bay will negotiate to lower back fees for short sales. “The buyer has to come to us to negotiate, and typically they’re getting somewhat of a bargain,” Kirschner remarks. “If they owe $7,000 to $8,000, we’ll usually reasonably discount what’s owed. We don’t want to interfere with the sale since we’ll be getting a new payer, and it’s more than what the bank would pay (at one year of fees or one percent of mortgage.)

The association will also work out payment plans if residents request that. “As long as they pay something and the balance is going down, we’re happy!” Kirschner notes. “Money is better than legal remedies.”

Spending is the other side of the equation and here, their commitment is to quality service at the best price. Kirschner emphasizes, “Tuscany Bay believes that elimination of services, merely to reduce costs, creates negative effects on quality of life and the resale value of homes.” While the community seeks to save money, that is not the ultimate goal.

Payments to vendors constitute most of expenses and afford the most opportunity for savings. “We have a clause for 60-day cancellation for no cause in almost all of our contracts,” Kirschner explains. “It’s good that you’re not married to your contractors so you can shop for better prices or better service. In this bad economy, people will be cooperative to get or keep your business.”

Landscaping, as the largest contract, has probably provided the biggest savings. Though they stayed with the same contractor, prices were not increased for the next three-year term. “We changed security companies and got a better product for less money,” Kirschner reports. Lake maintenance and pool and fountain maintenance costs have been lowered, and their exterior painting has been negotiated to be redone in six years for the same price. Additionally, contract periods have been shifted to coincide with the association’s budgeting timetable.

Staff positions have been eliminated and consolidated for efficiency. These are provided by the management company on a fixed-fee basis rather than “cost plus,” with annual increases included.

At the same time, Kirschner points out, “We’re not afraid to spend money. We checked with several vendors and signed a seven-year contract with Comcast at a substantial increase but with additional services. Most homeowners were buying the services like HBO, high definition, and DVR and paying around $65 per month at retail, while maintenance fees just went up less than $15 per month to cover it. Some with just a TV weren’t thrilled at the expense, but you have to do what’s best for the community. We formed a technology committee and some people on it didn’t use any of the services, but they understood how it was better for the community and unanimously recommended it.” In addition, the community hired a consultant to navigate the process. “She advised us that if we put it to a homeowner vote, it would just substantially complicate the process, and it was not legally required. There was full disclosure and involvement, but this is representative government.”

An audit by FP&L produced recommendations for energy savings. “We put motion sensors in rooms that are infrequently used so lights would go off when they are not in use. We’ve installed CFL bulbs, turn the entrance fountains off at 11:00 P.M., and turn off the exterior clubhouse lights at midnight,” Kirschner relates. “Entryway and street lights are left on, but we are doing a study on security aspects of lighting, which may affect our plans.”

The community has solicited additional advertising to help defray costs of the bimonthly newsletter. Up to half the cost is covered by ads, helping to avoid maintenance fee increases.

In addition to standard reserves, Tuscany Bay maintains a capital improvement reserve fund. “At one point, maintenance costs decreased so we started setting $40,000 per year aside for projects not covered by reserves,” Kirschner explains. “If it’s not a repair or replacement—if it’s an expansion—then this fund will cover it.” Thus far, the fund has been used to install a recharge well to keep lake levels up for aesthetic reasons and to avoid mud intake in the pumps from low water levels. “Another possible project is expanding the clubhouse, since we moved the air conditioning units inside and reduced the available space.”

The community’s financial information is available to all, though Kirschner reports there is not a high level of interest since all is going smoothly. “Each month I take the 15 to 20 page report and make it available on an Excel spreadsheet so there’s disclosure and transparency,” Kirschner states. Outside auditors provide an additional level of accountability annually. But, while no one except committee members come to the monthly financial committee meetings, Kirschner projects, “If we have to raise maintenance fees, they’ll come. We’ve been able to control our maintenance generally. People say being on the board is a thankless job, but it’s not thankless when you have a community that appreciates you. The minute we say we have collection or expense problems and we have to increase our fees, we’ll no longer be the nice kid in town. Our franchise may run out, but that’s life.”

Tuscany Bay has oversight and procedures designed to stay on top of collections and expenses, so the board may maintain most-favored status into the future. Meanwhile, Kirschner will enjoy the fruit of submitting the winning entry for his community: “We get an ego boost, and I get a year off because I can’t enter this category next year!”