Running an HOA is similar to running a business. It involves aspects of finance, communication, and management. One of the most important of these is risk management for HOA.
A Guide to Risk Management for HOA
Is risk management a priority for your homeowners association management? If you’re not sure, it’s time to start accessing the best way to prepare for any possible disasters. Whether that means developing your own HOA risk management plan or delegating the planning to a management company, it’s important to spend some time thinking about your association’s future.
With a proper risk management plan, you can reduce the chance of loss or disaster in your community. Adhering to certain risk management standards ensures your association is protected at all times. If you don’t know where to begin, here’s your guide to risk management for homeowners associations.
Step 1: Pinpoint Possible Risks
You’ll want to consider and be prepared for any risks, both obvious and expected. That could include fraud or crime within the association, lost contracts, natural disasters, or conflicts within the community. Here are the most common areas of risk management for HOA:
Natural disasters and property damage both fall under property risk. When a hurricane strikes or flooding occurs, your association must be prepared.
Similarly, HOA facilities and amenities must remain in tiptop shape. If not, homeowners may get injured.
For instance, when playground equipment isn’t properly maintained, children can get hurt. Parents can then claim negligence and sue the association or individual board members.
The same can be said for improperly maintained pools, gyms, and clubhouses. After all, board members have a legal responsibility to keep the community safe.
A good way to avoid property risk is to perform thorough inspections. When inspecting the community pool, for example, make sure to check for everything. This includes the tiling, chlorine content, and the surrounding areas. See to it that there are no cracks on pavements or slippery surfaces. For inspections, it’s a good idea to hire a professional to do it on a regular basis.
2. Homeowner Disputes
Disagreements between neighbors are more common than you think, so your HOA must be prepared. A small argument could escalate into something uncontrollable. Before you know it, the police become involved or both parties are already suing each other.
Out of all neighbor disputes, the most frequent complaint has to do with noise. Problems with pets take second and child complaints follow in third. The fourth most common cause of dispute between neighbors is home and property appearance.
Most of these disputes come from a place of ignorance. More often than not, it’s because a resident isn’t all that familiar with the rules and regulations of the HOA. To counteract this, make sure every homeowner is well-informed. If your board has come up with a new rule or altered an existing one, update everyone.
Disputes can also arise between contractors and the HOA board. Oftentimes, these disputes occur as a result of building defects. When a contractor has failed to do their part well, the HOA will naturally react negatively. Heated disputes can escalate quickly, becoming a risk to the association. Additionally, any employees or vendors working under the association who behave badly are also risks.
4. Net Income
The net income of the HOA can also be threatened. As mentioned previously, a homeowners association is similar to a business in many ways. Both rely on revenue to operate. When revenue decreases or expenses increase, the HOA is at risk of loss. There is an even higher level of risk when members of the HOA board have no experience or expertise in finance.
Managing net income risk is tricky. You must ensure revenue doesn’t decrease. And, since revenue comes from HOA fees, it’s imperative to collect them from homeowners regularly. You can either invest in a collection agency or partner with an HOA management company with collection services. The latter has an edge over the former in that management companies usually have staff members who know how to handle finances well.
If you have a relatively modern HOA, there’s a good chance you digitize everything — from resident information to financial documentation.
While a digital system is certainly convenient, it also comes with its fair share of risks. Although unlikely, your HOA could face a cyber attack in the form of hacking.
This is particularly dangerous for your association since important and sensitive documents are stored there.
To protect yourself from this, make sure to place a good amount of focus on cybersecurity. That means putting up firewalls and password-protecting everything. Don’t use a password that anyone can easily guess. Go with special characters and unconventional spellings. Also, make sure not to use a master password for everything or reuse the same password.
Furthermore, you and your fellow board members mustn’t share any of this information with unauthorized or untrusted contacts. Set up a spam filter for your emails and make sure not to click on any suspicious links. It’s also a good idea to invest in antivirus software.
Finally, since everything is in digital form, remember to back up your files to an external hard drive. Alternatively, you can also partner with a cloud provider with reputable security measures.
6. Social Media
Social media has become a medium of communication for most HOAs. It’s a way to disseminate information and updates fast and without much effort. However, it also opens up your association and board to risks and liabilities.
Before setting up a social media platform for your HOA, make sure to create a social media policy. Set ground rules that everyone must follow, such as what they can and can’t post. Stay away from personal posts. Stick to the facts like meeting dates, road closures, and event information.
Step 2: Evaluate Risk Severity
Once you’ve considered all possible risks associated with your community, rate each one by how likely it is to happen. This way, you can know which ones are the biggest priorities to address. After evaluating each risk, it’s time to move on to the next and final step.
Step 3: Develop a Plan
Consider each area you have listed that could go wrong and have your board determine a plan for protecting yourselves from it and/or recovering from it.
If you already have a plan or protection in place, make sure each board member understands how it works. Although some will be more simple than others, such as having plans for backup if something happens to a board member, it’s important to consider each risk and know what actions will be taken if needed.
However, to spend this time most efficiently, it’s a good idea to focus on the higher risks first. That way, if time is very limited, you can work on the lower risk disasters later. It’s most important to reduce the highest vulnerabilities at the get-go.
Community Risk Management Is Key
Risk management is extremely important when running a homeowners association. This process should be repeated and your list amended in a board meeting each year. Not only will it protect you from legal or personal nightmares if you’re left unprepared, but it can also strengthen homeowner confidence in your association and lead to better relationship building.
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