What if . . .

Has each member of our Board of Directors considered that potential purchasers of property might turn away from a community such as Big Canoe with such an outrageous level of debt? That is the question just recently posed to the board with the President responding that “all involved determined it was in the best interest of owners both present and future.” Maybe, but not actually.

Instead, as suggested in an article found on the Community Associations Institute website at https://www.caionline.org/HomeownerLeaders/Association%20Governance%20Mgmt/Reserves%202.pdf , future purchasers might not only be reluctant to invest in a community that is in debt but also a community with inadequate reserve funding. Unfortunately, Big Canoe fits both descriptions.

Seriously. This is a powerful question, and one that leadership can not afford to get wrong, because once the association becomes $15-20 million in debt, there will be no turning back. The decision to incur this level of debt albeit well intentioned could be a mistake that can not easily be undone.

Disregarding leadership’s arguably questionable interpretation of data taken from a recent community survey, perhaps it would have been wiser and more appropriate to have put the issue to a property owner vote rather than rely on the affirmative vote of only six.

Next we must ask ourselves, how will these additional funds be used?. . .

• • For example, a recent ITG article, ( https://www.insidethegates.org/2022/02/16/message-poa-board-president-securing-access-funds-big-canoes-future/ ) infers that funds might be used to finance priorities of the community such as a postal facility solution, yet the 2021 Master Plan “Reserve Management Plan” does not anticipate replacement until 2029 long after the conclusion of the three year draw period.

• • Similarly, the board would not confirm or deny it’s intention to renovate the Choctaw and Cherokee nines in 2023 and 2025 as per information provided to several golf publications (https://www.golfcourseindustry.com/article/big-canoe-georgia-capillary-bunkers/ ) nor it’s plans to use the additional debt to fund those two projects. (Note: If classified as a renovation such as Creek nine, these projects would not require property owner approval.)

And other than the apparent refinancing of the current debt ($4.8 million), the proposal lacks any specificity. One must also wonder if the ongoing principal reductions to that debt will be deferred during the three year draw period, thereby creating another $1 million plus in available cash each of those years to management and the board to be used for unspecified purposes.

And then there’s Lake Petit Dam . . .

Without debating further, it might be assumed that the additional debt is a foregone conclusion that can not be stopped.

If so, should not leadership at least, at a minimum, refrain from drawing on the line until all Lake Petit Dam repairs are permitted, bid and completed to ensure the total cost and any unforeseen contingencies have been covered?  Isn’t that dam this community’s number one priority?

It would be truly disastrous for leadership to prematurely max out the credit line only to learn that expenses for the Lake Petit Dam repairs have escalated without any funds set aside or frozen for that project.

And why are we even where we are today?. . .

Aside from the clearly documented list of broken promises, the root cause of those betrayals and the current quest for additional financing squarely lies in leadership’s failure to fund and maintain an adequate reserve fund. In fact, despite numerous assessment increases, no funds (other than interest) have been deposited to the Restricted Capital Reserve Fund since 2016. And by the way, lest there be any future confusion, that account has now been confirmed by the 2022 Board of Directors as the designated “Reserve Fund” for Big Canoe.

Further, as also confirmed, the board currently plans for the “Reserve Fund” to simply “remain intact”.

Had we as a community followed the plan in previous studies and continued to fund the reserve, the level of debt needed by the association would have certainly been mitigated if even needed at all, and the repairs to Lake Petit dam would be in our rear view mirror.

Unresolved legal questions and leadership’s authority . . .

It does seem these posts go on and on about many of the same issues. And perhaps, it might be foolish to evermore bring up concerns that will be ignored and never addressed.

However, two ongoing questions (directly related to capital funding and the additional debt) must be revisited to determine if leadership may have inadvertently overstepped their limits of authority or breached their fiduciary duty.

(1)

• • First, as an advocate for the appropriate funding of our reserves, (1) it is the opinion of this writer as well as some in the legal community that the 2010 amendment to the Declaration of Covenants at Article XIII mandates that the balance in the “Reserve Fund” remain consistent with the projected balance requirements found in the reserve studies. Compliance with this mandate would obviously require that deposits be made to the fund many if not most years.

The requirements of this amendment are not being followed due to differences of opinion, conflicting legal interpretations, misunderstanding of the meaning or simple disregard for the covenant as written and approved by the property owners. This legal question should be resolved.

For that matter, even if not required by statute, fiduciary duty of the directors would demand it as illustrated in the following article by Peter Miller at: https://millerdodson.com/reserve-studies/reserve-studies-for-homeowners-associations/ which opines that “When considering Reserve funding, ignoring a large and important part of the association’s annual budget will not meet the standard of judgment applied here, and therefore Board Members could be held liable for their failure to act as a Breach of Fiduciary Duty.”

(2)

• • And next, it must be determined if the “capital assessment” recently increased from $25 to $40 should have been classified as a “special assessment” requiring property owner approval?

Although the assessment was initiated in 2020, there is no citation in the Declaration of Covenants that grants the board the authority to levy a “capital assessment”. Instead, the declaration authorizes only annual/regular assessments or special assessments. Note: Special assessments which require property owner approval are in addition to the regular assessments and are used to defray “in whole or in part the costs of any construction or reconstruction, unexpected maintenance or repair and replacement of the Common Properties and capital improvements thereon.”

Given that definition found within the declaration, although leadership disagrees, one can reasonably conclude that the $40 capital assessment is in fact a “special assessment” requiring property owner approval.

What if?. . .

If, in fact, the above interpretations hold true, we as property owners would once again find ourselves in control of our destiny, and that really is as it should be. Isn’t that one of the reasons many of us moved to a community with protective covenants? Surely, these governing documents were not designed to leave property owners completely powerless.

Consider this. Would leadership really be seeking a $15-20 million credit facility if they could not guarantee the assessment/revenue stream used for repayment? Doubtful. And would the association even need an additional credit facility if they had appropriately funded the Restricted Capital Reserve Fund? Maybe not.

So what are the options?. . .

So how can these issues and/or other issues ever be resolved with a leadership believing it always knows best? First, for those property owners that may be opposed to leadership’s current direction, it is important to recognize that there are solutions and options, many of which have already been suggested by others. That is how balance is achieved.

Obviously, we could acquiesce or do nothing – the path of least resistance which has led us to this place in time. Or, we could move as has often been suggested to this writer. 

Or instead, as a community we could choose to become proactive:

• • Explore a unified front by reforming the dismantled HOA.

  • Pool resources to obtain an independent legal opinion or interpretation of these and/or other issues.

  • Call a meeting of the members to protest recent decisions by leadership. (For example, revisions to Policy 152/153)

  • Formulate petitions stating our opposition, obtain signatures and present to leadership.

  • Secure signatures to remove all or some members of the board as was briefly organized in 2020 by several other property owners.

Finally, it is important to note that this writer is not necessarily promoting any one of the above, but instead, seeking to emphasize that there are choices, options and solutions all with varying degrees of merit and difficulty. Otherwise, acquiesce and issues will remain unresolved. 

. . . . .

With close to 4,000 views of the last three posts alone and still counting, your readership is appreciated.  That said, please feel free to post opinions, comments or solutions below or contact me at thepcrosses@gmail.com for questions or further discussion.

Meanwhile, take care and stay safe. 

Patricia Cross (10438 Big Canoe)

References:

1) “Time to talk about our Capital Reserve Fund”, November 18^th, 2020, bcmatters.org, https://bcmatters.org/time-to-talk-about-our-capital-reserve-fund/