I pray the South Carolina Attorney General will find the Barefoot Resort Joint Committee does not act or conduct themselves in accordance with its charter rights, privileges, and State law.

I pray for dissolution of Barefoot Resort Joint Committee, Inc.

WHEREAS, Silver Carolina assigned all rights for Barefoot Resort Residential Properties to Wachovia Bank as collateral security, dated April 13, 2000 and recorded in Deed Book 2251, Page 506, of the Office of the Register of Deeds of Horry County.

WHEREAS, Silver Carolina was found in default with Wachovia Bank in the Horry County Fifteenth Judicial Circuit Case 2001CP2606256 “ Bank Wachovia Bank Na VS Samuel W Puglia, defendant, et al” on December 12, 2001.

WHEREAS, Centex Homes, the Project Owner for Barefoot Resort Residential Properties, assigned all rights to Silver Carolina as collateral security on behalf of Wachovia Bank, successor to Silver Carolina, recorded December 14, 2001 in Deed Book 2435, page 420 of the Office of the Register of Deeds of Horry County.

WHEREAS, Wachovia Bank, successor to Silver Carolina, terminated the collateral assignment with Silver Carolina, leaving all rights to Centex Homes, recorded June 20, 2003 in Deed book 2609, page 630 of the Office of the Register of Deeds of Horry County.

WHEREAS, Centex Homes, successor to Silver Carolina for Barefoot Resort Residential Properties, terminated its declarant control leaving all rights to the Barefoot Resort Residential Owners Association, Inc., recorded December 1, 2011 in Deed Book 3554, page 3217 of the Office of the Register of Deeds of Horry County.

THEREFORE, Barefoot Resort Residential Owners Association (BRRA) has been legal successor to Silver Carolina over the Barefoot Resort Residential Properties since December 2011. All legal transactions involving the BRRA or BRRA properties require approval by BRRA recorded in the transaction.

1% Transfer Fee Covenant

• BRRA governing documents decree a 1% transfer fee covenant “for such purposes as the Board of Directors of the Association deems beneficial”. Some examples are suggested, but without limitations.
• This is a revenue stream that the Association has no direct control over. All we can do is spend it “to the general good and welfare of the Association and its Members”.
• The BRRA is fortunate to have this source of assessment free funding available for the betterment of our community.
• South Carolina prohibited adoption of any new transfer fee covenants in February 2012, but existing transfer fee covenants were permitted to continue. The BRRA has been permitted and is a heritage HOA in this regard.

1% Fund Asset Balance

• Average around $50K/month ($1700/day)
• Increasing at 8-9% per year.

1% Fund forecast

• Forecasted income and expenses based on averages.
• Includes $1,780,000 for design and construction of Beach Cabana (not including permits and minor professional services expenses).

CC&R § 8.13 Purpose of Transfer Fee (3^rd Amendment 12/14/2001)

All transfer fees collected pursuant to this Article shall be deposited into a segregated account to be used for such purposes as the Board of Directors of the Association deems beneficial to the general good and welfare of the Association and its Members. By way of example and not limitation, such transfer fees might be used to help fund:

• i) Acquisition of additional Common Areas and Areas of Common Responsibility, as well as the improvement to and expansion of existing Common Areas and Areas of Common Responsibility;
• ii) Sponsorship of programs and activities that contribute to the overall betterment of the Owners, and/or to their enjoyment, understanding, appreciation and preservation of the Property;
• iii) Programs and activities that serve to market and promote the community, specifically including, but not limited to, any voluntary marketing co-op;
• iv) Programs and activities which serve to promote a sense of community within the Property, such as recreational leagues, historical or cultural programs, educational programs, festivals and holiday celebrations and activities, a community computer network, and recycling programs;
• v) Social services, community outreach programs, and other charitable causes; and vi) Such other undertakings, activities and programs as shall, in the Board’s reasonable judgment, promote or enhance the Property, the Units therein and/or the experience of the Owners thereof.

Nothing herein shall be construed to require that the funds so collected be applied to reduce any Assessment levied hereunder, nor shall anything herein be construed as to prohibit same.

“All transfer fees collected pursuant to this Article shall be deposited into a segregated account…”.

• Transfer fees are being deposited into the BRRA General Operating Account (sub-account 000).
• I move a 1% Fund sub-account be established to separate the 1% fund reporting from the general Operating Fund and have this 1% sub-account report the “Marketing Fee” income.

1% Fund Budgeting

A sub-account needs a budget.

I move a working group be formed to propose 1% fund expenses at the May 2019 BRRA meeting.

• 1% Financial Asset Management Service expenses.
• Open meeting expenses.
• Web Site expenses.
• Teleconferencing infrastructure expenses.

I imagine there are a number of expenses that meet the criteria of benefit “to the general good and welfare of the Association and its Members”.

This could make a significant contribution to lowering the BRRA Member Assessment.

Strategic Planning Project Expenses

I move the Strategic Planning Committee be tasked with planning the 1% Fund 2020 budget for strategic project purposes.

Board approved projects established by the Strategic Planning Committee.

• Cabana

Ideas:

• Berm and Landscaping to conceal the hideous Vermex disaster.
• Professional Services for the management and update of BRRA Governing Documents.

As one of your BRRA Directors, it feels good to boost BRRA member morale with social activities and small charitable donations, but it’s considered bad practice for an HOA to fund these expenses using the member assessments. Member assessments are intended only for costs related to the management and maintenance of the common areas which includes landscaping, fountains, neighborhood monuments, and amenities (like the beach cabana).

Social activities and cash charitable donations are driving up the member dues. While this expense is small, it does add up.

My scruples no longer allow me to support use of member dues for these purposes.

I am saddened by this decision, but it’s the right thing to do. It feels good to contribute to the enjoyment of BRRA membership, but it’s wrong to use the assessments for this purpose.

I have read about an HOA that has a separate source of money precisely for this purpose. The separate money is distinct and can be spent on feel-good activities without risking controversy. Now that sounds like a community where everybody wins!

I want to live in a community like that!

The HOA I read about has a special fee on property transfers that provides revenue totally separate from member assessments. The BRRA has just such a property transfer fee (the 1% fee), so we have the revenue tool to become like the community I read about.

The HOA I read about has a segregated account for the special money. The BRRA doesn’t. It reports the 1% transfer fee income in the same “unspecified” account along with all the member dues.

The BRRA should change this for several reasons:

1. It’s a best bookkeeping practice for reduced opportunity for error.
2. It will correct the chronic invalid income variance on the BRRA financial variance report.
3. It’s required to be segregated by the BRRA governing documents.

If the BRRA had a segregated 1% Fee sub-account, like its Beach Club/Cabana account, it could report the transfer fee separately. The feel-good expenses could be accounted in this 1% Fee account and drive the member dues lower.

I am proposing the following 1% Fee Account initiative to solve this issue: 

1. Assign Finance team with task of creation of a 1% Fee sub-account.
2. Form a working group to propose business rules for the new account.
3. Invite BRRA Committees (Lifestyle, Website, Strategic Planning, etc.) to propose 1% fund expenses for budget planning.

To be in position for the 2020 budget cycle, this needs to be in place soon. Please contact your BRRA representative and join me in supporting this 1% Fee Account initiative as the first of many steps toward a better BRRA future. Let’s aim to be a best practice community.

Review & Best Practice recommendations

Notices Delivered

• Approximately 622 violations were noted on 271 of 659 Single Family Units.
• Separate Notices sent for each individual violation.
• Some Units received as many as six notices.
• Average Unit that received any notice received 2.3 of them.

• Approximately 622 violations were noted on 271 of 659 Single Family Units.
• Separate Notices sent for each individual violation.
• Some Units received as many as six notices.
• Average Unit that received any notice received 2.3 of them.

Violation Notice Process

By-Laws § 3.24(a): Notice. Prior to imposition of any sanction hereunder or under the Declaration, the Board or its delegate shall serve the alleged violator with written notice describing:

• (i)  the nature of the alleged violation,
  (ii)  the proposed sanction to be imposed,
  (iii)  a period of not less than 10 days within which the alleged violator may present a written request for a hearing to the Board
  (iv)  a statement that the proposed sanction shall be imposed as contained in the notice unless a challenge is begun within 10 days of the notice.

If a timely challenge is not made, the sanction stated in the notice shall be imposed; provided the Board or the Covenants Committee may, but shall not be obligated to, suspend any proposed sanction if the violation is cured within the 10-day period. Such suspension shall not constitute a waiver of the right to sanction future violations of the same or other provisions and rules by any Person.

Violation Hearing process

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• By-Laws § 3.24(b): Hearing. If a hearing is requested within the allotted 10-day period, the hearing shall be held before the Covenants Committee, or if none has been appointed, then before the Board in executive session.
• The alleged violator shall be afforded a reasonable opportunity to be heard.
• Prior to any sanction hereunder becoming effective, proof of proper notice shall be placed in the minutes of the meeting. Such proof shall be deemed adequate if a copy of the notice, together with a statement of the date and manner of delivery, is entered by the officer, director, or agent who delivered such notice.
• The notice requirement also shall be deemed satisfied if the alleged violator or its representative appears at the meeting.
• The minutes of the meeting shall contain a written statement of the results of the hearing and the sanction, if any, imposed.

Best Practices

• Evidence-backed HOA Violations a)Must be able to provide independently-verified evidence. b)Pictures!
• Follow Governing Documents a)Describe challenge process in the notice.
• Enforce rules consistently and even-handedly. a)Be reasonable and non-discriminatory
• 80/20 Rule a)Each notice carries the risk of entangling the board in a hearing. b)After a point they become abusive and only breed malcontent. c)”Overregulating is just as bad as not enforcing your governing documents“

Violation Notice Guidelines

• Notice shall inform Members they have 10 days to submit a challenge and request a hearing before the Board of Directors. (By-laws § 3.24a).
• No more than one (1) notice per unit per inspection cycle. Notices may contain multiple violations.
• Notice shall describe the violation without proposing a remedy.
• Each violation shall include a reference to the rule or ARC guideline that is alleged to be violated.
• Each Notice shall include pictorial evidence of the violation(s).
• Target no more than about 20% of total units to receive notices. (80/20 rule)

Chronic Income Variance

8.13 Purpose of Transfer Fee. All transfer fees collected pursuant to this Article shall be deposited into a segregated account to be used for such purposes as the Board of Directors of the Association deems beneficial to the general good and welfare of the Association and its Members. By way of example and not limitation, such transfer fees might be used to help fund: (added – 3rd Amendment 12/14/2001 § 8)

Legal Expenses are reported in line item 50300-000 Professional Services. A quick look at the financial reports shows the 2018 actual expenditures to be drastically over budget. In fact, the variance has set a record. This variance measurement is defective due to a faulty budget.

The faulty budget for 2018 looks as if someone made a typo and entered $2,000 instead of $20,000. It appears this quality defect went unnoticed. Variance to this defective standard is understandably enormous.

The budgeting process for 2019 did not appear to recognize the 2018 defect as the 2019 budget is only slightly increased from the erroneous 2018 value. We should expect high over budget variance in 2019 as well.

Comparing the reported variance to the current budget with the variance to the 2015 budget reveals the current budgeting process is adding significant variation to this measurement.

The budgeting process needs some work to make it more robust.

Will investigate.

Financial Statements

• June 2018:          54300-000 Pool Supplies                                               $17.25
• August 2018:      54300-000 Pool Supplies                                               $203.91
  • Note: “***Pool supplies expensesbooked for August will be reclassified and reflected on the Sept statement”. (Sept – NO, Oct – NO)

Declaration

• November 2018 Violation of 60-day notification of new budget [CC&Rs§ 8.1 paragraph 4 & 8.2 paragraph 3].
• December Annual meeting notice violates SC Code §33-31-705 Notice of meeting location no fewer than ten days.
• December 21, 2018 “Special Meeting” not called per Bylaws § 3.9.
• Bylaws § 3.21(f)(v) Delinquency Report
• CC&Rs § 3.2(a): “…publish notice of proposed action…specifically includes posting notice at the entrance to Barefoot Resort at least thirty days prior to the Board meeting at which such action is to be considered.”

Budget

• Administrative: 50300-000 Professional Services
  • 2015:     budget 15,000, actual 14,190
  • 2016:     budget 10,000, actual 26,120
  • 2017:     budget 26,140, actual 17,130
  • 2018:     budget 2,000, actual 24,468 (annual rate as of 10/31)
  • 2019:     budget 7,000

Why is the annual budget uncorrelated to the actual expenditures? What is the budgeting process?

The 2011 Becht Beach Cabana Reserve Study detailed a financial plan to accrue reserves for expected capital expenditures to maintain the Barefoot Resort Beach Club at its current configuration for the next 30 years. The strategy of the plan is to maintain adequate funds to replace capital items at the end of their life so as to avoid special assessments when replacement time arrives.

1. Reserve Balance Plan

The plan starts with guesstimates of life expectancy and replacement cost of a list of capital items such as water fountain, wheelchair lift, etc. A replacement schedule with future cost is created. This schedule is used to define a minimum contribution amount and reserve balance over time depending the chosen risk model. Three risk models were chosen to give a target range for maintaining the reserve balance within. In the chart below, the target balances are listed for models Component (blue), Cash Flow (rust), and 5% Repl. Cost (green). The idea is to stay within, or at least near, these targets.

If you look at the 2012 through 2023 period of the plan, there are expected expenditures of $2,546 in 2014 for a replacement water fountain; $10,260 in 2017 for ceiling fan, lighting, hot water heater, and outdoor furniture; and a big $123,587 in 2022 for various items including decks, handrails, and traffic gates. The 2022 expenditure causes the big drop in the planned balance on the right side of the graph above.
The actual reserve balance (red) has been running significantly below the plan. Several factors including inadequate funding, premature end-of-life, excessive replacement costs, disbursements, or outdated plan can contribute to this.

2. Funding

Contributions to the reserve fund were near, but slightly below, the minimum recommendation for the first couple of years. In 2014, actual contributions more than doubled to well above the maximum requirement. And in 2017 were almost doubled again.
Inadequate funding is not the cause of the deviation from the forecasted fund balance as the significant increases in 2014 and 2017 should have carried the balance well above targets.

3. Disbursements

Expenditures from the Cabana Reserve Fund are not all included in the BRRA Financial Reports. Plus I’m missing a few. If anyone can get this data, I would enjoy analyzing it. It would be nice to have monthly data of beginning fund balance, contribution income, interest income, and expenditures identified to the capital item.
Some expenditures, such as around $40k for the premature replacement of the wheelchair lift in 2017, can be found in BOD minutes. There are many discrepancies in the funds balance that suggests of improper disbursement of these funds.

4. Premature End-of-Life

The Wheelchair lift was expected to last ‘till 2026 but was replaced in 2017. Why did this require replacement at less than half the original expected life. This large departure from expectation should be a cause for concern.

5. Excessive Replacement Cost

The Wheelchair lift was expected to be replaced for $18,151 in 2026. The actual cost to replace the lift in 2017 was more than double that. This huge discrepancy needs scrutiny.

6. Outdated Plan

It appears that the plan outlined in 2011 has not been followed. A new parking lot, with its additional capital items needs inclusion.

Summary

As of 12/31/2017, the Beach Cabana Reserve Balance is low by $86,279 or $28.76/unit. The fact that contributions dramatically exceeded the plan with the underfunded balance indicates that improper expenditures probably occurred.. In other words, the plan is not being followed.