FHA-Approved Condos

What attorneys predicted has finally occurred:  A condominium Board of Directors that failed to apply for FHA certification is being sued by a homeowner.  The plaintiff is a single mother who approached the Ohio Civil Rights Commission with a complaint of discriminatory action.  Her FHA bank loan was denied since the community had chosen not to renew a lapsed FHA approval.  This is devolving into a Fair Housing violation claim.

Many Association governing documents require the HOA to conform with FHA/VA lending guidelines. A high number of rentals or excessive delinquencies may prevent a condominium qualification.  Whether or not an Association can qualify, is it a fiduciary duty for the Board to apply for the certification?   Lack of certification reduces the pool of eligible buyers, impacting sales, and possibly conflicting with the Board’s duty to enhance and protect property values.

It may be argued that the Board chooses to not seek FHA approval because they don’t want the higher risk of foreclosures, which drive down property values:  FHA borrowers do not provide large down payments and qualify under lower credit scores, raising the risk of loan default.  The Board’s position could be viewed as protecting the value of the community, or a blatant attempt to ban “undesirables”.

Although the Association may argue that it is the lender discriminating (the Association does not have direct knowledge of a borrower’s status or circumstances), the Fair Housing law operates under a concept of “disparate impact”.  This provision prohibits actions/policies that unintentionally impact certain protected groups.  Institutions are placed in the position of being guilty until proving themselves innocent, a long and expensive process.

A federal official of the Justice Department has stated the agency is the guardian of the Fair Housing act.  Recently, the Justice Department agreed to not pursue whistleblower cases against the city of St. Paul, Minnesota.  In exchange, the city agreed to drop a suit that the U.S. Supreme Court had already agreed to hear, that would have gutted the “disparate impact” portion of the Fair Housing act.  Having local taxpayers suffer a $200 million loss by not defending the whistleblowers was deemed acceptable collateral damage.

While the outcome of the Ohio case remains to be seen, all Boards should carefully weigh their decisions in light of the current regulatory reality. 

Keep your Minutes "MI-nute"

When recording the happenings of a Board meeting, the Secretary types up a document known as Minutes, which is an official legal record retained for the life of the Association.  Although the name of the document is pronounced the same as a unit of time on your clock, the recorder should be thinking of the word “minute” with the stress on the first syllable, changing the meaning to “exceptionally small” or something that is carefully examined.

Your Board Minutes are subject to review in a court of law, and what appears in these documents may embarrass not only the Board, but also the entire homeowner association if not carefully considered.  One reason that the minutes are composed after a meeting and approved at the next meeting is to permit clearer heads to prevail, especially in considering contentious issues.

Ensure potentially damaging material is not recorded by limiting the length of the Minutes to fit on a single page.  The goal is to record actions or decisions taken by the Board without a blow-by-blow description of debates.  Leave the discussion out.  At its simplest, the record will only show what topic was being considered and whether or not the Board approved any action on it.  On certain items, a Board member may request that how each director voted be recorded, but this is the exception, not the rule.

There are basic elements that appear in each set of Minutes:

At the top of the document:

• The title “Minutes”
• Board of Directors for <name of the Association>
• Location the meeting was held, including physical address
• Date of the meeting

In the body of the document:

• Time meeting called to order, list of those in attendance, whether quorum obtained
• Approval of the prior meeting’s Minutes
• Summary of reports provided (Treasurer, Management, etc.)
• Decisions on items left outstanding from previous meetings
• Decisions on new topics
• Establishment of the next Board meeting

End of the document:

•  Time of Adjournment
• The phrase “Respectfully Submitted,”  
• Name of the individual that composed the Minutes, followed by the title Secretary
• “Secretary Pro Tem” is used as the title if another Board member acts as the Secretary

On occasion, a Board may be tempted to outsource the recording of Minutes.  This is a risky practice, as ultimately the Board is liable for any errors or omissions.  If the Bylaws do not specifically grant permission to assign this function to a non-Board member, the best course of action is for the Secretary to conduct this duty.

Get the LED Out!

We are bombarded with messages about “Going Green” and taking energy conservation steps.  Often the talk is short on specifics.  One practical step that takes a sizable bite out of your electric bill is converting your lighting system.  Consider this - 

On average, an incandescent bulb last 1,000 hours, a fluorescent 10,000 hours, and a LED 100,000 hours.  If you burn a bulb 24 hours a day, seven days a week, you will be replacing the incandescent in one to two months, the fluorescent in a little over a year, and the LED after 10+ years.  You are also probably paying for labor each time a bulb needs replacement.

A fluorescent bulb uses five times less energy than an incandescent, and a LED uses three to five times less than a fluorescent bulb - to produce the same amount of light.

Four-foot long fluorescent fixtures typically use two 40 watt bulbs which actually burn 96 watts total because of the drain by the ballast that regulates energy flow.  Even if the fluorescent bulbs in tube-fixtures are burned out, energy is still being consumed by the ballasts.  For the cost of replacing a bad ballast (approximately $45), a single four-foot LED tube can replace two fluorescent bulbs, dropping hourly electrical usage from 96 to 20 watts.  LEDs do not require a ballast to operate.

On average, placing a LED in a four-foot fixture that is on 24/7 will pay for itself in nine months, including the labor costs for bypassing the ballast during the bulb replacement.

Converting a community with 100 four-foot fixtures to LED will lower the annual bill by over $5,000: That’s change you can believe in!

Second Hand Smoke

One common question raised in our Board of Director training classes is "What level of exposure does the Association have to claims of smoke infiltrating from a neighboring home?"  While only a few regions in the nation have placed bans on smoking within the home, the trend for Association liability is growing.  In March 2013, jurors in a Superior Court in California (Chauncey v. Bella Palermo Homeowners' Association, et al.) awarded $15,500 in economic damages and emotional distress to a family for smoke entering through windows and a sliding glass door.  The smoke was travelling from a source that was between 25 and 90 feet away.  The Association was liable for 60% of this amount - with the Management Company and owner of the source unit liable for the remainder.  This judgment was rendered despite the fact that only a generic ban against noxious activities was listed in the Association’s governing documents, and the Association had taken some steps in attempting to reduce the occurrence of smoke in the common area.

California case law is frequently a bell-weather for other states, and while Georgia courts require explicit definitions of what is considered a nuisance or a noxious activity, this can be overridden by claims related to the Federal Fair Housing Act.  Numerous HUD cases related to rentals have already established Fair Housing violations for smoke when the victim has a medical condition such as asthma.

The Board of each Association should hold a frank discussion with its membership about what will be acceptable when it comes to smoking, and adjust the governing documents to meet expectations.  For example, a condominium may stipulate that the source unit of smoke maintain a HEPA filter system to capture fumes before these can escape the boundary of the home. 

Being proactive in this area will reduce friction between neighbors and  provide the Association with protection against a potential monetary loss. 

Worker's Compensation

Access Management Group actively works to reduce the potential liability exposure of our client communities.  One increasingly concerning item is injury claims by vendors incurred while on an HOA or COA premises.  We do our best to raise Board awareness of the following:

• The State of Georgia is ahead of other states in being pro-worker for worker’s comp claims.
•  If a worker is injured in the community, the Association will be pursued, even if the worker falsely claimed to have appropriate insurance.  The worker is regularly awarded claims against the Association in these situations.
• Our firm has direct experience with such claims.  One example:  A subcontractor was killed after driving a mower off a retaining wall.  The State Workers’ Comp Board looked to the Association and management to compensate the widow - when neither the subcontractor nor the contractor carried worker's compensation coverage.
• Such awards may require a community-wide special assessment.
• Although worker's compensation insurance is required, certain companies - typically based on the number of employees - are exempt from having to carry worker's comp coverage. 

It is our Company's practice to require that all of our vendors carry insurance coverage - including worker's comp insurance (regardless of the vendor's employee count). On occasion, Associations insist on hiring individuals without proper coverage - usually to provide menial services. Because of this, and the potential injury exposure for volunteer activities (i.e. hanging holiday decorations), Access Management Group strongly recommends that all communities carry their own Workers’ Comp policy. Initial annual premiums for such a policy typically run under $1,000.  We require all vendor insurance policies to list both the Association and Access Management Group, so that we will be notified by the insurer if the vendor cancels coverage - thus protecting both the community and our Company.  

Communities that choose to hire uninsured vendors are required to update their insurance carrier each year with the total labor costs incurred by these workers.  Failure to report, or under reporting, invalidates the coverage.  It is a constant headache to keep up with, and everyone is best served by avoiding this risky practice.  The short-term savings are outweighed by potential long-term costs of hiring uninsured labor.