Tuesday, November 25, 2014

Voting Rights & Wrongs

This is the sixth in a series of postings providing a detailed look at the governing documents for homeowners associations (HOAs).  Today’s focus is on the Bylaws, which detail the internal governance of the Association.

Voting can be a highly emotional event at annual meetings.  The more structure you can insert, the better at controlling contention.  The following procedure will reduce allegations of results rigging:
·               The management company generates delinquency reports the day of the Annual Meeting, to account for any last-minute payments.  Individuals with past-due balances may opt to pay current on the evening of the meeting with certified funds
·               At the time of sign-in, all eligible voters are provided a ballot 
·               The meeting is called to order and the President announces whether quorum has been obtained
·               The President calls for three volunteers (non-Board, non-candidate) to conduct the count, which occurs while the meeting is in progress
·               Those selected to count ballots relocate to the back of the meeting room.  All others who wish to observe the count may do so in silence and without distraction
·               The delinquency report is made available for review by the three vote counters to confirm eligibility – any ballot may be rejected due to delinquency, incomplete information, duplicate conflicting votes (i.e. two owners in a unit each completed a ballot) or suspected forgery
·               All rejected ballots are set to the side.  All three individuals must unanimously agree to disqualify ballots.  Non-unanimous decisions may be referred to the Board to reach a conclusion
·               Eligible ballots are tallied under unanimous agreement by the three volunteer counters.  Those candidates receiving the most number of votes fill Board openings
·               A certification page is signed and dated by the three counters.  All materials are bundled and stored at management office.  Owners may inspect these by making an appointment with the management company
·               Prior to the conclusion of the annual meeting, a copy of the certified results is provided to the Board President for announcement.  The new positions become effective upon adjournment

When it comes to elections, consider amendments that:

Permit Electronic Balloting.  In the State of Georgia, explicit provisions are required to take advantage of the "Internet Age."  Because of protections that need to be maintained, some aspects of the voting process may be barred from electronic messaging.  Rely heavily on your legal counsel to craft the most effective language in this area.

Address Apathy.  No matter the incentive provided, such as conducting a drawing for gift cards, many communities struggle to reach the most basic level of involvement (quorum).  Approval of amendments is impossible in this climate, and the Association becomes the victim.   One possible solution is to permit the vote to be followed by another vote utilizing certified mail.  In this second round of balloting, if the homeowner fails to respond, it is considered a default approval by that owner.  Again, utilize your legal counsel to create this safety net.

Next post: Making Board members more accountable!

Thursday, November 20, 2014

The Powers That Be

This is the fifth in a series of postings providing a detailed look at the governing documents for homeowners associations (HOAs).  Previous postings focused on the association’s authority to levy assessments; this one expands to look at the association's powers in general.

In most communities, the association retains all rights except for those explicitly granted to the homeowners - or ones that have been shifted by government regulation and court decisions (such as allowing religious displays).  Owner authority is primarily restricted to electing Boards, approving amendments, and rejecting budgets.

Association authority is explicitly outlined in State statutes, Articles of Incorporation, and Declarations & Bylaws - with the last two of these having information peppered throughout both documents.  What many people do not realize is that listing the powers in either the Declaration or Bylaws does not necessarily extend these over to the other document, as each document exists for a different function. 

Under the Bylaws, each person is a member of the Association, while under the Declaration, each person is an Owner – the law treats these relationships as two distinct areas of responsibilities.  Bylaws address internal rights and duties, while the Declaration deals with external obligations.   

When comparing the wording between these two documents, it is important to confirm that wording in the Declaration exists limiting Director Liability.  This protection may only appear in the Bylaws/Articles of Incorporation!  Have your attorney review for this!  Confirm you are acting within the authority delineated in each of these documents.

For example, consider the Association’s ability to take any actions necessary to secure common area items from damage, even if this involves entry into private homes.  A typical situation is the inspection of plumbing connections to reduce the potential for water breakages.
Unless an emergency exists, the Association normally notifies the homeowner and requires him/her to conduct the plumbing repairs.  If the homeowner fails to do so, the Association may have authority to conduct the work and bill the homeowner.

In this situation, the Board needs to confirm it does have the ability to authorize the entry of a third-party vendor into the home.  It also needs to confirm that neither it nor the vendor may be held liable for any damages that occur during the repair process.

While both of these abilities are very commonly listed, here are a couple of amendments you should consider:

Home Access.  What about the expense involved if you hire a locksmith, or must kick-in the door?  Have your docs clarify that if the homeowner fails to provide access, he/she assumes responsibility for any incidental expenses and repairs required to permit entry by the Association.

Reducing Risk.  Often the governing documents permit the association to require basic homeowner maintenance, such as replacing water lines or installing safety features, up to a fixed dollar amount.  Typically this ranges between $200 and $500 per year.  To keep up with inflation, consider changing this cap to a fixed percentage of the annual assessments, such as one-sixth of a homeowner’s dues.

Stay tuned for further ideas on plugging holes in your governing documents!

Monday, November 10, 2014

Can’t Get No Satisfaction

Whatever group of people you consider, it seems ‘3%’ is the magic number of perpetually dissatisfied individuals.  In homeowner associations, navigating neighbors with narrow-vision is an ongoing challenge for both Boards and managers.  Consider this real-life illustration of one manager’s workday:

·         This morning an email came in from a homeowner in an upscale neighborhood, upset that a candy wrapper was stuck to the asphalt outside her home.  The roadway had just been seal-coated.

·         This afternoon on a drive to conduct a property inspection, the manager was slowly inching his way through Atlanta's infamous traffic.  A man in an old Ford truck pulled up on the grass next to the manager and asked him not to brake so quickly, because it was making the man’s 70 pound dog slam into the dash.  Then the pickup driver went back to distracting himself with his cell phone.

·         This evening on the way to a Board meeting, the manager stopped at a low-end restaurant chain, only to have his meal interrupted by the petty bickering of grey haired siblings.  Despite demonstrating high vocabulary skills, things degenerated to “Mother loves me best” and "I hate you", with the siblings sitting back-to-back in adjacent booths.

It seems that some of us measure our lives by our losses, finding meaning in victimization: Perpetual martyrdom.  Accepting the belief that their value is directly tied into what has happened to them or what is being done to them.

As a Board member or manager encountering this type of behavior, it is important to remind yourself that each person is responsible for his or her own happiness and to not allow yourself to get pulled into webs of conflict. One must accept the notion that there are some people who are resigned to being “rebels with or without actual causes”.

Interacting with such people can be draining and extremely frustrating to say the least. When dealing with these types of homeowners, chances are if they weren’t upset about the present issue, it would be something else.

In an article published by Forbes Magazine in 2013, Kevin Kruse offered 8 poignant tips for dealing with difficult people:

1.) Don’t be dragged down - Do not absorb the negative energy of habitually negative people. It can be toxic and in the long run benefits no one. You do not have to be angry or unpleasant just because they are.
2.) Listen - Although it may be easier to just tune chronic complainers out, actively listening is still the best option. Hear them out and make a sincere effort to identify what their needs are and what they are asking from you.

3.) Use a time limit for venting - Although active listening is an essential part of effective communication, no one should monopolize your time. Limiting complaints to five minutes will allow a homeowner to vent and protect you from being overwhelmed.

4.) Don’t agree - As tempting as it may be to want to agree and quickly pacify a disgruntled homeowner in order to just make them go away, be aware that doing so may put you in the middle of a dispute between neighbors that has nothing to do with the Association.

5.) Don’t stay silent - When it comes to dealing with difficult people or situations it may feel easier to just ignore it or keep putting it off until you are energized enough to address it. Over and over again you may click “dismiss” when your reminder pops up. “I’ll send that email later,” or "one more day returning that phone call won’t hurt”, you may say to yourself. Remember that staying silent does not make the problem go away nor will it make the situation better. It is better to respond and be present than to ignore the person in hopes that they will magically change.

6.) Don’t switch extremes into fact - A common characteristic of negative people is to use extreme statements when discussing their problems. Be sure to pay attention to language such as “never and always”. Switch these into fact-based statements that more accurately reflect the issue.
7.) Move to problem solving - Chronic complainers and Debbie Downers often spend far too much time ruminating and have a difficult time transitioning to active problem solving. Offer ways to move from the problem toward resolution.

8.) Cut them off - Once you have done every reasonable thing that you can to assist a homeowner who is dissatisfied, step away. Accept that there is a great chance that their discontentment has very little to do with their gripes about parking, and that you have done all that you can. Disengage and create some distance from them for a while. Schedule your interactions and conversations with them in such a way that you are able to decompress and regroup after each difficult encounter.

It is inevitable that there will be challenging situations. There is no magic formula for guaranteeing 100% satisfaction. What is certain is that by learning to deal with difficult homeowners and maneuvering through challenging situations you can minimize the amount of stress and frustration that you carry. There are far too many things to get done to expend all of your energy and sanity on situations and people who are only willing to see the glass half empty no matter what. 

Tuesday, November 4, 2014

Amend This

This is the fourth in a series of postings providing a detailed look at the governing documents for homeowners associations (HOAs). 

In our last posting, we discussed assessments.  Board members often request ideas on changes that can be made to the Declaration and Bylaws to strengthen their communities.  Here are some items related to assessments that we are seeing included in brand new communities.  As always, consult with your Association’s attorney before incorporating these ideas.

Construction Deposits.  Because of the potential damage that could occur to the common area, the Association should have authority to establish a construction deposit when an owner is making modifications, alterations or additions to his home.  Costs for repair of such damage may be deducted from the construction deposit and any additional expenses would be specifically assessed against the home.

Special Assessments.  Special assessments historically are capped at $200 before a community-wide vote is triggered.  Due to inflation, this cap may, at some future date, be raised to a higher level by the Georgia legislature, but communities will only be able to take advantage of this if their documents indicate they can do so.

Borrowing. To handle some emergency repairs, rather than relying on a special assessment, the community may want to authorize the Association to borrow up to a certain threshold, such as $10,000, without the need for a vote.

Audit Review. There are different levels of auditing available, and it makes sense that at least bi-annually the community has a CPA provide an independent review. 

Operating Budget.  If the Board fails to establish a budget, or the community votes down a budget, the default is to go with the previous year’s budget.  To avoid deteriorating services, the prior budget should be automatically increased by a minimum inflation rate determined by something such as the Consumer Price Index (CPI). 

Capital Budget.  To ensure that accurate numbers are being used in long range planning, communities are starting to require reserve studies prepared by an independent qualified engineer.  Such study shall be updated at least every 4 years. 

Working Capital Fund.  Often an initiation fee or capital fund is listed as a fixed amount in the documents.  Tying the amount to a percentage of the annual assessment makes more sense in keeping up with inflationary costs. 

Foreclosure Administration Fee.  Foreclosures create substantial administrative and other burdens on the Association, such monitoring the status of mortgages and legal periodicals to determine when foreclosures occur, searching the land records for names of the purchasers, contacting the foreclosure purchaser/owners regarding responsibilities and assessment obligations and updating Association records multiple times.  The Association should be able to assess a fixed rate amount, such as $1,000, at the time of foreclosure to offset these costs.

More amendment ideas headed your way in upcoming posts!