Making Amendments

Amendments to Association Covenants and Bylaws are very important for keeping up with the needs of a community.   Every community is unique, so it is important that the Community Association Manager (CAM) and Board of Directors monitor for situations where an Amendment may be beneficial.  This is especially true with older communities.  Because of court cases, Association attorneys are constantly refining the standard language that should be included in governing documents.   Another goal in updating documents would be to make them more user-friendly - as many older documents have provisions couched in confusing language.

When considering an Amendment, the CAM and Board of Directors must be sure to cover all bases of the logistics of drafting and presentation.   The most important item to review is the voting process required for passage:  Many Association documents require at least two thirds of membership approval for adoption.  Another important consideration for HOAs and townhome communities is the Georgia’s Property Owners Association Act or POAA.  The POAA is a legal structure drafted specifically for HOA’s to provide protection and enable them to enact critical Association functions not secured under common law.  If your community is not already under the POAA umbrella (not applicable to condominiums), make this a part of your amendment package.  It should be enacted prior to any other Amendments you consider.

Your Amendments should cover all needed updates at once:  Obtaining member approval is a huge undertaking, so it’s important to get the documents as updated as possible - at one time.  For example, if an Association knows that it needs to update its leasing provisions or wants to be in compliance with lender requirements, don’t just stop at that one Amendment.  Contact your Association attorney to do a full review and provide recommendations of other items that may need updating.  Each Amendment item can be voted on separately by the membership, but have the choices listed together on one ballot!

The toughest part of the process is getting people to actually cast their ballots.  Homeowners often don’t want to take the time to read through the Amendment paperwork.  Include a cover sheet that sums up each Amendment, hold special meetings to educate homeowners on each Amendment, and start an Amendment Committee to reach out and encourage homeowners to read over this important proposal, as it will affect each and every one of them.  This will require a Board or committee going door-to-door to remind, answer questions and collect votes.

As an Association, take the time to periodically review items brought to your attention and ask yourself if each of these are enforceable, how they would ideally be enforced, and how often they may arise in the future.  If the same situation comes up on a regular basis, it may be time to think about an Amendment to address it as a unique community need!

Violation Notices

Other than paying assessments, the most common reminder that one lives in an association is receiving a letter specifying a needed home maintenance action.  Pointing out contractual obligations can appear confrontational or seem to be a personal attack, more so because we are dealing with a person’s private living space. 

Community Association Managers perform inspections per an Association contract, with direction provided by the Board.  Communities without land covenants, or communities with unenforced covenants, often end up dilapidated, driving down home values.  Property reviews help identify improvements needed to increase aesthetics, keep up property values, and ensure that everyone, including homeowners, are doing their part in the community’s success. A well-maintained community also encourages neighbors to remain current on their assessments.

If the community has not been consistent with its inspections, it can be a very time consuming and challenging process to get the community back into shape.  This is even more difficult if there is no ability to fine or perform self-help (meaning that the Association comes in and performs work on the home, and bills expenses back to the homeowner).  In these instances it is a good idea to amend the governing documents to establish consequences for non-compliance.  Without consequences, notifications will be ignored and homeowners are much less likely to correct violations in a timely manner.   If your community finds itself having to start from scratch, the first action should be to provide a community-wide announcement, setting a date for enforcement activity to begin.  This announcement should list the most frequent violations, so that all homeowners can self-police.

This property review process requires the use of a formal violation notices.  Due to a recent Georgia court decision, it is recommended that the violation log be formally approved by the Board at each meeting.  Compliance letters prevent confusion and provide protection against challenges.  Such notices should carefully detail the violation and provide a solution, so homeowners may easily resolve a situation.  In contentious cases, you may need to file notice in the courthouse land records, so a prospective home buyer is made aware.  Otherwise, the new owner could potentially be exempt from addressing a violation left by the seller.  Another consideration is the two-year statute of limitations.  The clock starts ticking when the violation occurs, not when it is discovered.  If two years pass without the situation resolved, the violation may be unchallengeable.

When receiving a violation letter, a natural response is to look and see if neighbors are being cited for the same issues.  Ensuring everyone is held to the same standards is in the best interest of all – the homeowners, the Board, and the management team. If homeowners have confidence in an impartial process, they are more likely to respond in a positive fashion to violation notices.  Inspections are just a snapshot in time, and the manager is not aware of personal circumstances that may impact compliance.  If someone receives a violation letter that he feel is unwarranted, he should contact the manager to discuss.  Managers are reasonable people, and will work with anyone in the midst of a hardship or special situation.

Creepy Crawlers

“When I read how many thousands of dollars a city like New York has to spend to keep underground water pipes free of ailanthus, gingko, and sycamore roots, I cannot help but give a little cheer.  After all, water pipes are almost always an excellent source of water.  In a town where resourcefulness and beating the system are highly prized, these primitive trees can fight city hall and win.”  - Annie Dillard

This quote is from the amazing 1972 memoir (and Pulitzer Prize winner) Pilgrim at Tinker Creek detailing how surrounding survival can be frightening.  Nature competes for resources and we are thick in the battle.  Whether in city government or community management, battling with Nature sends shivers down the spine of the person managing a budget or making a community livable.

Consider these actual Atlanta-area occurrences:

“Water is coming down my dining room walls and out of my chandelier.  It started as a trickle and now it is pouring.”  Source of the problem:  rats made their home in the ceiling, licking the condensation off of the sprinkler pipes.  As the population grew, the condensation was not enough, so the rats chewed into the pressurized pipe.  Vendors paid to track down and resolve this issue included a plumber, fire protection, water damage mitigation, flooring, painter, electrician, insurance and wildlife management.  

“My neighbor’s house sounds like an engine.  I see bees coming and going from a small hole in the siding.”  Issue: Bees founded a honey hive in the space between the siding and the wallboard.  Besides hiring wildlife management to carefully remove the bees and get rid of the hive and the honey, contractors were needed to replace insulation and wallboard sections, repaint the room, and patch the exterior entry hole. 

“I have about a foot of sewage in my townhouse that has flowed out of the toilet.”  Problem:  the sewer line was filled with small roots coiled inside and around the pipe, blocking all waterflow.  After calling out the plumber, vendors were needed to mitigate the sewage, install flooring, replace and paint wallboard, and restore or replace sofas, chairs, and antique dining room furniture. 

Other actual incidents:  A window crashing through wall studs weakened by termites, a fire burning a townhome due to mice-chewed wiring, allergy sufferers discovering squirrel or bat infestations…  

Proactive prevention and early detection are keys to fighting a seemingly invisible force.  Partner with plumbers, pest control providers, wildlife management specialists and arborists to work on plans.  Prevention budgeting is cheaper than fixing problems after the fact, and a lot less stressful for all:  Raise community awareness so we can all avoid becoming nature’s next “victims”!

A special "thank you" to Terrence Spires with Team Pest USA and Dawn Shaddix with Northwest Exterminating for providing the pictures used within this post!

Don't Forget to Follow-Up!

A backyard discussion between a homeowner and Board member turns into a screaming match about the owner's newly-installed patio deck.  Sound familiar?  Home modifications are highly-personal issues and the best policy when reviewing architectural modifications is to conduct comments in a neutral, formal setting.

After the review committee approves a home modification - such as installing a fence, replacing the roof, or adding a garage - the final step in the process is to confirm that work matches community expectations.  Normally a member of the review committee (or perhaps a Board member) meets with the homeowner on an evening or weekend.  If a problem is spotted, there may be a brief discussion, but any escalation must be avoided.  The reviewer should politely excuse herself and notify the community association manager to document problems in a letter to the homeowner.  This letter includes details for a homeowner hearing, where cooler heads work through expectations.

Sometimes a Board of Directors wishes to contract with their management company to handle follow-up inspections on home construction projects.  Before taking this step, consider the following:

1.  Depending on the complexity of the project, the manager may not identify construction items that were priority issues for the review committee.  Something as simple as a shade of paint color may appear acceptable to the manager but not the committee.  Once approval is granted, reversing can be difficult since management is an agent of the Association.

2.  Aggressive Boards may decide to combine management architectural inspections with the regular community compliance drive-through. Entering a person's yard unannounced has led to safety issues and criminal trespass charges being filed.  Although the Association may prevail in court, insurance will resist reimbursing the thousands of dollars (in excess of the deductible) in legal defense spending.  Even if a judge does choose to award legal fees to the Association, attempting to actually recover these from the homeowner presents its own challenges. 

3.  Although the Association (and its agents) may have a right to enter particular areas, this should only be done in emergency situations or with advanced homeowner scheduling.  Fencing and pets restrict easy access.  This leads to costly special arrangements for the manager to meet the homeowner during non-business hours, or making additional visits outside of the management contract.  Is it in the best economic interest of the community?

The final step of architectural review does not have to be unpleasant.  Establish clear expectations upon receiving an application.  For unauthorized changes, immediately issue a written notice to cease work.  Otherwise, a court may block the Association’s attempt to reverse the work, particularly if the home improvement was expensive and the Association failed to speak up early in the process.  Always remain cool, no matter how contentious.

Maintaining a consistent and visible review process deters unapproved modifications and provides respectful resolutions for a very personal matter:  Home improvement.

Under Development

Access Management Group received the following message from a homeowner living in a developer-controlled community (that we do not currently manage):

I am a concerned resident at the ABC Homeowners Association.   I was under the impression that the recent Annual Meeting was to discuss the budget.  Instead, it was a hodgepodge of resident complaints, an attempt to dispel rumors and issues related to the turnover and an attempt to clarify who and what the developer is responsible for and what the county and the residents are responsible for as it relates to the turnover.

I recommend that we have a series of annual meetings each year, with one specifically addressing the budget.  In that meeting the residents would review the budget line by line.  The other meetings could possibly cover specific homeowner concerns.  

I do not in good conscious approve the proposed budget.  In order to prevent the residents from this sub-division from going into debt, I am proposing a "secured funds" budget.  Using only those funds received between the day the HOA assessment notices are mailed to residents to the day the pool opens each spring.  Those funds received after the pool opens to year end, and funds from previous years would be placed in a "Catastrophic/Emergency" fund in the event of a major sub-division crisis.

I am also asking for guidance in how the budget is created, developed and implemented by a vote of the residents and proposing a change in the charter or governance of how the budget is created, developed, implemented and approved as outlined above.

Our response to this homeowner was as follows:

Thank you for reaching out to us.  As we weren’t in attendance at the meeting and do not directly manage the community, we can only speak in general terms about processes and procedures, and defer to your community manager to answer particulars.

Our understanding is that your community is still under developer control.  If this is true, the process for budgeting is limited:  The developer may construct a budget with or without the input of appointed homeowners.  The developer has final say in the nature of the budget, and is not obligated to hold in-depth discussions or justify processes.

Once control of the association has been turned over to the homeowners, they may elect Board members responsible for drafting future budgets.  This Board may choose to establish a temporary budget committee composed of a few homeowners to put together a proposed budget, but it is ultimately the Board that has the final say.  A budget committee is the appropriate forum for the line-by-line review as requested in your letter.

While the Board may choose to call for a community-wide budget meeting, this is not part of the annual meeting, which is reserved for only high-level business items (electing Board members, and possibly a community vote on budget approval if the documents permit it).   The annual meeting usually lasts perhaps an hour, as is not designed to tackle contentious issues.  It is the one meeting most homeowners choose to attend each year, and the best way to drive up community apathy is to host unpleasant annual meetings.

In many communities, only the Board votes on the budget, with homeowners having the option to vote it down only if a majority of all homeowners call for a vote and vote against it.  Again, your community manager will be able to address particulars on your association’s budget.

Homeowners and Board members frequently do not have a frame of reference for what is “normal” when running a community association.  When working up a solution for a problem in your community, it is always best to first gather information about the typical processes and procedures observed elsewhere.  A great venue for gathering this information is to attend meetings hosted by Community Associations Institute (CAI) –you can use the internet to locate a chapter of this organization operating near you!

Pay Up! (Or At Least Budget For It)

Boards of Directors often wonder how their community's budget compares with those of other communities.  They face constant pressure to keep assessments low, to the detriment of reserve (capital project) accounts.  Anemic budgets are then further aggravated by the issue of homeowners not paying their assessments. Delinquencies are the driving factor when forecasting next year’s budget!

Reviewing nearly a tenth of the communities in the Atlanta Metro area (of the approximately 3,000 homeowner associations/condominiums in this region per the Georgia Secretary of State) yielded interesting results.

 

Communities like to spend as little as possible in collection activity, but even when plans call for only spending one or two percent of the annual budget in this area, a community often ends up spending between four and six percent.  For communities with very high nonpayment rates, it is common to see ten percent or more of the budget allocated to collections.

When it comes to delinquencies (defined as a homeowner past due at least $500), there was no correlation between size / type of community and delinquency rate.  While a handful of communities had zero delinquencies, the majority are experiencing between seven and twelve percent of their homeowners in arrears.  Some communities actually are running above a seventy percent delinquency! 

Obviously, this situation was exacerbated by the Recession beginning in 2008.   Reviewing data trends from 2008 through 2012 revealed that:

• At the start of the recent Recession delinquencies typically ranged between 3 to 15%
• In 2012 this range had increased to between 3 and 38%
• Annual budget increases directly impacted delinquencies & home value
• Those Boards that continued to increase budgets to keep up with inflation (3% to 5%) resulted in an average 10% drop in home value
• Those Boards that chose to freeze all increases saw an average 18% drop in home value
• Communities that slashed budgets by 5% budget averaged a 25% drop
• A 10% decrease averaged a 33% drop in home values
• Compare this to the Case-Shiller Index in 2012, showing a drop of 39%
• Deferred maintenance, neglecting curbside appeal and faltering collections lead to these results
  

  

  
  

As of September 2013, the average (both mean and median) delinquency rate for condominium homeowners was $4,800.  Surprisingly, those living in detached single family homes also showed high delinquencies:  The average mean was $3,145 / median was $2,585 for delinquent homeowners.  266 homes were identified as owing over $10K, with 42 of these owing over $20K.  Delinquencies in some homes exceeded $60K!

In light of the above, it is critically important that Boards budget for nonpayments to avoid shortfalls in their communities.  Money not set aside for this contingency will result in neglecting maintenance needs, or requiring the use of special assessments or savings set aside for capital projects, which is never a good choice.

$Money$, $Money$, $Money$

A homeowners association looking to change management companies recently reached out to us.  In our daily lives, we often hear about problems with time management and stress management, but with Boards of Directors - it is really all about expectations management.   This particular community summarized their current situation as follows:

Our dissatisfaction mainly rests within the lack of aggressive follow-up with those homeowners who are behind on their association dues.  Our current management firm basically takes the approach of sending out delinquency letters over and over again, with no further consequences (besides late fees and/or common area access restriction). This pattern, in some cases, has made matters worse since many homeowners believe that they can just stop paying because no further action/consequences will follow.

We need reassurance that a new property management company will perform at a much higher level.  Please provide details on how you would take immediate action with specific individuals and plans for others who may not be as delinquent, but still pose a risk to our community’s financial health. We recognize that some homeowners may not end up paying.  If this is the case we need reassurance that non-payment will, at a minimum, result in swift consequences to the full extent allowable by law.  

Access Management Group has very strong feelings about the homeowner delinquency issue, and it is frustrating to us when a client refuses to take a firm and fair stance when addressing it.  To be successful, a Board of Directors must draft a resolution outlining what the steps are in collections (we assist with this), which they provide to management and to the collection attorney, and then the Board steps out of the process to avoid having homeowners attempt to play different parties against each other.

The most effective process we’ve seen outlined in a resolution is as follows:

A late notice is sent by the third week of the month to any who failed to pay by the due date.  A second late notice is issued the following month, and then the account is turned over to the collections attorney.  Once in the attorney’s hands, the homeowner is only permitted to communicate with the attorney until the debt is resolved (i.e. requests for payment plans must go through the attorney, who forwards to the management company).  The Board of Directors provides the management company general guidelines to use in making some decisions on payment negotiations.  For example, any payment plan for a period longer than 12 months is automatically barred unless the amount is greater than $5K, in which case the Board must be consulted.

The other key component is to have the correct law firm to handle collections.  An association can choose to have one law firm handle all of its legal needs, or can choose to delegate collections to a separate firm.  From our thirty plus years of experience in the Atlanta market, we have identified those firms which are the most effective in obtaining collections results, and would ask that the Board consider one of these if they are unhappy with their current firm. 

All the nuances of collections are easily a two hour conversation, but Access Management Group has a handle on this and our clients can rely on us to push for the best results.  To provide a  recent example:  A community that came on with us at the start of the year switched to a firm we recommended, and has collected nearly $100K as of September – with another $150K being setup on payment plans.  Other financially distressed communities that have been with us the last few years have seen collections of $100K to $200K each year.  We take this matter seriously.  If you have any questions about this matter, we are always available to consult.