What Was I Thinking?!?!?

A 2013 study on the success rate of newly established businesses revealed the causes of business failure, along with leading mistakes made by business owners.  Many of these same problems plague the running of homeowner associations.  ‘Forewarned is forearmed’, so read on for insights!

Nearly half of all failures were due to incompetence in basic financial knowledge, poor record-keeping, or not planning ahead.  A third of failures were due to lack of managerial experience often leading to overextended financial obligations.

The leading management mistakes:

•        Going into business for the wrong reasons
•          Advice from family and friends
•          Being in the wrong place at the wrong time
•          Getting worn-out or underestimating time commitment required
•          Family pressure on time and money commitments
•          Pride
•          Lack of market awareness
•          Falling in love with product/business
•          Lack of financial responsibility and awareness
•         Lack of a clear focus

With slight changes, much of the above could apply to Board volunteerism. 

Why did you choose to run for the Board?  This is a question virtually every Board member has been asked or asked him or herself.  Answers can range from “I want to give back to my community” all the way to “I must have lost my mind.”  Anyone that has served on a Board, committee or as a Manager is most likely  aware that it is not always those who step forward - but those who do not step back when it - comes to being elected to the Board.

Whatever your reason for deciding to serve, please remember that a Board position is very a critical part of Association governance.  Without quality individuals on the Board, an Association can become irrelevant and ineffective.  Just as every successful business has informed and dedicated individuals at the helm, an Association needs Board members who put forth the effort to educate themselves in the basic fundamentals of running an organization.  By no means does it require an MBA or advanced degree to run the Association. It does mean however, that one cannot expect to just show up to a monthly or quarterly meeting, vote on a few matters and go home to wait for the next meeting.

The Board can ensure monies are spent wisely, quality vendors are hired and homeowners are encouraged to follow the Association rules.   But realize you cannot solve every issue affecting community members.  An easy trap in which you can fall is to feel that every homeowner complaint needs an Association response.  The Governing documents control and if the area of concern is not addressed in those documents it is most likely not something the Board and/or Association should formally address.  If barking dogs are not referenced in the documents, homeowners should be encouraged to call Animal Control.  If on street parking is not mentioned in the Declaration, then inform a concerned homeowner to call the Police.

By familiarizing yourself with your Association’s governing documents and knowing what you can and cannot do, you will lower stress and improve effectiveness.  Your contributions will not always be acknowledged but are appreciated, for it is the few who help the many to flourish.

Board Behavior

Perhaps the most stressful part of Board service is dealing with confrontational situations.  Few people are professionally trained to deal with a screaming irate person, so how do the rest of us cope?

The key is letting the upset individual see he (or she) is being heard and that his concerns are being taken seriously.  This requires Board members to develop the habit of approaching situations in a calm, measured and seeking manner.  You can avoid jumping to incorrect conclusions by:

• Resisting the surge of instant irritation when someone suggests you are wrong.
• Thoroughly exploring the issue and waiting until emotions have settled.
• Using impersonal phrases. Instead of saying “It’s obvious to me that…” say “One possible position is that…”
• Avoiding an opinion on anything where you don’t know the other side’s argument better than they do.
• Engaging those of contrary opinion, tactfully encouraging their objections.  Resist the instinct to ignore or argue. Instead rephrase these objections to be sure you understand them.
  
• Striving to test or “prove” the opposing view, rather than just looking for ways to defend it.
• Walking in that other person’s shoes.  Actively play devil’s advocate and argue against yourself as strongly as the unhappy person would.
• Abstaining from forming an opinion where some information may be missing. Be comfortable saying, “I don’t know.”
• Avoiding absolute certainty by indicating the degree to which you are certain about an issue. Most decisions should be provisional, based on what information is available at the time.  If circumstances change or new information comes to light, be open to revision.
• Challenging what is generally accepted or assumed as true. Core beliefs help provide identity and the comforts of clarity and certainty, but these can limit the exploration of solutions.
• Asking “What other options are there? What have we missed? As opposed to/compared with what?”
• Being selective or strategic in questioning, targeting claims or positions that are worth challenging, whose rejection may have important or useful implications.
• Putting extra effort into searching for courses of action outside the standard or obvious ones.  
• Developing new, mutually acceptable solutions rather than haggling over existing positions.
• Asking, “What’s the worst thing that could happen here? What’s the best thing?”
• Looking back from an imaginary future, having discovered that your current position was wrong.  What do you see then that you are missing now?
• Admitting past errors.  Sometimes we’ve painted ourselves into a corner with a previous decision, and pride gets in the way.
  

Remember:  Others not directly involved in a particular dispute are watching to see how the Board conducts itself.  Respect and trust, along with credibility and goodwill, will grow among your neighbors as they observe you conducting yourself in a professional manner, making future challenges easier to navigate.

Proxy Pox

In the midst of the annual meeting, one homeowner stood up and challenged the practice of homeowners collecting ten, twenty or thirty proxies and conducting block voting for electing members to serve on the Board of Directors.  While a few homeowner associations do restrict the number of proxy votes (perhaps to just two or three) a person may cast, most do not.

This is because of the other part of the equation that needs to be considered:  Quorum.  A quorum is the minimum number of homes that have to be represented in order for the community to conduct business.  If not enough owners are represented in person or by proxy, elections cannot be held, leaving the current Board in place.  This possibly leads to Board members selecting their own replacements without homeowner input.

The required quorum percentage varies widely.  Communities with more homes tend to have lower thresholds, while very small neighborhoods may require 50% or more of their membership to be present.  A 25% or 33% quorum is typical.

Very often quorum cannot be reached without large numbers of proxies being collected.   If quorum is reduced to a low level and proxies are capped, an avenue is created permitting a few discontented homeowners to frequently change the composition of the Board.  Careful deliberation is impossible in such an environment, and very little community business is able to be conducted.                

In one community of 200 homes, the quorum requirement was 5% of eligible (non-delinquent) homes.  Because of delinquencies, only 150 homes were eligible.  This meant that 7.5 homes, rounded up to 8, were required for quorum. 

Because of the high delinquency rate, the Board implemented a firm but fair collections program.  A group of five delinquent homeowners paid off their debt, met the requirements to demand a special meeting, and ousted all Board members, placing themselves in charge.  Their first order of business was to fire the collections attorney and management company, and then proceed to gut all other services, with the goal of slashing assessments in half.  Many homeowners, not considering the long-term impact of unrealistically low assessments, did not challenge these actions.  The result:  It was many years before any quality vendors would agree to work in the community, and less-savory vendors took full advantage of the situation.  Property values rapidly deteriorated along with the infrastructure.  It took the threat of condemnation by the county before homeowners took steps to reverse course.

While the above is an extreme real-life example, similar results occur with other communities operating under low quorum requirements.   Ultimately, everything boils down to apathy, the final part of the equation which must be balanced out with the right mix of proxy usage and quorum threshold.  With the advent of electronic balloting and social media, perhaps this mix can be adjusted, but communities should move carefully in tweaking voting regulations.   

The Value of Rules

One of the benefits of living in an Association is the enjoyment of amenities at a cost that is also shared with your neighbors. The amenities and other shared spaces are referred to as the "common areas". The governing documents and rules and regulations establish how residents are expected to conduct themselves in these "common areas". Some common restrictions relate to pets, trash cans, smoking, and parking.  These exist to promote a harmonious quality of life for the community - so that everyone is able to enjoy the shared amenities!   Examples include:

PET RESTRICTIONS

In many communities pets must be kept on a leash, owners must pick up and properly dispose of excrement, and excessive pet barking must be curbed to acceptable levels. Off-leash pets pose a threat to everyone, as the owner no longer has control over the dog’s actions. The pet may dart away from the owner and get struck by a car or attack another pet or person. Owners are asked to utilize specific areas to allow their pets to use the bathroom and to pick up after their pets. Besides being unsightly, smelly and offensive, pet excrement harms landscaping and contaminates groundwater. Contrary to popular belief, pet urine is not “good” for the landscaping. Social media guru Garth Johnston states the following in his blog “While urea is rich in nitrogen, and plants require nitrogen for leaf growth, urea is also rich in salt. Remember Carthage? The Romans salted the earth so that no crops would ever grow again. Salt sucks moisture from leaves and roots alike and kills beneficial soil microorganisms. Next time you’re in any park, look at the shrubs at the entrance and on corners; they all have a sad brown arc of dead leaves at the base.” This is due to the fact that this spot is usually a pet favorite when entering or leaving a park. 

TRASH CANS

Trash cans left outside well beyond pick up time are not attractive and detract from the overall appearance of the neighborhood, sending a message that the community is unmonitored. This encourages a rolling snowball effect, as the area becomes a trash magnet, branching out into other issues such as graffiti.  Untamed trash cans can become a hazard if they are left tipped over in the street. It is important for community members to know when trash pick-up days are and what is acceptable to be left on the curb.  Related to this topic, the placement of unauthorized items in the common area also detract from the overall appearance of the neighborhood.

SMOKING

A common issue in condo and townhome communities is the transference of odor into the common areas and neighboring units. While this is largely a neighbor-to-neighbor issue the Association is sometimes asked to intervene in extreme cases. The governing documents for communities typically have language about the right to “quiet enjoyment” of one’s home and go on to address offensive odors or obnoxious behavior. The smoker’s right to smoke is equal to the non-smoker’s right to avoid exposure. It is important for smokers to take steps to eliminate odors through mini-air filtration systems, frequent filter changes in the primary HVAC unit, purchasing upgraded filters, or the incorporation of outdoor smoke breaks.  Some legal challenges have started cropping up where owners sue neighbors over this issue.

PARKING

Parking is often a challenge in communities. Parking guidelines are designed to allow continuous ingress and egress through the community. Improperly parked cars that impede flow and usage are not only an inconvenience but often pose a safety hazard. Limited space available for visitor parking at clubhouses and in condo communities also poses challenges. Frequent communications will breed familiarity with the parking guidelines, so homeowners make the appropriate arrangements for their guests.

Living in an Association provides each home with certain rights and responsibilities. It is crucial for the Association to educate the members about rules and regulations that govern the community. When the majority of the membership is educated on the rules and consistently observe them, property values are positively impacted for everyone. At the end of the day, the rules are in place to protect the investment and enjoyment of all residents within the community, and therefore should be taken seriously.

Financial Reversal

As Community Association Managers, we have experienced some interesting economic times in the last several years. The slump in the economy has placed a real strain on everyone, including the Homeowner Association sector. People are deciding which bills they are going to pay first:  “Am I going to pay the mortgage or pay my HOA assessment bill?”   The HOA bill typically goes to the bottom of the pile. This shifts the financial strain from the individual homeowners onto the HOAs themselves (think about the compounding effect of a number of non-paying homeowners within one HOA), forcing the HOAs to tap into reserves.  In many cases they are depleting these reserves completely, leaving no wiggle room when trying to tackle unexpected projects or disasters that come up, let alone the regular monthly bills.  This is a frightening reality for many associations today. 

There are several keys to making sure that you are doing everything you can to recover the funds that homeowners are failing to pay to the association:  

• Staying in constant contact with the association’s attorney is critical.  Even though they may say they are handling your collections, issue frequent email communications just to make sure things are not going off track.
• Only send over the amount of accounts you can afford. If you send every delinquent homeowner over to the attorney at once, you may end up over depleting your funds. As each account is collected and you have received the money for these accounts, send one or two more over to the attorney.
• Have your HOA board set a consistent collections policy. Most attorneys suggest an outside cap of two years for filing liens and three years for filing suit - because after four years you cannot collect due to statute of limitations.
• Work with the attorney on some kind of deferred fee or advanced contingency plan. Both of these actions typically charge the attorney’s fee back to the homeowner and keep the financial burden away from the HOA.
• If the homeowner asks for some kind of payment plan, have the board accept a plan that is reasonable enough for the homeowner. Six or twelve months are typically considered to be reasonable payback periods.
• If the homeowner asks for a settlement, see if there are any fines on the account that can be removed, especially if all violations have been corrected. Since fines are circumstantial and may not survive a court challenge, this becomes a great bargaining tool. Homeowners see this as an act of good faith on the board’s part. Not only will you collect your money, but positive public relations make this a win-win situation.

Besides collections, review your community expenses and see what can be cut. A prime area is landscaping.  If you can get away with not using the landscaper during the winter months, then do so. Tall grass is the biggest landscaping eyesore and since grass does not grow in the winter…   Shutting off the sprinkler system, especially during the winter months is another way to cut expenses.

These are just a couple of the many ways you can tackle financial woes when your HOA hits financial lows.  Some associations that were completely “broke” a few years ago now have tens of thousands of dollars in the bank. It can be done – Don’t give up hope!  There are solutions and as always, Access Management Group is here to help.

"I'm a Professional..."

A common topic Access Management Group responds to are questions on actions taken by individual Board members:

“Recently one of our Board members, on his own, sent out a message to the community soliciting information about management company interactions.  I’m worried it may have been inappropriate.  What is the rule for communications by the Board?”

If an action by a Board member causes unease, don’t ignore your gut reaction:  Boards must operate in a way that is very definitive, with unified messaging, to avoid needless confusion.   How an email or letter is worded may negatively impact the community’s perception of the Board if it is too “familiar” (using words like “I” rather than “We”) in tone, or can be perceived as political in nature. 

Remember:  A community association is a corporation run in the manner of a business, not a city council.  While the natural desire is to be friendly and informal, any communication from the Board or a Board member will be taken as an official pronouncement by some in the community, regardless of intent.

The best policy is for the Board to designate a single point of contact, whether that is the Board president, secretary, or the community association manager.  Whoever is selected should have excellent composition skills:   Misspellings and grammatical errors will distract from any messaging.  Nothing should be sent to the community without review by the Board as a group.  While not every Board member will respond or agree with a particular notice, all should be focused on maintaining the professional image of the Association.

All of this relates to the broader issue of a Director choosing to act independently of the Board.  The Georgia Real Estate Commission, which oversees the licensing of Community Association Managers, has provided the following on dissenting Directors:

• A Director who does not agree with the decision of the group should request that his/her dissenting vote be identified in the Minutes of the meeting

• Although not required by law, a dissenting Director should keep the discussion at the Board meeting confidential even though he/she disagrees with the final result

• If the dissenting Director uses knowledge obtained at a Board meeting to undermine the association, the dissenting Director could be in breach of his/her duties of care and loyalty and personally liable (without indemnification) for any damages their actions create

• The Board should send a cease and desist letter to the dissenting Director

• The Board might need to vote to remove the dissenting Director (sometimes membership must vote to remove a Board member)

• The Board might need to obtain a temporary restraining order against the dissenting Director

As you can see, this is a serious topic that needs to be discussed frankly and frequently among all Board members.  Setting expectations in advance of such negative behavior is key to preventing a dysfunctional and disrespected Board.

A Corporate World

Consider this real-life scenario: Bob purchased shares of Coca Cola stock without first reviewing the company’s performance and future plans.  He was looking forward to earning dividends along the way, and surely he could sell his shares and get out at anytime with extra money in his pocket.

Leading up to the annual meeting, Bob received a mailing from Coke, detailing plans for further expansion in to South America, and he was upset to discover that no dividends would be issued.  Because of liability the company was addressing, the value of his stock actually dropped.  There were other items as well, and he didn’t agree with any of them. 

He immediately sent a series of messages to the Board of Directors, challenging them on various items, claiming they didn’t have the authority to take certain steps without stockholder approval, and threatening legal action.

The Board didn’t respond, as all of Bob’s challenges were invalidated by the regulations spelled out in the company’s governing documents – an educational experience for Bob that came at the cost of hiring an attorney.  When Bob complained that he hadn’t known about these regulations, he learned it was up to him to discover such things.  Ignorance of the law is no excuse.

Unfortunately, many prospective homeowners are like Bob, not taking time to research the community that they plan to purchase in to.  They are shocked to discover the level of authority a homeowners association carries.  Disagreements over budgets, assessments or compliance violations often result from misunderstanding the roles and rules that a person agrees to when moving in to a deed-restricted community.  

Just like Coca Cola, homeowner associations (HOAs) are corporations and operate under the same set of laws.  Many of the restrictions you would face as an employee or an investor in a company apply to HOAs.  While a firm may have a clothing dress code, your association has a housing dress code.  Your employer won’t allow you to set up a camper trailer in the parking lot, and the same trailer would not be permitted in HOA’s common area.   The similarities go on.

With some exceptions, a person is able to contract away many of the rights granted by the U.S. Constitution.   A homeowner may stand up in a community meeting, waiving a copy of the Declaration of Independence or Constitution, and demand the right to post any type of signage he wants in his yard.  However, he is bound by the covenants he entered into when purchasing his home.  These covenants are a contract between all homeowners in the community, and if they require signage to be posted only in the window of a home, the homeowners will need to come together as a group to alter the terms of the contract to permit signs elsewhere. 

Such amendments are not easy to pass, and anyone buying in to a community should assume that the regulations will remain unaltered.   This is not necessarily a negative situation:  It prevents the implementation of truly horrific regulations that would create misery for the neighbors and drive down home values.  The amendment process is intentionally cumbersome, encouraging thoughtful deliberation over a span of months or years.  Slow change is preferable to a whirlwind that leaves your community in shambles.  For items worth changing, working through the process, rather than railing against Board volunteers, is the path to success.