Money, Money Everywhere

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

So let’s talk assessments.

In the Declaration, the origin of an expense determines how it will be paid.  Some items clearly benefit the entire community, and so are paid through the regular annual operating budget.  Other expenses are linked directly to a subset of homeowners, and are billed exclusively to them.  Some expenses will occur in future years, requiring the collection of capital funds or initiation fees.  And some unplanned expenses require the imposition of emergency funding via a special assessment.

Community-wide assessments may be evenly divided among all homes, or split based on percentage of ownership tables, with larger homes paying a greater share.  They may also be calculated based on utility meter readings.  If the Association is handing the master billing for a particular utility, it has the right to turn off said utility whenever a homeowner becomes delinquent.  For condominiums, this power may only be invoked after obtaining a $750+ judgment against the home.

There are also indirect assessments, which arise if the Association orders owners to conduct repairs or safety-related measures (such as the purchase of fire extinguishers), or to obtain homeowners insurance.  Regardless of the type of assessment, courts have made it clear that nothing mitigates the requirement to pay.  Full payment is required even if a homeowner does not use the community pool, or has incurred personal expenses due to poorly maintained roads.  Any dispute the homeowner has with the Association must be taken up separately.

Individuals who enter in to contracts with a homeowner may also be held liable for unpaid assessments.  If outstanding debt wasn’t collected from the seller of the home at the sale, the buyer may be pursued for the full amount.  The Declaration may also stipulate that tenants in an HOA be required to pay full monthly rents to the Association until an owner’s outstanding balance is cleared.  Facing this, the tenant may decide to break the lease rather than get caught in the crossfire.  To avoid losing tenants, the landlord often settles accounts with the Association.

While many communities offer homeowners the ability to spread out the payment of an assessment over a period of time, technically the full amount is due on the first day of the fiscal year.  When a homeowner becomes delinquent, the Association has the option to call the full annual amount due.  This is known as acceleration, and is normally invoked toward the start of the year, providing a higher dollar amount to be pursued via lawsuits.

During the collections process, the homeowner may enter into an agreement to pay back outstanding assessments over a span of months.  However, remember that payments of fines, late charges, interest, and legal fees often come before the principal balance is addressed.  If the payment agreement doesn’t suspend future late charges, or the homeowner is slow in paying debt, many more months may be required before payments actually start being applied to principal.

Stay tuned for future blogs on specific sections of the governing documents that Boards need to heed!

Can I Have the Definition?

This is the second in a series of postings providing a detailed look at the governing documents for a homeowners association.

One of the mainstays in our public education system is the emphasis on definitions.  For most, a list of definitions is as interesting as reading a list of genealogies.  We already have a general grasp on the meaning of words and phrases, and often gloss over this section in reference materials.

However, homeowner associations are neck deep in contract law, with a very precise use of language that has been agreed to over centuries of legal wrangling.  A misunderstanding of definitions can be a fatal mistake for the Board of Directors.  While Directors should rely on advisement of third party experts (managers, attorneys, CPAs, engineers, insurance brokers, etc.) when it comes to definitions, a basic understanding is also a basic fiduciary duty. 

Here are some interesting terms you come across in the governing documents: 

Boundaries – this item describes the borders of a homeowner’s property, and while more important for townhomes and condominiums, in all instances it is vital in determining maintenance and insurance responsibilities.

Common Elements – lying outside of the boundaries described above, these areas are managed and maintained by the Association, with some maintenance responsibility shared with homeowners when exclusively assigned for use by a single home (such as a patio area).  Often, the Board is empowered to redefine usage (assigning parking spaces) or close off access to Common Elements (shutting down the swimming pool for the winter).

Indemnification – a promise to spend money as necessary to defend another party.  For example, the Association will agree to defend the management company if sued, since the management company has been designated as an agent of the community.

Self Help – the power of the Association to send in agents to correct a violation or address a safety issue on a homeowner’s property, without the homeowner’s consent.  While typically invoked to mow the lawn, more frequently the Association will first obtain a court order before conducting more intrusive actions, such as repainting the home.

Grandfathered – an exemption from a regulation for a homeowner who qualifies via time limits.  Newly adopted leasing restrictions frequently see use of this concept:  Owners who are leasing out homes at the time of the leasing amendment are permitted to continue leasing.

Lien – a claim against property (in this instance, a home) for funds to be collected when a sale or refinance occurs.  In addition, homeowners may be personally liable for delinquency amounts.  A bank foreclosure removes the association’s lien, but the homeowner remains personally liable unless he or she successfully goes through a bankruptcy process.

Proxy – a person appointed by the homeowner to act in his or her absence when casting votes

Quorum – the minimum number of people who must be represented in a meeting, either in person or via a proxy, before votes may be cast.  The quorum is established at the start of the meeting, and failing to reach the required threshold bars formal business from being conducted.

Majority – while this usually is 51% of all homeowners, to approve items such as budgets, some governing documents may define it differently, or limit the pool of owners to those not delinquent in paying assessments.

May/Shall – one of the most abused terms in governing documents.  ‘May’ indicates that the Board has the option of acting on an item, where ‘Shall’ is a command to take action.  Too often, a Board obligates the community to work not required, or refuses to do required work.  Both errors lead to costly results.

Stay tuned for future blogs on specific sections of the governing documents Boards need to heed!

I Do Declare

One of the fundamentals of homeowner associations is the presence of a binding agreement on obligations and rights between neighbors.  Similar to the Mayflower Compact, these promises are established in a document that goes by various names, such as Covenants, Conditions & Restrictions (CC&R) or a Declaration of Protective Covenants.

For those new to the homeowner association concept, we are beginning a series of blogs to provide a framework for understanding how these obligations operate.

At the basic level, an association is an agreement governed by contract law.  Because many of the regulations mimic civic law, it is easy to forget that the two are not the same.  Civic law creates the foundation that permits property ownership, along with restrictions on the use of that property.  Some of these restrictions are imposed by civil government, such as zoning ordinances. 

Other restrictions are created by the persons who buy and sell the property.  For example, an area of farmland may be sold to a housing developer, with the stipulation that 10% of the acreage be dedicated to parks.   Depending on how this restriction is structured, the park land may have to exist ‘forever’ or it may be removable under certain conditions.

In homeowner associations, this same concept is utilized on a larger scale.  Some of the use conditions are easier to alter than others.  In some cases, a restriction may be considered a violation of public policy, and be voided by the civil authority.  For example, the Right of First Refusal was a common restriction in many land exchange transactions going back a century or more, and permitted prior owners the option of buying back a home to prevent it from being sold to non-white Americans. 

On the opposite end of the spectrum, some civic laws may be ruled as an impairment of contract and not enforceable against homeowner associations.   An example of this would be a state law permitting an individual homeowner to use the courts to bypass the community’s amendment process for changing the governing documents.

Future posts in this series will drill down into specific sections of the Declaration and consider their implications...so stay tuned!

Feeling Social?

Do you really need a Social Committee? The answer is YES, YES, YES!

The power of a strong social committee is easily overlooked in communities. When reviewing the annual budget, the social event line item is often dismissed as an unnecessary expense. Apathy amongst community members is a common frustration of community association leaders. The dictionary defines apathy as the lack of concern or interest. How do you combat apathy? You generate interest! How do you generate interest in the community? –You act. Action cures fear—and apathy. The first step is finding one or more members who are willing to plan a social event.

Social events help to build relationships among community members.  As owners begin to forge relationships with one another it will increase their level of commitment to the community. The events do not have to be extravagant in order to be meaningful; but they do need to be well planned, so members will want to come to the next event. Some of the common social events that are easy to implement are as follows:

• Ice Cream Social
• Movie Night
• Pizza Party
• Cupcake Social
• Holiday Celebration

Social events promote owner involvement. As owners begin to develop a positive rapport with one another they begin to engage in more conversations about the community. Positive dialogue leads to progress and ultimately an enhanced quality of life for everyone. Ideally, others will want to become a part of a committee or serve on the Board as a result of being present at community functions.

Ultimately, strong communities are built on strong relationships. The true essence of a community is togetherness. Actions that break down a community are social cliques, apathy, and secrecy. Actions that build community include social events, owner involvement, and communication. Knowing this, we should move to increase the funding of community social events. Failed functions in the past should not dictate future efforts to plan an event. Some owners are pleased with knowing that there are people who simply care enough to make an event available for them to attend - even if they are unable to attend an event. The impact of a social event for a community is often intangible but it’s also invaluable. The action you take today determines the quality of life for your community tomorrow. Cheers!

The Advantages of a Property Management Firm

The task of running a homeowners association or condominium association can put undo stress on property owners. There are specific bylaws, covenants and financial document preparation that must be administrated. Following the law and preparing financial statements, such as operating budgets and receiving fees, can be an untold burden on property owners. 

The advantages of a professionally managed association are numerous. We take the daily administrative tasks out of a board's hand and let them concentrate on maintaining the integrity of their community. We will work side-by-side to govern and address any issues as they arise.

Our Pledge to You

Access Management Group is committed to providing 24/7 services our clients. We can be counted on to be contacted at any time for emergency situations. We are available via our Web Portal, the telephone, or by email. With our over 30 years of professional management experience, providing outstanding services to over 50,000 satisfied homeowners, Access Management Group is a group of skilled and talented professionals who are adept at handling any challenging situation. Our vast knowledge of bylaws and covenants, as well as our intensive knowledge of a financial reporting ,makes us a trusted name within the Atlanta metro area.

We Can Help

Our goal is to provide homeowners with a peaceful and community-focused place to live. Our services are tailored to provide homeowners with a set of professional services that promotes good relationships amongst neighbors and allows community members to live in harmony.

   

Homeowners Association

Here’s what we provide:

• Guidelines to homeowners on architectural questions and field maintenance requests.
• Plant maintenance and scheduling services, code, and project review as well as recommendations.
• Design assistance as well as construction management and oversight.
• A professional team that offers payment confirmation and approval, sub-contractor coordination, risk management assessment, insurance claims assistance and review as well as offers architectural review and compliance.
• In-home repair services, such as carpet installation, electrical work, plumbing services, chimney repairs, heating and air systems, foundation and roof repairs.   Our in-home repair services are provided by a group of pre-approved and licensed trade professionals.    

Board of Directors

Our professional team partners with your homeowners association to provide expert guidance on its fiduciary responsibilities, financial statement preparation, governance authority, and budgets. We work closely with boards to ensure compliance and accord between homeowners.  

Our goal is to empower homeowner and condominium associations with the ability to operate in a professional, legal, and friendly manner - which promotes harmony and trust amongst neighbors.

A well-run homeowners or condominium association will pay dividends by improving relationships between neighbors and promoting the community to potential buyers. This will only maintain the value of the community and appeal to prospective buyers and keep homeowner turnover low.        

Going To War

Many communities have horror stories with lessons for the rest of us.  Here is one such story, with events happening many years prior to the community becoming our client.  The following occurred within a six month period, back in 2003:

The community was finalizing a legal settlement requiring reconstruction of a 12-unit building.  Two owners held all these units and were obligated for interior reconstruction costs, with all common elements and shell of the building payable by the community.  The Association’s insurance did not cover any of the cost due to a vacancy exclusion clause, triggered when a vagrant burned down the building.

At the same time, the community had revolted against a necessary 40% increase in assessments.  Prior to the annual meeting, many long-term delinquent homeowners paid off their debts, and voted to shift control of the Board to themselves.   It was incorrectly believed that the new Board would be able to somehow reverse the legal obligation to rebuild the destroyed building. 

Things had gotten off to a rocky start.  The new Board members had difficulty understanding HOA regulations and in some instances ignored these altogether. The treasurer immediately alienated all vendors before the new Board was able to line up replacements - he suspended all payments and his inquisition against the vendors eventually drove many away.  The management company terminated its contract.  Vendor liens cropped up.  Within months the President outraged the few remaining vendors, and he particularly enjoyed firing the collection attorney, who until recently, had pursued his own debt.  So much time and energy were spent by the Board fighting enemies (real or imagined) that all resources were exhausted.  Bankruptcy loomed. 

At the same time, the Board realized self-management was too time consuming, and hired a management company to take charge, providing leadership and direction for the Board.  A recall election was attempted by the Board to remove the Treasurer.  He showed up at the recall meeting with his guitar and sang a folk song (sung in Russian, not English) explaining why he should be retained.

All in attendance voted for his ouster, and the Board prematurely declared success. When in fact, voter apathy had prevented the necessary number of ballots for removal, but the Treasurer was stripped of his office and essentially marginalized during the rest of his tenure.

At the same time, things were heating up with the building replacement situation.  The community missed mandated deadlines, placing it in default and exposing it to penalties.   Tied into this were secret, unauthorized meetings conducted by the Board President with the owners of destroyed building.  Negotiations were progressing for the outright purchase of the slab with construction funds already collected in the loss assessment. 

In late summer, the President revealed this to the rest of the Board.  Board members were sworn to secrecy while details were being worked out.  The President expressed complete faith in the building’s two owners, but warned of enemies within the community bent on destruction.

In the weeks that followed, a newly-added Board member reviewed the ramifications of the proposal, and determined that the long term costs were too great to justify the proposed settlement price.  Further, the funds in the loss assessment account could not be touched – being legally obligated for use in construction.  Any homeowner loss assessment insurance proceeds (which accounted for a third of the funds) would have to be returned.  An election by the owners to approve a special assessment would be required.  This was not a do-able deal.

The conclusions were presented to the Board, but ignored.  The President finally consented to consult with the HOA attorney for a legal opinion.  This never occurred, the stated reason that the attorney was part of the conspiracy involved in destroying the community.  After weeks of stalemate, a forced meeting between the President and attorney occurred, with the attorney nixing the proposal.  To prevent further interference by the newest Board member, the rest of the Directors began holding impromptu undocumented meetings.

Meanwhile, collections efforts had ceased and homeowner delinquencies climbed to 50%.  By October the community came within 24 hours of having its water cut off, after defaulting on a payment plan. In November the Board was finally convinced of the need for collections.  The year ended with a special assessment to bridge the cash shortfall and pay the lapsed insurance policy.

 

All communication with the two owners of the destroyed building continued to filter exclusively through the President, with no means of independent verification.  The President delayed the implementation of an audit, citing the need to resolve unspecified items.  Fulton County revealed discrepancies in the reasons for delays in obtaining a building permit:  lies and interference by the President.

Later it was discovered that the President was preparing to handle the rebuild through his own construction firm.  He also failed to disclose he had been in negotiations to personally buy out the owners of the destroyed building.  He did not recuse himself from votes and deliberations despite this conflict of interest.

With only two months left prior to the next election, another group of homeowners rounded up proxies and voted in new members.  The President lost his majority control in the Board, but remained defiant.  He continued negative attacks against other Board members, driving first one Board member, then that member’s replacement, to resign rather than deal with an atmosphere of animosity. 

His attacks intensified, followed by the resignation of yet another Board member.  He ceased paying assessments, and frequently missed Board meetings.  Finally, days after the departure of the one final director who was his supporter, he abruptly resigned.  It would be four more years before the Association collected his $10,000+ in unpaid assessments.  These years would see more battles before the war was won and the community finally put on a positive path.

The Name Game

In many cultural narratives, power over a person rests in knowing his true name.  A classic example is the story of Rumpelstiltskin, whose scheme was stymied when his name is guessed.  This tradition carries on in our legal system, where we can be bound by contracts as long as our accurate name is used. The idea is so ingrained in our system that a whole industry has sprung up to address identity theft.  In contrast, being anonymous gives us freedom from consequences, sometimes with bad results.  The struggle between the two extremes makes for interesting times.

For homeowner associations, what appears on a property deed dictates ownership and determines success in collections.  A divorce results in one of the owners being removed from the property, but until the Association receives legal paperwork reflecting this change, both owners continue appearing on the records and are held responsible for community obligations.  If a spouse was never included on the deed, he/she may not be bound by some covenants (i.e. paying assessments) or mortgages.  And if an owner legally changes his/her name, court actions using the previous name can be invalidated.  In non-statutory HOA communities, paper liens can be voided with a simple misspelling of a person’s name.

Fraudulent uses of deeds do crop up.  For example, the homeowner may deed the property to a relative in an attempt to frustrate collections efforts.  If this change occurs after the HOA collections process has begun, the Association may only discover it after money and time have already been spent pursuing the 'wrong' person.  Even running title searches during collections may not immediately uncover the truth, due to delays in the county recording process.  Then once the Association serves this new owner a lawsuit, it's not unusual to see him immediately deed it back to the original owner, causing further delays.

 

Owners may opt to hold the property in the name of a business entity, such as a trust or limited liability corporation.  In some instances this is done to make collections more difficult (the corporation does not have funds to garnish), or to bypass certain regulations such as leasing restrictions (i.e. appointing a renter as an officer of the corporation).

Another concern is the type of deed used to convey property.  A special warranty deed transfers rights without guaranteeing against a disputed claim from a past owner.  A limited warranty deed may only transfer some of the property rights, or for only a set number of years.  Deeds may contain additional restrictions added by the seller, going beyond what exists in the community’s governing documents, such as requiring that the property automatically revert back to another owner under certain circumstances.  With the rise of short sales, there is the deed in lieu of foreclosure, which leaves liens against the property in place.  


These types of situations are more common when a bank loan isn't used to purchase the property.  However, even with the use of legal counsel and title companies, occasionally these issues slip past everyone (including banks), causing headaches for the Association. 

Correctly identifying ownership issues is just one challenge faced by Boards of Directors.  As a Director, you are not expected to be an expert in all things. Rather than bogging yourself in minutia, utilize third-party experts to navigate and resolve such issues.  Another example:  For those of us who work with financials in other industries, HOA accounting idiosyncrasies are mind boggling.  Best to leave the booking entry questions in the hands of an outside CPA, allowing you to focus on high level decision making!