By Josh Pangan, Director of Business Operations at Optimal Outsource - Community Mailing Specialists

While walking through the airport or clicking through your television, you may have come across a promotion from the United States Postal Service regarding “Informed Delivery.”  Simply put, Informed Delivery allows homeowners to see what's in their mailbox from their email inbox.  So what is this new feature from the USPS? Clairvoyance?  Magic?  Or, is it a welcomed response from a time-honored service striving to turn a corner with technology?  My vote is it's welcomed, and very cool!  

Typically, my neighborhood mailman delivers to my mailbox around 2 p.m. while I'm at work. However, like magic, I've known since 8 a.m. what was to arrive that afternoon.    

Every morning I can preview my mail scheduled to deliver that day via email notification, online dashboard, or mobile app.  Users also have the ability to interact with digital content provided by business mailers (e.g., special offers, related web links) directly from Informed Delivery!  So when my HOA assessment statement arrives, I'll not only see an image of the envelope but also, I may be able to click a link that leads me to anyplace relevant to that envelope, like my community association's website.

Email is the dominant communication platform for most individuals; however, regular mail is still a daily part of all of our lives.  USPS set out to integrate the two worlds by bridging a homeowner’s need to interact digitally without losing the importance of their physical mail.  The USPS was already digitally scanning the front of all letter-size mail pieces to assist in the sorting and delivery of mail. With their existing technology, it was a logical transition to display those same images to homeowners in advance of the delivery of the physical mail.

Informed Delivery is completely free and safe. The USPS Information Security program and the Inspection Service monitors the network for unusual activity to ensure that your information is kept safe. It is available nationwide to eligible residential consumers as well as those with a PO box in an eligible zip code. During the sign-up process, homeowners will be prompted to complete an identity verification process to confirm their home address.

If you are interested in Informed Delivery, please visit informeddelivery.usps.com to sign up. Follow the on-screen prompts to check if your individual delivery address is eligible for the feature.  Once opted-in, enjoy the service and be on the lookout for what's next!

By Miles Buckingham, Shareholder, Nemirow Perez, P.C.

Imagine the worst thing that a Board Member ever wrote or said out loud. 

Now imagine that same thing read out loud to a jury. Seem uncomfortable? Remarkably, that is actually preferable to having the Judge tell the jury how communications of the Board were deleted, lost, or destroyed. When documents which should have been preserved were not, the Judge may tell the jury that they should assume that the lost email would have been very, very damaging to the Association. Saying things in writing that are not well thought-out can be very harmful. Deleting evidence can be worse. It is better to avoid the whole situation by being smart, starting now.    

Welcome to the world of preserving and producing documents. The law requires the preservation and protection of a broad scope of communications, writings, documents, and materials against deletion, loss, or destruction. That duty exists even outside of actual or threatened litigation. In the face of a likely or threatened claim, the duty to preserve materials grows.

Standard Document Requests

Making association documents open and available for review and inspection facilitates transparency and good governance. Even so, responding to, and meeting the obligation of demands for records can be expensive, onerous, and fraught with potential exposure and liability. 

When it comes to record requests for documents reflecting actions taken by the Board without a meeting, virtually everything is fair game. A very ordinary exchange of emails about renewing a contract or a contentious design application may have to be turned over, completely. Now, in lightning-fast emails and texts between Board members, someone inevitably interjects a comment or a joke into the thread. Even if that is embarrassing, in bad taste, all of it- the good, bad, and ugly parts of the exchange are available for an owner to demand and review.  

In Colorado, owners have the right and ability to demand quick access to a wide-ranging set of association “records.” Under 38-33.3-317, C.R.S. broad categories of materials can be requested by owners and must be made available in as little as ten (10) days. This law is to be read in conjunction with the association’s document inspection policy, which can promise more information in even less time. See 38-33.3-209.5, C.R.S. A demand for documents need not be made only on the form created by the association for facilitating a request. Instead, a demand for records may be buried within a dozen-page letter of complaint, creating opportunities for claims of illegally withheld information and materials. Everything from owners needs to be read.

The process of obtaining emails or texts for production can be expensive and time consuming. Board members who use emails or text systems which are not dedicated to HOA business find themselves having to surrender access to their personal email accounts, or explaining to employers that their email system will have to be accessed just because the board member could not be bothered to check two different email accounts. In the financial, or medical industries, these intrusions could mean a person’s job. 

Having a dedicated email for HOA matters can be invaluable. Dedicated email accounts where the manager has password access or is automatically copied on all emails are even better. A segregated email account prevents your Board from the embarrassment of having their personal matters reviewed for a document demand. And while applications like Boardroom check a lot of boxes, the system is not easily accessible to counsel in case of a suit. There is also the issue of who owns, and is preserving, the data being created by that application. If it disappears tomorrow, so too do the documents the Association is obliged to preserve.

Being able to quickly access, search, and produce records should be a primary goal of any system used by Boards to communicate or share HOA matters. If each member of your Board is not using a dedicated email address which can be accessed, searched, and archived by management (or two members of the Board of Directors) at any time, you have a problem on your hands even though you may not know it for a few years.  

Litigation-Based Document Requests

In this era of technology, electronic documents have become the same as hardcopy documents. As such, they must be preserved properly. In lawsuits, a much broader scope of materials can be demanded from managers and the Board. If materials have not been preserved, there is a very real risk of very real consequences from the Court. From the moment that the Association, or any member of the Board or Management have a credible and reasonable belief or expectation that a suit may be filed, any archiving or deletion of communications needs to stop. Not just emails, but all text messages having anything to do with anything even touching an aspect of the suit need to be saved. All emails need to be preserved too. This can take disabling the auto-archiving default processes of an email program used by Board members. Taking affirmative steps to preserve everything in the face of a claim is not enough: Being able to prove that these steps were ordered, and actually taken, is important as well.

What to Do

If your Board of Directors tolerates Board members using personal emails for HOA business, stop that right now. Collect and save the HOA emails the Board members have to date and preserve them all in addition to those communications on a dedicated channel going forward. Create a document retention plan for both non-litigation scenarios, and possible litigation scenarios. Educate your Board members (and managers) as to the level of intrusion which is possible just using the Common Interest Ownership Act. Get them to appreciate that virtually everything that is done as a Board member is open, and available for review. Talk to a lawyer to get help preparing to meet these challenges. 

By Amber Wood, City & County of Denver, Energy Program Administrator

Denver’s Green Buildings Ordinance developed from the citizen-led Green Roof Ordinance that provides flexible compliance options while honoring the original vote.   The Ordinance requires all existing buildings over 25,000 square feet to install a cool roof at roof replacement and choose one of five compliance paths including green roof/space, pay for off-site green, solar, certification, and the Energy Program.  

Green Buildings Ordinance Options for Existing Buildings

The Energy Program is one compliance path for existing buildings and includes flexible energy efficiency and renewable energy options.  The program allows a building to take advantage of recent energy improvement projects and have up to 5 years to comply with the Ordinance after enrolling in the Energy Program.  The Energy Program helps owners and managers lower energy expenses, increase building valuation, and there are many benefits from living in an energy efficient residence.  

Owners and managers can enroll a building in the Energy Program prior to or at the time of roof replacement.  To enroll early in the Energy Program, you simply need to complete an online form.  You can submit your early enrollment Energy Program Form online here.  Enrollment applies to a building for 20 years or through one roof replacement, whichever is longer.  

Enroll before it's time for a roof replacement so that your building can:

• Get credit for recent energy-efficient improvements (up to 5 years prior to enrollment).
• Get ongoing credit for energy-efficient improvements (before replacing the roof). 

Your building may already meet the energy savings needed!  Look-up your building on the Energize Denver Benchmarking Map to determine if the building complies with the Energy Program.  Your building already complies if:

• It has an Energy Star score of 85 or greater.
• The annual weather adjusted Energy Use Intensity (EUI) has improved by 10% or 15% (based on building size) compared to previous reporting years.  

Annual reporting is required for each option in the Energy Program via the building’s annual energy benchmarking report sent to the city via ENERGY STAR Portfolio Manager.  Full details are available on the Energy Program’s website.  You can also contact us via email at energyprogram@denvergov.org or give us a call at 720-865-5451!   

By Daniel Brannigan, CEO Insights

Association websites can be a tremendously valuable portal for management companies that want to provide 24-hour communication with owners. A strong association website allows management to communicate with association residents, prospective buyers, service providers, employees, media and the public. An effective website can disseminate important information to each group in one complete package that can be updated as necessary. 

“Websites allow management companies and associations to be accessible on the resident’s timeframe. So often, people in communities are volunteers so they tend to do things ‘off hours,’” says Susan Sanders, Vice President of AtHomeNet, an Internet development and hosting company. 

Many management company and association websites list community descriptions, contact information, and some might even have community documents posted, but Sanders says most aren’t taking advantage of the available technology. 

“Management companies and associations need to use technology to their advantage. Automate as many tasks as possible; only use human resources where they can truly have an impact,” says Sanders. 

Including services such as online payments, amenity reservations, and even a frequently asked questions section can significantly increase management efficiency. Every question answered or service available to residents on a website is one less task that a manager needs to address. 

Drew Regitz, president and co-founder of AssociationVoice, also an Internet development and hosting company, explains that websites need to have useful and useable information. 

“It’s not necessarily if you build it they will come. It’s not the ‘Field of Dreams,’ so to speak,” says Regitz. “You’ve got one chance to make an impact with your site. First impressions count. If you don’t have useful and usable information, they won’t return.” 

Some of that useful and useable information includes a calendar of events, an online survey, a chat room for residents, an intranet component—so employees and associations can communicate and share on their own site—and vendor portals where request-for-proposals can be posted and vendors can respond directly. 

Several service providers specialize in creating and maintaining websites specifically for community associations or management companies. Cost typically depends on the size of the site and the features involved. 

Some services even help place your site high in search engines queries. However, once you get visitors there, you’ll want the features to keep them coming back. 

Daniel Brannigan is editor of CEO Insights.

By Clint Larson, 303tech

A few months ago, we received a call from a client about some missing emails.  Upon investigation those missing emails turned out to be much more than that.

Several weeks prior, some of this company’s email accounts were compromised.  Not just one, or two, but as many as five accounts.  The hackers gained access through a simple email request to verify the email credentials, and then they waited patiently for their opportunity.  They had access to the CEO, CFO, AR, Executive Assistant, and the Help Desk.  The hackers waited, going through email accounts, learning how the company operated, and with whom.

One day, the CEO received a call from one of their clients explaining that they were pulling the money together and he would have it by the end of the week.  The CEO, confused, started inquiring about what he was talking about.  For the last week, the customer had been receiving emails from the CEO, CFO, and AR about multiple outstanding invoices.  These emails started out kind enough, but soon turned very demanding.  The emails were requesting hour by hour progress on the payment which needed to be wired into the account immediately.  The sum: $1,845,000.  The exact amount of the outstanding balance.

Fortunately, that client was able to pull back the transfer before any money was lost.

Hackers have easy, affordable access to more and more sophisticated systems. They are no longer just sending out an email campaign in hopes of someone clicking on it.  It is one thing to steal the identity of a person, but what happens when they steal the identity of an entire company?  This is easier than you think. Once they have access to the emails, they can setup phone systems, start making calls, and request money be directed to anywhere they desire.

What if this was a title company looking for a mortgage payoff?  What if this was a request from a management company looking to transfer the reserves to a new management company?  What if this was a vendor looking for a deposit before work could begin?

Would you know how to spot it?  Would you know what to do?

There are hundreds of scams in cyberspace.

Wire Fraud

Romance Scams

Payroll Diversion

Company Impersonation

Business Identity Theft

Ransomware

Phishing

Tax/W-2 Fraud

Pet Scams

That’s just the tip of the iceberg.

The real estate industry lost over $18 million in October of 2017.  That is just the real estate industry, and in a single month.  We are a part of that industry.

What can you do?

Follow some simple rules about emails:

1. Are you expecting this email?
2. Is this the type of email this person would typically send you?
3. Is there a call for immediate action (click a link or open attachment)?

These three things may seem simple enough! If you follow them you are going to save yourself, your company, and your clients a lot of headaches.

Other items such as; email addresses being misspelled, improper grammar, special characters like Ⱨere or Ɱy, and learning to hover over a link to see where it is actually going to take you.  All of these things will help prevent these malicious attacks.

What to do if you are a victim.

1. Change all of your passwords.
2. Contact your Bank/Financial institution and put a fraud alert on your accounts
3. Contact ReportWireFraud@state.co.us  ReportWireFraud.com
   1. Be prepared with email requesting funds w/wiring instructions
   2. Email Headers (IT people can get that)
   3. Also report this to IC3.gov

If you need any further information, please contact CBI or 303tech.

By Tony Diaz III, CMCA, AMS, Worth Ross Management Co., Inc. AAMC

As onsite managers we are sometimes asked to help prepare an RFP and in selecting a contractor. While there are many approaches to doing this, I have found the following works best for me.  Using this method, allowed our building to complete 3 different yet major projects totaling almost $2.8 million in just 18 months. 

 

• Step One – Build an RFP:  Depending on the type and size of the project, we managers might not be the best person to build the RFP. In all three of our recent projects, I suggested to the BOD to hire a third party who is better qualified to build the RFP. They agreed and the RFP was developed after several onsite visits and with significant input from the property manager. 

 

• Step Two – Identify Potential Contractors:  Once the RFP meets the recommendations of the third-party expert and those of the onsite manger, you can work to put together a list of potential contractors. The RFP should be sent to them at the same time by the RPF provider.   

 

• Step Three – Plan a Contractor Meeting:  While not required, I strongly recommend a mandatory meeting be called for all contractors who have an interest in providing a bid. This meeting should be 7 to 10 days after the RFP was sent out. This allows time for the contractors to review the RFP and identify any concerns or questions they may have.  

 

• Step Four – Contractor Meeting:  Every contractor that wishes to provide a bit must attend this meeting. After all the contractors have arrived and introductions have concluded, the RFP provider should review the entire RFP with questions allowed at the conclusion of the presentation. This ensures the RFP is covered as presented prior to making possible changes.  

 

• Step Five – Contractor Meeting Walk Through:  After the Q&A, all potential contractors should walk the property to review the items which need to be addressed according to the RFP. If subsequent visits are needed, they should work directly with the onsite manager to gain access to the building. 

 

• Step Six – Contractor Meeting Conclusion:  To conclude the meeting, it is important the certain items are covered one last time. Those could include the due date for the bid. Where the bid should be sent. Explain that any questions which may arise after they depart the site should be sent to the RFP provider so they can respond and copy all other vendors. This ensures everyone gets the same information. 

 

• Step Seven – Review of Bids:  The provider of the RFP should receive and review all the bids. They should give the onsite manager a comparison of the various bids. They should also provide a recommendation with their justification on the selected contractor. 

 

• Step Eight – Selection of a Contractor:  The manager can now review the information provided. Compare it to the original RFP and the provider’s recommendation.  Once the manager feels comfortable with 1 to 3 potential contractors, they can present the information to the BOD for a final decision.  

By Trisha K. Harris, White Bear Ankele Tanaka & Waldron

It’s August, and that means one thing: Budget season is upon us. With budget season comes the age-old question for many boards and managers; Should we raise assessments?  Is there any chance we could actually lower assessments this year?  There are many factors that go into such budgetary decisions.  The following are considerations that go into either choice.

Raise the Roof

• Does your association have deferred maintenance that can no longer go unchecked? If so, an assessment increase may be inevitable in order to avoid a large special assessment at some point in the future.
• Has your association been lagging in saving reserve funds in line with your reserve study?  If so, you may need to consider raising assessments to get your reserve fund caught up to the level recommended by your reserve study.
• Does your association desire to make certain larger-scale improvements, such as adding new playground equipment or upgrading landscaping?  If so, it may be prudent to raise assessments to fund such projects over time, rather than imposing a special assessment.
• Is your association consistently busting your budget each year?  If so, it may be necessary to take a hard look at your budget line items to determine where budget shortfalls are occurring, and increasing assessments to give the association more breathing room in your contingency line item.
• What is your current delinquency rate?  If owners are struggling to pay assessments at the current rate, will an increase in assessments create more collection problems for the association?
• Is owner approval required for an assessment increase?  If your community is a post-CCIOA community (meaning it was created on or after July 1, 1992), you must follow the budget ratification process set forth in CCIOA in relation to ratification of your budget and any assessment increases contained in your budget.  The same budget ratification process applies to pre-CCIOA communities (those created before July 1, 1992) unless your declaration sets a maximum assessment amount or limits any increase in an annual budget to a specific amount and your proposed assessment is within those limits.

Lower the Bar

• Have your assessments been set higher in recent years to get the association caught up on reserve funding?  Are you now caught up?  If so, it might be possible to lower assessments, or at least keep them at a steady level.
• Does your association consistently end up with a healthy surplus of operating funds at the end of each year?  If so, you may be setting your assessments too high for the actual needs of the association.  
• Has your association recently gone out to bid for recurring or continuing services, such as landscape maintenance, management, accounting, or legal?  Are there savings that may be gained by negotiating new contracts for such services that could lead to the ability to decrease assessments?
• If assessments are lowered, consider how that might impact, from a political perspective, any future increases that may be necessary in the future.  

Decisions about the rate of assessments, especially when an assessment increase is contemplated, are not always easy decisions for a board to make.  While it might be tempting for board members, who are also owners who pay assessments, to forgo an assessment increase, or even lower assessments, in the end, the decision must be made based on the good of the entire association.  As with any decision, the board needs to make sure it is making the decision in an informed and reasonable manner.

Trisha K. Harris is a senior associate with the law firm of White Bear Ankele Tanaka & Waldron.  White Bear Ankele Tanaka & Waldron serves the needs of residential, commercial, and mixed-use projects throughout the State of Colorado, and provides advice and counsel to project developers, property owners, and residents on a wide range of issues.  WBA also represents homeowner and commercial associations, as well as metropolitan districts that are responsible for covenant enforcement and design review, operations, and maintenance of common and other public areas, together with required collection activities. 

By Kim Hithcock, McNurlin, Hitchcock & Associates PC

Did you know there are two different tax provisions benefiting Homeowner Associations aka Common Interest Realty Associations or CIRAs?  With the correct knowledge of these provisions, income can be treated as tax exempt. Don’t miss out on this opportunity to save money! 

Most of the time, we think tax-exempt only applies to non-profit organizations like the Red Cross or the Better Business Bureau. The Homeowner Association is not a charitable organization, so how does this work? 

The Internal Revenue Code (IRC) has two provisions, or tax codes, written especially for Associations.  One provision is for the Association to file their annual tax return as a Homeowner Association under Internal Revenue Code §528. If the Association elects to file Form 1120-H, it is not taxed on “exempt function income.” Exempt function income includes membership dues, fees, and assessments received from owners who are members of the Association. Under this provision, Homeowner Associations avoid paying tax on most of their income. 

To qualify for exempt treatment and file form 1120H, the Association must meet the following requirements: 

• At least 60% of the Association's gross income must consist of membership dues, fees, or assessments from the owners of the timeshare units; 
• At least 90% of the Association's annual expenditures must be to acquire, construct, manage, maintain, and care for Association property; 
• No part of the net earnings of the Association can directly benefit any one member or individual; however, a rebate to all members of excess assessments would generally be allowed; and 
• At least 85% of the units within the Association (using a square footage test) must be for residential, non-commercial use.

These requirements can be difficult to meet for Associations that are mixed-use so there is a second provision. If the Association does not qualify for exempt treatment under IRC §528, they can file their annual tax return as a C-Corporation using Form 1120. This provision follows Internal Revenue Code §277 which allows for Deductions Incurred by Certain Membership Organizations in Transactions with Members. Although it uses the same tax form as other corporate businesses, it has a special tax rule which permits net membership income to be excluded from the tax calculation.  

If the Association collects too little (or spends too much), it has Excess Membership Expenses which is not a problem because the excess will carry forward and offset future assessments.  

The trouble comes when the Association has collected more than it spent.  This is called Excess Membership Income. This excess can also be carried forward to offset the next year’s budget, but this doesn’t happen automatically. The Association is required to make an election under Revenue Ruling 70-604 to agree to carryforward any excess or repay it to the members. This election must be agreed to by the full membership, so we recommend having the election addressed at the annual meeting. All Associations should make this election annually just in case they have to file Form 1120 and report excess membership income for that year.  

Now that you understand what income is tax exempt under IRC §528 or IRC §277, we can move on to non-exempt income. If an Association collects rents, interest, vending machine revenue, easement contracts, or certain other income, that income is not tax free. When an Association has this type of income, it gets specially classified and reported as taxable on either Form 1120 or Form 1120H. Fortunately, the Association also writes off related costs before calculating the tax. The deductions can be any expenditure associated with the specific type of income, such as tax preparation fees, cash management costs, maybe even utilities or repairs.  

Once the Association has calculated the net taxable income, it then calculates the tax. If the Association is filing Form 1120H, it takes a $100 standard deduction and then pays Federal Income tax of 30% of the net taxable income.  

If the Association is filing Form 1120, it pays Federal Income tax of 21% of the net taxable income. 

In every case, the Association will also file a State income tax return and pay tax to the proper taxing authority. In Colorado, we pay a State income tax of 4.63% of the net taxable income.

This area of the law is technical. The bottom line is that the opportunity to benefit from tax-exempt treatment is an option all Associations will want to consider. 

If you would like to pursue this matter further, particularly with regard to the determination of tax return form, or to discuss specific tax ramifications of either option, please do not hesitate to email me at kim@mcnurlincpa.com or call our office to speak to one of our professionals at (303) 988-5648.  

Kim Hitchcock and her team at McNurlin, Hitchcock & Associates PC have been working with Homeowner Associations for more than 24 years. Call them to benefit from their extensive experience with accounting, payroll, audited and reviewed financial statements, and income tax preparation!

By April L Ahrendsen, VP, Mutual of Omaha Bank

If you are experiencing leaky pipes, aging roofs, or degrading asphalt, you may be one of the many communities facing major repairs. Finding money from homeowners is often a very difficult and painful process.  Homeowners may come to meetings angry or combative, but it’s important to understand this anger is often based on fear and misunderstanding.  

Who are these homeowners?  They may be retirees on fixed incomes concerned about depleting their savings, first time buyers who may have financed their down payment, or people living paycheck to paycheck with no backup plan. The reality is these homeowners are not in a position to afford a one-time special assessment, and will most likely vote no to any project, regardless of its merits, because they do not have the funds.  The higher percentage this group makes up of your community, the greater probability that your vote will fail or that a recall election may be held. 

But what happens when your community must make these major repairs?  How do you offer solutions for your neighbors in order to help keep them in their homes and reduce the fear? 

Provide them options:

1. Pay cash – some homeowners may have money for the entire special assessment. They may be able to tap into investments (discuss with financial advisor), credit cards (special promotional rates), or savings accounts. 
2. Borrow funds that are secured on real property – such as a second mortgage or equity line of credit on your home.
3. Pay the special assessment over time – because the board of directors provides a commercial loan for the community, interest rates are reasonable and can be fixed over the term of the loan. No personal information is required, no liens are placed on the homeowners’ property, and there is no impact to their credit score.

What are the advantages of borrowing?

a.Downward slide of property values slowed or eliminated.  Structural problems, which must be disclosed to potential buyers, will make it difficult to sell homes and lead to falling home prices.  Getting construction done quickly and improving the appearance and/or eliminating structural integrity problems can slow or eliminate falling home values.

b.Needed repairs/improvements completed quickly.  By borrowing the money, total needed funds become available for use much faster than through the traditional special assessment process.  Passing a special assessment will give the board of directors the power to collect the money.  There is still the difficulty of collecting from those homeowners who do not have the ability to pay.

c.Reduced financial impact on homeowners -  By participating in the loan, homeowners avoid having to make a lump sum special assessment payment.  Homeowners can pay their share over time to reduce the impact on their personal finances.

What are the disadvantages of borrowing?

1. May increase monthly assessments -  A special or increased assessment may be implemented to support the loan. Sometimes there are budget items or reserve contributions that can offset some or all of the increase. 

Don’t let a major repair get your community down!  Homeowners that are informed and given options make better decisions for the community. 

Contact the CAI-RMC to get a list of banks that provide loans to Community Associations. In particular, look for banks that will send someone to your meetings and work with your homeowners face to face. 

The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the views of Mutual of Omaha Bank.