By Clint Larson, 303tech
What is the cloud even about?
The “cloud,” as it was originally described, was meant to define the space between the owner of the data, and where the data was physically stored. Many were skeptical of the viability and longevity of this emerging technology. Almost 20 years later, there are “clouds” almost everywhere: iCloud, Google Drive, Drobox, OneDrive, SharePoint, AWS, and several others. Now, cloud services are becoming common place and even sought after by business of all shapes and sizes for several good reasons.
Why should the data be moved to the cloud?
Security, Reliability, and Expandability. Companies like Microsoft are spending more than $1Billion dollars per year in security and security related areas, every single year. The very best datacenters (the physical location for the data) have redundancies built in at every possible point. Multiple locations in the United States, multiple internet connections, multiple power sources, routers, firewalls, and especially multiple servers. All this redundancy so the data can be accessed at anytime from anywhere on any device. When more space is needed, it can just be added. No need to purchase additional servers or buy more hard drives. The storage systems are almost limitless.
Are all clouds created the same?
No, these clouds are not created the same, there is no water cycle here. There are many different options and tons of ways to connect and develop these options. People have used the analogy of a tool in a tool box. When you first start looking at cloud services and options, it is like going into a lumber store for the first time. Hammers and nails and boards, Oh My! It can be overwhelming, intimidating, and even daunting to figure out what pieces and parts are needed to build the proper cloud solution. Choosing a great technical partner is essential in finding and deploying the proper cloud service that will provide a long-term solution.
How does this relate to the community or Management Company?
For Home Owner Associations and Management Companies alike, the data that is generated and the records that are created are the second most important asset to the association, the first being the physical property itself. Just like the physical property, the digital assets need to be protected and maintained as well. When you look at the total cost of ownership of the other options available, the numbers just don’t add up. Cloud services can provide better security, reliability, and expandability than owning and managing any physical device. In the proper cloud solution, the Association’s data can exist on several different servers, across several different data centers, around the United States. This ensures that the Association’s next biggest asset is being protected and maintained properly at all times.
How to get started with the cloud.
First you need to get the right cloud and choosing a great technical partner is essential. Choosing a cloud provider is a marriage of sorts, and there needs to be confidence that it’s a relationship that the community can live with for the foreseeable future. Secondly understand that it is more about the people than the process. Adoption to the cloud can be challenging for some people. Simplification and proper training will go a long way to help organizations use and get the benefit of cloud services. Getting over the psychological barriers of not “owning” the data. It is not true. Owning a physical server in a building does not allow any more “ownership” of the data then storing it in the cloud. Hackers and viruses can more easily breach the security on a small business than one that is spending more than a billion dollars a year keeping the data secure.
Changing servers to cloud services or changing board members or management companies, the end goal is to keep the association data safe. Emails and documents alike contain important and valuable information about the community and this needs to be protected. Proper cloud services can eliminate many of the challenges and allow the community, the Board, and the Managers to be confident that the assets are being protected and secured.
Clint Larson is the principle of 303tech and he is a Microsoft Certified Silver Cloud Solutions Provider for Small and Medium Business. Clint is currently serving as the President of the IAMCP chapter for Colorado. He has served the HOA community as a technical specialist and board member for more than 15 years. To find out more please visit 303tech.com
By Adam Brown, Esq., Moeller Graf, P.C.
Recent studies show that as of 2018, 95% of Americans own a cell phone of some kind, and 77% of Americans now own a smartphone. We are increasingly able to communicate instantaneously with almost anyone we know via email, messaging applications, voice calls, and even through video chat applications such as Skype and FaceTime. With the ability to conduct business through these means, Boards of Directors have the ability to streamline communication and share information quickly and seamlessly.
This Article will briefly address both some of the practical benefits, as well as some of the potential pitfalls, of using technology to conduct community association business.
The first of these practical benefits is the ability to conduct meetings when one or more members of the Board are unable to attend a live, in-person meeting. Unless otherwise provided in the bylaws of the community, the Board of Directors may permit any director to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may hear each other during the meeting. This may be just a simple telephone call, but could also include other telecommunication applications such as the ones mentioned above.
The second way that Boards often make use of technology to conduct business is by taking action outside of a meeting, through the use of email voting. In general, many communities have the necessary authority for this – although not all communities do. Under the Colorado Nonprofit Act, unless otherwise provided in the bylaws, any action to be taken at a directors’ meeting may be taken without a meeting if a notice stating the action to be taken and the time by which the director must respond is transmitted in writing to each member of the Board and each member of the Board, by the time stated in the notice either (a) votes for such action; or (b) votes against action, abstains from voting or fails to respond or vote and fails to demand that the action be taken at a meeting.
The pitfalls of voting via email come in when trying to keep sufficient records of these communications. This raises the practical questions of how Boards should determine which e-mails to save, how to retain such e-mails, and other related issues. The following are some practical ideas to help your Board avoid these pitfalls:
First, it is always recommended that Board members set up a separate email account (other than his/her personal email account) to conduct Board business. The reason is that if a Board member is served with a subpoena for his or her e-mails, not only will the e-mails related to Board business be subject to it, but all other e-mails sent and received from that account could also be discoverable. A practical idea that many Boards utilize is to create Google or Yahoo accounts to tie email addresses to certain positions on the Board, e.g. firstname.lastname@example.org – which can then be passed on to subsequent officers holding that position.
Second, Boards should keep in mind that under the Colorado Common Interest Ownership Act, the Association is required to keep minutes of all meetings of the Board, including written communications among, and votes cast by, the Board members that are directly related to an action taken outside of a meeting (if permitted under the Bylaws and/or Colorado law). With this in mind, if your Board conducts voting via email, either the community manager or the Board secretary should be designated to save and file all such voting records of the Board, in order to comply with the statute and to be able to produce these records if requested by an owner. These voting records should also be filed with the minutes of the Board at the next live meeting.
With the above issues in mind, it is typically recommended that actions and decisions outside of a meeting be kept to a minimum, and to limit these situations to urgent matters where the Board cannot call a special meeting or wait until the next Board meeting to discuss the issue.
And, call me old-fashioned, but despite the convenience of technology, my experience strongly suggests that important community association issues are often addressed most positively in face-to-face meetings with your fellow Board members.
Adam Brown is an associate attorney with the law firm of Moeller Graf, P.C. in the Denver metro-area. Adam has practiced community association law exclusively since 2015. He has extensive experience advising associations in all areas of community association governance, including drafting and interpreting governing documents, reviewing and drafting contracts and real estate documents, and advising communities regarding compliance with applicable state and federal laws. Adam regularly attends Board meetings and homeowner meetings, and particularly enjoys mediating the high-conflict situations that sometimes arise in those settings through a practical, solutions-focused approach.
By Ashley M. Nichols, CAI-RMC Editorial Committee Member
With popular social media platforms like Facebook, Next Door, and Twitter taking over the way that many people communicate, questions abound about the use of social media in community associations. The use of social media can certainly be a tool to build community and engage your members, but there are also risks. This article will update the status regarding the use of social media, but it will take more than 280 characters to do so. #readon #socialmedia #community
According to results of CAI’s National and State Statistical Review for 2016, an estimated 69 million Americans – 21.3 percent of the US population in 2016, lived in common interest communities. In that same year, the United States had 197.7 million Facebook users, 68 million Twitter users, and approximately 68 million NextDoor users (with that company expecting this number to grow to 100 million by 2020). Almost certainly then, your community association has experienced the effects of social media in some context. Unfortunately, you’ve also seen that the effects have likely been negative. Why is that and how can we change that to improve our communities?
Think about this: A Florida State professor of social psychology did an experiment in which participants gained or lost the same amount of money. Participants were more upset about losing $50.00 than they were happy about gaining $50. In another study where children and adults up to 50 years old were interviewed about their childhood memories, the study “found a preponderance of unpleasant memories, even among people who rated their childhoods as having been relatively pleasant and happy.” Conflict is what people talk about. If things are going well, no one generally praises in public. People will always vent in public, and social media platforms provide an easy way to do that. You also know why this is, but you may not know that it has a name: the Disinhibition Effect. In a nutshell, it means, you can’t see me, you don’t know me, and I can say whatever I want behind the safety of this computer screen.
Social media has changed the way that nearly all of us live (and communicate) in this world. Because of this, there is an opportunity for community association boards to use the platforms in a way that will build community and engage your members. Using social media effectively can also be a great way to keep members informed, as well as curating a brand for your community. The use of social media should not be to give opinions about Board decisions. It should be informational. Provide time/location/agenda for Board meetings. Post about community events. Do you have an ice cream social in the summer? Post about that – put pictures from the event up (request permission before posting any pictures of children). Post about when the pool will be open. These are all things that members will, hopefully, find useful.
When it comes to the risks of using social media, it comes down to “netiquette” – the correct or acceptable way of communicating on the internet. Be clear, be concise, and be unemotional. If you keep these three things in mind, the risks will be minimized. Board members, as a rule, should be mindful of speaking about the community on any social media using their personal accounts. Engaging in comments (even just “liking”) can indicate favoritism (perceived or real) and that can lead to issues within the community. You are sure to find that there are instances where your Board or manager may feel the need to respond to posts and comments. Again, be mindful of getting too involved in any conflict and really use the platform to provide information. For example, if owners are in an uproar about a topic, consider commenting about when/where the next Board meeting is taking place and encourage members to take issues/concerns to the Board meeting to discuss. Remember it is often easier for people to say things online than it is in person, and encouraging owners to move the discussion to a Board meeting may diffuse the situation.
Some of the risks that may arise when discussing the use of social media are as follows:
With the right enhancements, most business insurance policies can include personal and advertising injury provisions that cover these types of claims. “Advertising” is any notice – including a post on social media – that is broadcast or published to the general public or specific market segment about your goods, products, or services for the purpose of attracting customers. Limits on this type of coverage may be too low, so an umbrella policy is smart.
There are also federal laws that protect associations that may worry about the risks of social media. The Communications Decency Act, in short, eliminates liability for information posted by third parties. And the Digital Millennium Copyright Act eliminates liability for copyright infringement claims involving content posted by third parties.
Another concern that is often seen (whether an association is using social media or not) is escalated neighbor to neighbor squabbles. Again, because of the ease in which people tend to “spout off” on the internet, when neighbors take their disputes to a public venue, it could lead to “bad media” if someone takes it to the news. Any negativity seen in public could certainly tarnish an association’s reputation, and more importantly, if significant enough, could depreciate property values. Further, if Board members are considered to be “meeting” because of their discussions on social media platforms, one could potentially argue that it is constituting a quorum and “conducting business” outside of the law.
So, what can your association do to help grow community and avoid pitfalls? HAVE A POLICY! Some provisions that your Board will want to address in the policy are as follows:
The use of social media platforms can be great tools to keep your community members connected and engaged. Be cautious and heed the advice that we give to our children – anything you put on the internet is forever, even if you delete it. I always remember (for myself) and advise (for my clients) to THINK.
Having a policy will provide notice to owners in your community about the association’s use of social media and expectations. Remember, one of the great things about community associations IS the community. Grow it and cultivate it – and social media platforms, used smartly, can help you do that! To help promote these principles in your community or for questions about the potential impact of using social media, contact your insurance agent (to ensure coverages) and legal counsel.
By Alicia Granados, CMCA, AMS, PCAM, Pacific Premier Bank, HOA & Property Banking
“Should my association consider a loan?” There are a number of scenarios where this question comes up, and times when it doesn’t but perhaps should.
“We have deferred maintenance and we don’t have enough in our operating budget or reserves to make needed repairs . . . what should we do?”
“Our construction defect litigation settlement was not enough to correct all of our issues . . . what should we do?”
“We had a catastrophic loss but our insurance coverage has a deductible we can’t afford . . . what should we do?”
“We want to add a new community playground . . . what should we do?”
In trying to answer these difficult funding questions, Boards often assume that their only option is to special assess each owner for their share of the association’s shortfall. Owners are then left with the option of using cash on hand or obtaining individual financing through a second mortgage or other means. This can be difficult for those who may not be good candidates for a loan; some may have poor credit while others rely on fixed monthly incomes. Undoubtedly, large special assessments can place a great burden on members of a community.
For many communities, an association loan is a very attractive solution, allowing the Board to quickly obtain needed funds. In the absence of an adequately funded reserve account, an association can borrow money and often avoid a significant and urgent special assessment against its members.
One of the most common reasons for borrowing is the need to fund deferred maintenance through a large scale repair or renovation project. A loan allows the community to escape the inconvenience and expense related to multi-year phasing of a project, while still allowing the membership to spread payments out over time. Needed work can be performed right away, enhancing the value of the community, while the cost remains more manageable for each owner.
When considering a loan, the following questions often arise about the type of collateral required and the impact on individual owners, as well as the typical terms and structure of an association loan.
What type of collateral does the bank require?
Typically, the association will assign the bank its rights to collect future assessments and other accounts receivable. In other words, if the association failed to make its loan payments, the bank would have the right to step in and collect assessments on behalf of the association. Except in the case of a loan made specifically to purchase real estate, an association does not generally pledge its property, such as a pool or clubhouse, against a loan. There is no personal liability for an association loan. Board members are not asked to provide personal guarantees, nor are there liens placed against individual units to secure the loan.
What is the impact on individual owners of the community?
Individual owners are not directly obligated for an association’s loan, therefore homes can be bought and sold regardless of whether there is a loan in place. A loan is also not reported on any member’s personal credit report. The most common impact on owners is that the association’s assessment income often needs to be increased by some amount in order to support the loan payment. Depending on the governing documents, a vote of the owners may be required to approve the Board’s ability to pledge assessments.
How does an Association qualify for a loan and what is the typical structure?
An association can expect to be required to meet various qualifications related to the size of the community, delinquency rates, percentage of absentee owners, concentration of ownership and amount of the proposed assessment increase. The structure of the loan will depend on the type and length of the project being funded. Banks may offer either a line of credit or a traditional term loan, typically amortized over ten years or less. It is best to look for a loan with no prepayment penalties so that the loan can be paid off more quickly if funds become available.
A loan sounds like a great idea – now what?
It’s never wise to rush into applying for a loan without first consulting your governing documents and the association’s legal counsel. It is important to ensure that the documents and applicable state statutes permit the association to borrow funds and also to determine whether a vote of the membership is required. In some cases CCIOA (The Colorado Common Interest Ownership Act) requires that the Declaration provide express authority for the association to assign future income, so a document amendment could be required.
Once the Board believes that a loan is a viable solution, it is best to contact a bank that specializes in lending to community associations. Like other knowledgeable industry partners, banks most familiar with associations will be able to successfully guide the manager and Board through the process, avoiding many obstacles and securing a loan that will best meet the needs of the community.
Alicia Granados, CMCA, AMS, PCAM is an experienced HOA & Property Banker in Colorado. Pacific Premier Bank HOA & Property Banking specializes in lending and innovative banking solutions for the community association industry. Their advanced technology and API integration with industry accounting software packages creates meaningful efficiencies for management companies and community associations across the country.
National reserve study standards define reserve components according to four criteria. A component must:
These four criteria are the building blocks necessary to develop an accurate, reliable, and repeatable list of components necessary for long term community planning purposes. What to do with this list is where many associations find themselves at a crossroads.
A typical community association has 25-35 reserve components. Small communities may have only a couple components, while large communities with amenities such as golf courses, restaurants, and recreation centers may have hundreds. Regardless of community size, the following five items typically have the largest impact on long term financial planning:
Our research of ten randomly selected and recently completed Colorado reserve studies shows how significant these components are. Analyzing the projected expenses of the above five components over the next 30 years shows that they consume about 61% of the necessary reserve funds for the average community.
In analyzing a few of the individual communities, we found the following:
Errors with future planning for these five items will have a disproportionately significant effect on overall reserve fund needs. To properly “sweat the big stuff,” communities should plan for these five major items appropriately by ensuring the accuracy of the quantity and cost estimates assigned to these components.
Associations should ensure the accuracy by soliciting reserve studies from providers who have firsthand knowledge of the local construction environment for the communities they serve. Instead of looking up unit costs in a book or just googling it, a good reserve study provider should constantly be coordinating with general and specialized sub-contractors that provide roof, façade, deck, asphalt, and concrete services. By updating and citing their cost resources in the studies they provide, reserve study providers improve the accuracy of the costs assigned to reserve components.
Reserve study providers should also conduct quantity measurements of the site utilizing appropriate methods. Measurements should be completed first from As-Built drawings, if available. When As-Builts are not available, quantity estimation should still be completed utilizing field measurements and aerial image measurements. Associations should also be cautious of reserve studies that provide measurements of components as “1 unit” with no definition of quantity. These “1 unit” measurements often end up allocating a lump sum price to a component replacement, which can result in either a large surplus or deficit in the community’s largest impact items due to inaccuracy. The worst part of the “1 unit” measurement is that it is impossible to verify the true quantity.
Reserve study providers that work with both general contractors and associations understand the effect of accurate measurements and unit costs. Select a reserve study provider who can assist in guiding your community through your reserve planning so you don’t have to Sweat the Big Stuff alone.
Justin Foy is a Senior Vice President and Reserve Specialist with SBSA. Justin has over 18 years of experience in engineering management and 15 years of experience providing Reserve Studies. Justin and his team are one portion of SBSA’s staff of engineers and architects that work with communities throughout building and component lifecycle.
On my tenth birthday I was given the greatest gift a kid could ever ask for. That gift, which every adolescent looks forward to, was of course… braces. Not only did I look silly (my grandma affectionately called me ‘train-tracks’ since my teeth looked like they could support a steam engine), they also required ongoing upkeep and maintenance. One of the daily maintenance tasks was to hook these small rubber bands into the braces to improve my overbite. The problem was that I found the bands to be a nuisance and preferred not to wear them. My thought was that the orthodontist wouldn’t notice my lack of discipline. Unfortunately he did notice, but in my infinite wisdom I still thought that it wouldn’t make much of a difference whether or not I wore the bands. Finally after a year, the orthodontist told me that the more consistent I was with my daily maintenance, the sooner the braces and bands would come off.
Just as I assumed that my daily maintenance negligence would go unnoticed, many Boards assume their annual Reserve Study maintenance will go unnoticed. A Board may assume that Reserves are something that a future Board may need to think about. Or, the Board may assume that the owners may not notice that the association is lacking proper funding for the upcoming summer projects. The lack of Reserve Study updates is an issue that many Board members fail to realize. Because the physical condition of the association’s assets and the size of the Reserve Fund change on an annual basis, Board members need to know how much to budget for their Reserve contributions each year.
The problems that occur when a Board does not update their Reserve Study include; higher special assessment risk, increased dues, deferred maintenance, and cash flow deficiencies:
Special Assessments – Based on a analysis of over 19,111 of our most recently completed Reserve Studies, we found that when clients only updated their Reserve Study every five years, the risk of special assessment increased by 35% when compared to a client that had updated their report every year. If a client updated their Reserve Study every three years, the risk of special assessment increased by 28% when compared to a client that updated their report every year. Why does special assessment risk decrease when the Reserve Study is updated regularly? One factor could be that it is harder for a Board to ignore an upcoming project when the Reserve Study is constantly reminding them each year of their annual fiduciary responsibility.
Increased Dues – Increased special assessment risk will also require higher reserve contributions, which will affect the overall dues assessment. On average, reserve contributions should make up anywhere from 15%-40% of the total annual budget for a well-run association. When an association falls behind in their funding, they will need to increase their contribution rate to catch up with the ongoing deterioration of their property. When a client updates their Reserve Study annually, the year-to-year variation in Reserve contributions will, on average, drop by 9%.
Deferred Maintenance – When an association neglects to update their Reserve Study, scheduled projects tend to be deferred, and deferred maintenance will only become more expensive. For example, suppose an association completed a Reserve Study in early 2013 but the Reserve Study has not yet been updated since. Since 2013 there have been at least two major hailstorms, one catastrophic flood, and countless wind storms. The unexpected surprises may cause an association to defer the expected, inevitable projects such as exterior painting. However, by deferring these projects, the costs of the routine painting maintenance may increase by 50% due to wood rot or other carpentry issues.
Cash Flow Deficiencies – An association that has not updated their Reserve Study will be unprepared for inevitable expenses of expected deterioration. How will a Board know how to set their annual reserve budget unless they know what their annual reserve costs are? It would be like packing for a vacation but not knowing if you are going to Hawaii or Iceland (unless you can handle a bikini in the snow). A budget must be set with the end in mind; what is the projected roof replacement cost, what is the projected asphalt sealing expense? If an association does not know what the inevitable costs will be, the most likely scenario will be that the Board will underfund the reserve account.
Updating a Reserve Study requires that a Board be disciplined, however this discipline today will bring financial freedom for years to come.
Once I had understood that my daily routing of rubber band wearing would eventually bring me freedom, I became driven to be the best rubber band braces-wearer I could be. At the wise old age of eleven, I had finally realized that positive results require diligent routine and discipline. Similarly, boards that pay attention to their financial situation have demonstrably fewer special assessments and more stability to their budget. They tend to be on-track, setting the right amount aside towards Reserves, with owners all paying their fair share (the true cost of home ownership). The result is their property is significantlymorelikely to have the necessary Reserve funds on-hand when they are needed to perform those major, predictable common area repair and replacement projects.
Bryan has completed over 1,500 Reserve Studies and earned the Community Associations Institute (CAI) designation of Reserve Specialist (RS #260). His experience includes all types of condominium and homeowners’ associations throughout the United States, ranging from international high-rises to historical monuments.
By Gina C. Botti, Winzenburg, Leff, Purvis & Payne, LLP
The Colorado Common Interest Ownership Act (“CCIOA”) does not define the term “special assessment” or address when or how a special assessment may be levied. So, what is a special assessment and when can a special assessment be levied?
We know common expense assessments are based on a budget adopted no less frequently than annually by the association. Generally speaking, a special assessment is an expenditure or liability, such as a capital improvement, that the association has not budgeted for either in its annual budget or in its reserves. Special assessments allow associations to meet or cover an unanticipated budgetary shortfall.
A good example of this is when the community is devasted by a hail storm and the roofs are damaged. This is not something the association would typically budget for annually, as it’s unknown when or if a hail storm will occur. If the association is hit with paying a high insurance deductible and the association does not have the funds in reserves, the association may need to special assess all of the owners to cover the costs for the insurance deductible.
Before doing so, however, the association should look to its declaration and bylaws to determine if the authority to special assess exists; the authority and procedure is always document specific. An association may exercise its powers only in compliance with the authority and procedures outlined in its declaration or bylaws. The association should look at its documents closely as there may be an owner vote requirement to specially assess. If the association’s declaration and bylaws are silent, or specifically prohibit the board from levying special assessments, the association may not levy a special assessment and may need to look at other options to pay the costs, such as taking out a loan, or assessing only those owners who benefit from the expense as an individual purpose assessment if the declaration or bylaws allow. The association may also want to consider amending its declaration to provide the authority to specially assess.
The association should also weigh the priority of its maintenance obligations as part of exercising its reasonable business judgment. For example, if the limited common element balconies are in need of painting, but the railings are falling off, the safety concerns of the railings should take precedence over the painting for any special assessment obligation.
The association should also determine if the special assessment will come due all at once, or if an owner will be permitted to pay the assessment in installment payments. If a special assessment is not paid by an owner, the association should follow its collection procedures as it would any other unpaid assessment.
The ability to special assess owners to perform the maintenance obligations under the declaration can save the association the expense of paying interest on a loan and deferring projects that are needed in the community.
If your association does have the ability to special assess, I guess that makes you special!
By Pat Wilderotter, CIRMS, VP, CCIG
Moving into a community association can be perplexing for new unit owners. What insurance do they need to purchase? Although only a small percentage of people ever read the governing documents (CC&Rs) of the association they are moving into, those declarations will let each owner know what coverage they need to purchase under their personal HO6 policy. The association’s insurance responsibility on the interior of each unit can range from bare walls coverage where the association is only responsible to replace the dry wall and sub-floors, to “all in” coverage where the association has to replace the unit as it was at the time of the loss. From that wide range of options, throw in replacement to original construction, add in exclusions/inclusions for items such as floor coverings, appliances, cabinets and countertops, and what’s covered can be very confusing. Without reviewing your declarations with your personal insurance agent, you could be found devastated after a property loss with what is and is not your responsibility to insure and what is replaced in your unit.
When you see insurance as part of your monthly assessments, that only means that portion of the community that the association is required to insure according to the declarations. When it comes to personal property, the association cannot insure what it does not own or is legally responsible to cover. Additionally, make sure you have adequate liability coverage. When someone enters your home, you become liable, so a slip and fall on your throw rug can result in a law suit against you personally.
Also, review the association’s deductible policy. Some associations can assess the property deductible back to the individual unit owner or owners involved in a property claim. In this case, make sure you have added enough property coverage under your building/property coverage (typically section A) of your HO6 policy to cover this deductible.
In a situation where the entire community is assessed for a deductible, coverage is generally available under the loss assessment portion of the HO6 policy. Confirm with your personal agent that there is not a sub-limit if going to pay for an association’s deductible or that the coverage is offered under a special endorsement. This coverage is essential under your personal insurance. Due to the number of hail claims over the past several years, with May 8th of last year coming in as our most severe with over $1.4 billion in damages, we have seen many carriers non-renewing or leaving the habitational marketplace. Those companies remaining are typically going to a percentage deductible, with 5% of the property value becoming the norm although we still have carriers offering 2% or a specific dollar amount. Adding adequate loss assessment coverage is relatively inexpensive under your HO6 policy, so just make sure your limit is adequate to cover your potential assessment. Simply take the building limit times the percentage and divide by the number of units in your community to determine your potential assessment. For example, a $10,000,000 building with a 5% deductible has a $500,000 wind/hail deductible. If you have 50 units in the building, each owner could be assessed $10,000. If you have a 2% deductible, the association has a $200,000 wind/hail deductible and each owner could be assessed $4,000.
Again, check with your personal agent to make sure there are no sub-limits or special endorsements needed to insure the association’s wind/hail deductible.
There are some policies, generally through Lloyds of London, that offer a buy down product that will cover the wind/hail deductible down to a deductible like $50,000. These policies however are very expensive, have gone up significantly in cost over the past two years, and often cost as much as the package policy for the association. If the association does not want to have to raise monthly assessments to cover these buy down policies, the Board often wants to make sure each member is informed of the their potential portion of the wind/hail deductible so they can purchase adequate insurance through their HO6.
CCIG is a Denver-Based insurance brokerage firm. Pat Wilderotter, past president of the Rocky Mountain Chapter of CAI and one of approximately one hundred in the country to hold the designation of CIRMS (Community Insurance and Risk Management Specialist) heads their HOA team.
By Janet Watts, Association and Community Management
I have had the pleasure of participating in CAI designation courses, continuous education classes, and have 10 plus years of experience as a community association manager (CAM). I introduce myself this way to give you a little of my background when working with Boards of Directors in homeowners’ associations. With that said, I have witnessed many strategies upon entering budget season.
In my opinion, there are two primary types of Boards. There are Boards that are intimately involved with every step of the budget planning process and there are Boards that rely on their community manager to draft a proposed budget. Let’s dive a little deeper:
Boards that are intimately involved:
The Board will review proposals/bids for budget planning next year’s “wish list” projects, analyze the current year financials, review service contracts, research utility rate increases, possibly survey the community for input, and review the governing documents, primarily to confirm any increase “caps” that may be imposed.
Boards that rely on management to draft a proposed budget:
The Board will request a proposed drafted budget from the manager, review the line items, review the service contracts, discuss what goals they may have the community for the coming year, vote to make minor adjustments, elect to raise the dues or not, and approve the budget.
From a community association manager’s (CAM) perspective, I have found that the best practice is to help guide the Boards in planning future budgets using a variety of tasks and action items. There are so many tools for a CAM to rely upon such as the HOA’s monthly expense reports, reserve studies, reserve fund balances, and investments. We also rely upon any upcoming laws that may affect future expenditures. Industry professionals and contractors are also resources as they provide information about any increases in costs (i.e. insurance policy premiums, green roof requirements, bench marking, etc.)
Monthly Expenses: Monitoring the monthly expenses is a fantastic way to begin the annual forecast for year end expenditures and what to expect for the upcoming year. This also gives you the ability to ensure service contract costs are within line and discuss present trends and future needs for the community with the contractors. This also insures that the costs the HOA is paying is in line with the agreed amounts in the service contracts.
Reserve Studies: When discussing budget planning with your Boards, it is important to review the HOA’s reserve study. The study is such a great tool to use in guiding Boards for the purposes of reviewing and assessing the needs of needed major capital repairs, preventative maintenance, and improvements. The reserve study also gives the Board an opportunity to plan goals one, three, and/or five years out when considering major repairs, replacements, and preventative maintenance (i.e. roof replacements, painting, balcony upgrades.)
Reserve Fund Balances and Investments: Whether you are managing an aging community or a community that is freshly turned over from the developer, a CAM should ensure the Board is budgeting to contribute to the reserve funds annually. The Board and CAM should work together in vetting the best investment options to help the reserve funds increase. If an HOA has a 60% - 100% funded reserve balance, it is much easier to fund for planned preventative maintenance, repairs, and planned improvements.
Industry Professionals, Contractors, and Utility Service Providers: CAMs and members of the Board should solicit advice from industry professionals on: anticipated service contract rate increases (if applicable), annual consumer price index (CPI), insurance policy premiums, utility rates, etc.
While CAMs do not have a crystal ball that can see into the future, utilizing the tools and resources mentioned above will help a CAM guide and direct their Boards with confidence. Remember, a budget is a guide and a tool. Educate your Boards in anticipating unexpected expenses and plan accordingly. Evaluating past and current performances, as well as identifying successful spending will set a successful budgeting strategy with your associations.
Janet Watts, CMCA, CAM
By Ashley M. Nichols, Cornerstone Law Firm, P.C.
Assessments are the cornerstone of an association, and the necessity of an association to collect delinquent assessments is of utmost importance – an association cannot be run without assessments being paid! According to a study conducted by CAI in 2016 (released in October 2017), 5% of owners in community associations were delinquent on their accounts. With 21.3% of the populations residing in community associations (approximately 69 million people), that means that nearly 3.5 million owners are delinquent at any given time.
Leading into summer, many associations could bet on many delinquent owners bringing their accounts current. Why? No cash, no splash. However, as we near the end of our pool days, how can an association ensure that it is efficiently, and effectively, collecting from its delinquent homeowners? Speaking of restricting access to amenities, does your community have a clubhouse, fitness center, or sport court? While it may not bring in as much cash as pool access might, restricting access to other community amenities (if provided for in your governing documents) can be a potential solution to collecting past due assessments once pool season is over.
So, what are some tools that a Board can use to collect from delinquent owners? First, collect early and often. The sooner an association takes action to collect, the more likely it is to be successful. If delinquent accounts are allowed to linger and grow, continuing to incur late fees and interest, it is less likely that owners will be able to resolve the debt without legal action. Ensure that your association has a collection policy in place (it is required by law!) and that it follows the policy. Assess the time frames provided for in your documents. Can they be altered to allow collection on past due accounts sooner?
And speaking of collecting early, acceleration is a great tool to consider when looking at collection options for past due accounts. Acceleration allows a board to call due the entire fiscal year’s debt against the owner’s account, rather than just the current delinquency. Consider those owners who may be chronically delinquent.
For example, John Doe (it’s not his first rodeo) has been consistently delinquent for years. On January 10th, the association turns the account over to its attorney for collections. The current balance due at that time is $1,000. However, the Board, due to the owner’s continued delinquency, has reviewed its documents and decided to accelerate Mr. Doe’s assessments for the year. At $100 per month, an additional $1,100 would be added to the balance, making the total amount due $2,100. Rather than proceeding to collect on the $1,000, the attorney can now attempt to collect on the $2,100. If it takes six months to collect, once complete, the association will still be paid in full through the end of the fiscal year. You only hope that the owner will pick up paying regular assessments at the start of the next fiscal year!
As we head into the latter part of the year, assess your documents to ensure that your community has the ability to use this tool.
So, what is the process? Every case is different based on its own set of facts and circumstances, but generally, the process goes something like the following: The first thing that must be done once an account is turned over to the attorney for collections is compliance with the Fair Debt Collection Practices Act (FDCPA), both state and federal. A demand letter must be sent to the delinquent owner. If an owner fails to respond to the demand letter, the attorney will generally move the process to the lawsuit stage. Most cases are brought in county court, where the jurisdictional limit for the court is under $15,000. Note that the legislature recently passed a bill that will increase this limit to $25,000 (effective January 1, 2019).
Once an owner is served with the lawsuit, he or she is required to appear in court on the specified date. If the owner fails to appear in court (which happens the majority of the time) and/or file an answer, the association’s attorney will request that judgment enter against that owner. Once a judgment is obtained, further collection efforts such as bank and wage garnishments can be pursued.
Bank and wage garnishments are reasonably typical means of collection, and can be very successful. However, if an owner’s bank account cannot be located (or the owner banks with a bank that does not have ties to Colorado), or the owner works out of state (with a company that does not have ties to Colorado), you’ll often find your community out of luck with those avenues of collection. Receiverships are a great solution in this case. A receivership is a court-ordered appointment of a rental manager for a property. The receiver must be a disinterested person (i.e., not the property manager or management company) and the property must not be owner-occupied. While some county courts do not recognize it as a legal remedy, it is explicitly allowed in the rules of civil procedure, so can always be pursued in district court. Once the court has approved a receivership, the receiver will step into the shoes of the owner in the management of the property. The receiver will collect rents, apply the money to the receiver’s fee first, and then to the satisfaction of the debt. Receiverships are effective ways to collect delinquent accounts when the property is not owner-occupied. Additionally, although we are discussing post-judgment collection options here, the remedy of receivership is also available pre-judgment. So, if your association has an owner that cannot be located for service and to obtain a judgment, discuss pursuing receivership with your attorney.
What about settling accounts? George Herbert, a British poet, said: “A lean compromise is better than a fat lawsuit.” In order to decrease delinquencies, and when the circumstances warrant, a Board may consider waiving soft costs (such as late fees and interest) to settle an account. When doing so on an individual basis, make sure that your Board is reviewing the facts and circumstances surrounding the request, as well as implementing the policy of waiving fees, in a consistent manner. A Board certainly would not want a claim of selective enforcement brought against it due to the perception of unequal treatment of owners.
As you well know, a few delinquent owners can wreak havoc on an association’s budget and potentially affect property values. If the association cannot collect enough to maintain, repair, and replace items in the common areas or items that are its responsibility, conditions of the association may cause property values to decline. Additionally, for a condominium community to be eligible for FHA approval, no more than 15% of units can be delinquent in their assessments more than sixty (60) days. If your community is not FHA approved, the pool of potential buyers into your community will be significantly decreased, thereby leading to declining property values in the community. Board members have a fiduciary duty to maintain property values, and keeping delinquent accounts to a minimum (and taking steps to collect on delinquent accounts) support that goal.
As Board members, facing collection issues can sometimes be challenging. These owners are your neighbors. Collection of community association assessments is not “faceless” like credit card, medical, or student loan debt. These owners live in the community, (maybe) show up to your board meetings, and will (maybe) end up on your board. Be respectful and treat each case as an individual matter, with its own facts and circumstances. As the saying goes, everyone is fighting a battle you know nothing about. Be kind. Always.
Ashley Nichols is the principal and founder of Cornerstone Law Firm, P.C. She has been in the community association industry for ten years, providing associations with debt recovery solutions for their communities. Cornerstone Law Firm represents Colorado communities in all areas of common interest community law. You may find out more at www.yourcornerstoneteam.com.
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