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October 28, 2008
Assessment Collection in Today's Economy
"Question posed recently - we seem to have a lot of trouble collecting assessments these days. What can we do to protect ourselves as an HOA?"
Tighten Up ...... Tighten Your Belt
Tighten Up on Collections Processes - Make sure you have good policies in place - legal and tight (meaning timelines) so that you can get a lien on a delinquent property at the earliest possible moment. The recording of a lien protects the membership if an owner claims bankruptcy (gives a secured position in the BR) or tries to sell on a short sale (gives notice to parties of the outstanding debt) or is foreclosed by the bank (gives a position in front of other debtors with later recorded debts.
Tighten Up on Information Gathering - If an owner goes into default, or even if not, you might start gathering information, such as car license numbers, phone numbers, bank account information off of checks tendered for assessments (I would stick to delinquent accounts with this one). It is my understanding that even if you use a lock box payment situation, you can get a copy of a check sent in - check with your bank. Naturally, its easier if you receive the payments directly. If an owner is in delinquency and still lives on site, it's not that hard usually to get the auto descriptions and license plates, or (maybe) even find out where they work, etc. If you are trying to locate someone, the more you can give the PI or whomever is doing the skip trace, the more likely they are to find out where the person is so you can pursue them for payment.
Tighten Up on Knowledge Base and Education of Owners - learn about small claims as a means of seeking a judgment. These days, most properties that go into foreclosure are upside down on the loan side and therefore not likely to provide a return on assessments if a sale goes through. And owners in general do not seem to understand that the assessments are a personal debt, payable even if their bank forecloses. Let them know this, and pursue the debt in small claims before it reaches the limit - to get the owner's attention early on. (Limit for HOAs is $5000 for first 2 claims in a year, $2500 after that.) Sometimes owners pay the mortgage but stop paying assessments, thinking the HOA is not going to do anything drastic.
Tighten up on spending - Take greater care in budgetting, cut out the extra spending whereever possible, plan for losses each year due to delinquencies when preparing the budget so the "hit" does not come as an unexpected surprise.
The tide has turned from depending on the threat of foreclosure to collect assessments. This calls for some new approaches to the problem. Others have asked if the HOA can gather from every owner personal information such as SS #s, credit card and banking information, etc. My feeling on that: (1) Owners concerned with identity theft would resist giving it and then the Board/management would be left to try and get it, expending time and energy and (2) Some Boards and management careless with records might let the information be discovered by others, which might lead to identity theft and claims against the Association.
Frankly, I would not want to give this information out to any Board. If I was in delinquency, I could understand a demand for it, and if an HOA had a judgment against me, they would have a legal right to ask. Otherwise, I would want to keep my personal information "close to the vest." So naturally, I would resist. Given what I do, some might criticize that position; however, I do not believe I stand alone in my concerns about strangers having personal information about me. And we have to be real about the "remedies" and solutions that are likely to be available.
Posted by Beth Grimm at 11:02 AM
October 22, 2008
Tough Lessons of 2008 - Some Things We Have (or Should Have) Learned
Life is one big balancing act. Risk vs. Return
Brokerage Accounts for HOAs
Go for higher return .... and "Go For Broke"? Or invest conservatively.
Question posed: "Our Board invests all HOA money in brokerage accounts. One of the Board members is a financial advisor. What do you think about that?"
If the accounts are anything other than FDIC insured or Government backed and low risk accounts, I ask you - "Did the Board learn anything this year about investing (or should I say losing) other people's money?" That is, after all, the key (other people's money). I think people get FDIC and SIPC insurance confused, and that could result in serious problems in an economy like this.
Maintenance Decisions
Question posed: "Our HOA has some very dark walkways and stairways. I have asked for lights to be put up but the HOA says it is too expensive." Yet the Board has no problem approving a couple hundred dollars repair for the pool table felt in the clubhouse. I am concerned."
And well, you should be. There are a number of cases where Board members and HOAs have had to pay damages for accidents due to poor lighting. The Frances T case from many years ago is the leading authority comparing Boards to landlords and we saw this again in a new case called Ritter v. Cunningham. In that case, the judge would not uphold the Board decision as a good business decision because the Board failed to initiate the repairs needed to fill slab penetrations left unfilled by the developer, which carried some potential fire danger as a breach in what would otherwise constitute a sealed fire wall.
Fires and Fire Danger
Question: "I presented my HOA with some information from your site about the new "Barbecue Ban" law. They refuse to even consider banning any barbecues. Our HOA is in the woods, and the other day, I saw a bunch of folks out on a deck (below another deck) watching a barbecue flame light up the night). It's scary!"
Yes it is. California is a tinderbox. Anyone who fails to take reasonable measures to prevent fires is just ignoring the realities. Yes, people like to barbecue. It's one of the perks of outdoor living. However, its a fire danger, people! And no less offensive than watching the sparks light up the sky when an idiot carelessly tosses a cigarette out the window of a car. I see some resistence to this law, and its not good. HOAs that refuse to acknowledge the "Barbecue Ban" law (banning charcoal burning barbecues, and LP barbecues that use a tank more than what would hold 2.5 liters of water and any other mechanism that can have an open flame) on wooden decks, or below wooden decks, or within 10 feet of wood burning structures are likely to receive a letter from their insurance carriers at the next "inspection", if not before, that says: "Take these measures: Ban Barbecues that violate the new law." (I have already seen some of these letters). Of course, it the decks have working sprinkler systems, there need be no ban according to the law, but whose does?
Limiting Rentals in HOAs
California courts are willing to uphold reasonable terms when the members either purchase with knowledge, or approve (by majority or super majority required to amend CC&Rs). So that is good. However, in this economy, otherwise responsible assessment paying owners may be pushed into foreclosure if they can't afford to live in or can't rent their homes, and HOAs can bear the brunt of stringent enforcement without seriously considering hardship situations. That is bad.
Collection of Assessments
"Question - we seem to have a lot of trouble collecting assessments these days. What can we do to protect ourselves as an HOA?"
I plan to do another blog on this very soon. In the meantime, check out the other blogs on Abandoned Property, and the E-News Archives at http://www.californiacondoguru the condoguru site with tons of valuable information (much of it free!).
Posted by Beth Grimm at 11:33 AM
October 13, 2008
What Happens When The Board Becomes a NonFunctioning Entity?
That's a good question. Sometimes, nothing ..... for a long period of time, until the automatic pilot on the ship runs it aground, or into an iceberg. Then, the domino effect of problems begins. I received this email recently from a very frustrated reader, who is not alone:
"I'm a homeowner in planned development that is governed by a HOA. Apathy is rampant. We have no ARC at all, so one of the board members acts as the ARC. Our HOA is in danger of becoming a "non-functioning entity" and then the State will have to step in (and nobody wants that to happen--as you know, whenever the State of California steps in, it always costs somebody a ridiculous amount of money, and often a headache as well). I believe this will happen because the last two remaining board members have had enough abuse and say they are going to resign and it seems there's no one to step up and replace them. We will have no board. My question to you is, what exactly happens when an HOA becomes a non-functioning entity? Nobody on our board knows, and even the management company doesn't know."
Before getting into what happens when there is no board, so long as there remains one board member, although there is no quorum, that board member has the legal authority to appoint other board members. That said, if there are no board members, it may be a long time before anyone sees the result of that (or a short one), but once the signs begin, like ship without anyone at the helm, things start to go awry and the people trying to ride it out will start to feel the effects, some worse than others.
If there is no common area to be maintained, it provides the wayward ship a lot more open water to navigate (meaning it will take longer for the ship to run into trouble). However, these are the things that could happen.
There will be no one to collect and deposit the assessments, so no bills will be paid (that means no maintenance, landscaping, etc. which may or may not matter, depending on whether the HOA has any responsibilities in those areas). In a PD, there is less likelihood that there will be any lights turned out or water turned off, so the most likely problems to start to rear their ugly heads are the lack of architectural control or standards, and the lack of parking regulation.
You may first see little things crop up, like arbors, patio or yard extensions, grottos, garage conversions, larger vehicles in driveways, perhaps leading to commercial vehicles, larger commercial vehicles, boats, RVs, junkers, etc. Perhaps the residents will have problems with construction next door relating to views, setbacks, odd style of fencing, loss of harmony in home colors, roof covering materials, windows, driveway alterations (for more and more vehicles), changes in landscape, sometimes as bizarre as green cement lawns, etc. For some associations, this could take years, and for others, a matter of months. With no structure, no one in charge and no enforcement or simple rules, it is certainly possible that the neighborhoods could go "down hill". That can lead to neighbor infighting, deterioration of property values, and legal battles in some cases. The HOA presents a pretty sizable target.
The State will not come in and take over HOAs as a rule. In some very limited circumstances I believe that cities have taken over crime ridden neighborhoods and restructured them through redevelopment special projects; however, do not hope for, or hope against State takeover because that is not likely any kind of a viable solution.
An HOA may end up in receivership, where the court orders that a receiver take over, collect assessments, and fulfull the HOA obligations; however, this is not likely to resolve any of the disputes related to architectural debacles from failure of any reasonable controls. The Receiver commands a very large salary that must be paid, and he or she has unlimited assessment authority, so do not think you as homeowners are likely to end up paying less in such a situation.
If there is no one to pay the bills, there is no one to pay the Directors and Officers or other liability coverages and so if there is an accident in the development, or a loss in property values and an angry homeowner with money to sue, or any kind of a lawsuit against the HOA, the costs and damages can fall to the individual owners.
It's not a pretty picture to try and imagine. I believe it is more likely to happen with self-managed associations than those that are professionally managed. However, in the above scenario, it looks like management may not be able to save this association. Once the board members who sign the management checks are gone, the managers are usually gone. Of course, if management is authorized to sign their own checks, there may be an interest in continuing with collections of assessments and payment of [some] bills for awhile. But at some point, management will have to throw in the towel as without a board, there is no captain and that can lead to a sinking ship.
Posted by Beth Grimm at 5:27 PM
October 3, 2008
POLITICAL SIGNS - YAY ... OR NAY???
This came in via email recently (and no surprise, given the wild election times in US politics):
"Political Signs - my HOA won't let me have one, ... what do you have to say about that, Ms. Grimm!"
Here is what I say about it in my book, THE DAVIS STIRLING ACT IN PLAIN ENGLISH (available at http://www.californiacondoguru.com on the publications page):
The law in California:
1353.6. NONCOMMERCIAL SIGNS, POSTERS, FLAGS, OR BANNERS; PERMITTED PLACEMENT OF POSTING OR DISPLAY; EXCEPTIONS.
(a) The governing documents, including the operating rules, may not prohibit posting or displaying of noncommercial signs, posters, flags, or banners on or in an owner’s separate interest, except as required for the protection of public health or safety or if the posting or display would violate a local, state, or federal law.
(b) For purposes of this section, a noncommercial sign, poster, flag, or banner may be made of paper, cardboard, cloth, plastic, or fabric, and may be posted or displayed from the yard, window, door, balcony, or outside wall of the separate interest, but may not be made of lights, roofing, siding, paving materials, flora, or balloons, or any other similar building, landscaping, or decorative component, or include the painting of architectural surfaces.
(c) An association may prohibit noncommercial signs and posters that are more than 9 square feet in size and noncommercial flags or banners that are more than 15 square feet in size.
My commentary about the history: "It was not surprising when this new law was approved by the Legislators effective in 2005 – what better way to insure the unfettered display of political signs. Concerns have arisen in some associations over the display of offensive signs that lead to fighting among neighbors (and discrimination claims). Disputes arise in this area as to whether allowing signs on outside walls is allowed in a condominium development when an Owner does not own or have exclusive use of the outside of the building. Legitimate concerns about damage to buildings arise with attachment of signs or banners. This section does not govern display of real estate signs or any commercial signs. Signs for selling or leasing property are required to be allowed (one sign of reasonable dimensions) on a Lot, in a window or in the exclusive use areas in a condo or townhouse, but legal counsel should be consulted if there is a disagreement about where a sign may be placed or how it may be displayed. For more on real estate signs, see Civil Code Sections 712 and 713 which are not part of the Davis Stirling Act."
So, political signs are non-commercial in variety, right? I have written before about, and am a believer in, reasonably allowing owners to express themselves, within the law and the bounds of reason. Some attorneys feel otherwise. It is possible some have seen HOAs suffer from displays of political support. Reasonable time, place and manner restrictions make sense. Such as
"Owners are allowed one sign per candidate or measure, and not more, so as to avoid clutter and distraction."
"Any political signs displayed in the units must be in the windows; no signs may be attached to the buildings as damages may occur."
"Political signs may be displayed no sooner than 1 month before the Election; however, they must be removed within 1 week after the election."
"Any political sign that contains wording other than "Vote", "Vote Yes", or "Vote No" and the candidate's name or Measure Number may be ordered removed, if the sign incites others or incites misconduct."
"Any sign blocking the clear view of an intersection must be removed immediately."
"The posting of any political sign that causes damage to the buildings or grounds may subject the owner of the Lot to a fine and/or maintenance or reimbursement assessment."
These are all examples or rules that I have seen whose viability depend on certain circumstances and my suggesting them does not bless them for all HOAs. However, I will make my message clear with regard to political signs, which is the same as I have taken for flags ... Boards ... find a way if you can, to reasonably allow and regulate the signs, adopt reasonable rules and circulate them to provide guidance to the owners (adhering of course to the law requiring a comment period before final adoption) because if you don't, the residents will take it upon themselves to set the standard for the community, which usually leads to overreaching, dissention, fighting, legal fees and unnecessary battles.
This election coming in November is subject to a heightened awareness in formerly disinterested neophytes, highly and serious emotional issues, and deep seeded patriotism. People are going to want to express themselves. If this energy is not let out with a sign on the lawn or in a window, or on a deck or balcony, it is likely to show up (or blow up) in the boardroom.
Posted by Beth Grimm at 1:45 PM