Michigan Condo & HOA Law

The importance that the management company plays in the successful operation of a condominium or homeowners association cannot be overstated. We strongly recommend that community associations seriously entertain the retention of a management company to assist the board of directors in the day-to-day management of the association. However, in so doing, we must emphasize that not all management companies are created equally and sometimes vary widely in both the quality and quantity of services provided.

When looking for a management company, associations must ask several questions. For example, how large is the complex? Does a difference in structure mandate a difference in management companies? Some management companies are better suited to handle certain structures over others. Does a difference in population mandate a difference in management companies? Some management companies may not have the people power to handle larger, more populated and/or mature communities.

Does a difference in location mandate a difference in management companies? Some management companies may serve rural communities better than they serve urban communities and vice versa. Downtown high-rise developments certainly have their differences from suburban townhouse communities. While both developments would require general management skills, the management company of the rural community may need to know more about landscaping and ground maintenance, whereas the management company of the downtown high-rise might need to have extensive knowledge regarding elevator maintenance and a complex HVAC system.

Does the type of association come into play? Can one management company handle the likes of a condominium association, homeowners association as well as a cooperative? Should the association look to hire an on-site manager, or a portfolio manager who is also responsible for other properties?

There are several questions and concerns which must be considered before an association of any style and type chooses a manager or management company to represent their needs and interests. We strongly suggest that the condominium or homeowner association consult with legal counsel who is not beholden to a specific management company in order to make an informed decision.

Posted by Robert Meisner at 2:33 PM | Permalink

I met with an individual the other day who is concerned about latent problems stemming from her cooperative's position of right of first refusal in regard to potential buyers. My thoughts on such issues are that community associations should tread very lightly when going down such a path.

Cooperatives, condominium and community associations have to be very careful that issues such as discrimination do not crop up when the association attempts to excerise this right of first refusal. Associations must be absolutely certain that the decision with respect to the right of first refusal is based upon economics and/or an unwillingness to abide by the association documents rather than race, creed, sex, etc.

Indeed, many secondary mortgage providers do not allow a right of first refusal in community association documents on which they lend money because of the possibility for discriminatory usage. Associations are best advised to get an opinion for legal counsel in regard to this very sensitive issue.

Posted by Robert Meisner at 11:33 AM | Permalink

Not long ago a director of a condominium association contacted me in regard to D&O (Directors & Officers) Insurance. He was in the process of obtaining D&O Insurance and wanted to know if all D&O Policies were generally the same. My answer to that question was a resounding no.

D&O policies are not all the same and it would behoove directors to check whether or not their policy protects the following types of issues which are not normally covered: 1) protection for committee members and the property manager, 2) non-monetary claims such as claims for injunctive relief, 3) third-party breach of contract claims (i.e. the landscaping contractor suing a board member), and 4) defense for personal injury fraud or dishonesty lawsuits.

Board members are best advised to consult with an experienced condominium attorney as well as a condominium insurance consultant who has extensive experience in dealing with condominium and/or homeowner association insurance issues.

Posted by Robert Meisner at 4:05 PM | Permalink

I recently heard from a condominium co-owner who asked if it was necessary for his condominium association to conduct a certified audit every year. His situation is that his board of directors had not conducted an audit in five (5) years because of “other pressing issues.” After several co-owners complained, the board finally decided to conduct the audit, but it is not a certified audit.

The Condominium Act and most condominium bylaws require that the condominium association have an audit done by an independent accountant but the audit need not be certified, and the accountant need not be a certified public accountant (CPA). Although a certified audit is more expensive than a non-certified audit, it is our recommendation that associations have a certified audit performed on a yearly basis as well as a financial statement provided to the co-owners on a yearly basis as the later is required by the Condominium Act. Even though the auditor need not be a CPA, he or she should be condominium wise as it relates to the ins and outs of condominium accounting and governance.

Posted by Robert Meisner at 2:21 PM | Permalink

With the circumstance of economic conditions being what they are in the State of Michigan, many condominium and community associations are concerned about their ability to collect monthly or periodic assessments. Bankruptcies and foreclosures are at an all time high in the state of Michigan with Chapter 7 and Chapter 13 filings growing at an annual rate of 10%(1) , and the State rating third in the nation in foreclosures(2). Even though economic times are tough, condominium and community associations, like any other corporation, must maintain their cash flow, which is accomplished by collecting monthly assessments from their co-owners. The most effective way of doing this is through a methodical, and sometimes, an aggressive assessment collection policy.

Many condominium and community association board members are reluctant to pursue an aggressive collection policy with their neighbors when they know their neighbors may be experiencing an economic crunch. While our firm can certainly understand their angst in making bad situations worse for their neighbors, the bottom line is that the board of directors has a fiduciary duty to make sure the “corporation” is able to continue operations, and if the board does not pursue a methodical, aggressive collection policy they may be creating a bad situation for all of their neighbors.

It is our firm’s advice to condominium and community associations to seek counsel from a knowledgeable condominium and community association lawyer who can guide them through the murky waters of assessment collection during economically troubled times.

1) Detroit News (2005) More UAW Workers Bankrupt. http://www.detnews.com/2005/autosinsider/0509/18/A01-318432.htm
2) Courier-Journal (2007) Kentucky near top in foreclosure rate. http://www.courier-journal.com/apps/pbcs.dll/article?AID=/20070226/BUSINESS/702260420/1008/NEWS01

Posted by Robert Meisner at 11:46 AM | Permalink