Tag Archives: Delinquent

Gallery

Adopt a Clear Policy on Dues Collection in the HOA or Condo Association


Assessments are the lifeblood of the HOA and Condominium Associations. However, only in very few condominium associations is the collection of dues a process of laissez faire. Most condo associations need to have a consistent process and procedure to thrive … Continue reading

“Grandfathered” Rules


https://i2.wp.com/fwahu.com/wp-content/uploads/2010/11/grandfatherstatus-150x150.jpg

OK, your HOA’s changing some rules. But the gall of some owners! They want to be exempt from your new rules, or “grandfathered in.” Should you grant their request?

Here, we discuss the pros and cons of creating exceptions for rules, give four examples of when it’s smart and not smart to grandfather residents in, and provide tips to ensure the grandfathered rules don’t last forever and are enforceable.

When to Grandfather? It Depends

“I think it’s a great question,” says David Mercer, a partner at MercerTrigiani in Alexandria, Va., who represents more than 500 associations in Virginia and Washington, D.C. “The answer depends on the specifics of what you’re trying to accomplish. It depends on how serious the problem you’re addressing is and how difficult it’s going to be for residents to change their behavior to comply. Each factual situation you confront brings different issues to the grandfathering clause.”

Robert Galvin, a partner at Davis, Malm & D’Agostine PC in Boston who specializes in representing condos and co-ops, has one absolute. “Never grandfather specific units or people,” he says. “Also, grandfathering isn’t something you do very broadly. Usually, if a rule is a good idea, nobody should be grandfathered. But there are instances where it’s appropriate.”

Here are a few examples:

1. Rental Restrictions

A change of use is a good barometer of when to grandfather, says Kristen L. Rosenbeck, a partner at the Mulcahy Law Firm PC in Phoenix, which represents associations. “I typically want to recommend grandfathering if we’re changing a use,” she says. “Let’s say it’s a rental restriction. That’s a large issue and a change in use. So let’s grandfather owners already renting out their unit and make the rule apply to future owners from this point forward. Some clients want to have the rule take effect when current renters leave. We have case law that says that’s sufficient. But because that change is controversial, I’d recommend clients say the rental would continue until ownership changes.”

2. Color Scheme

Rosenbeck doesn’t think the same reasoning applies to a change in a neighborhood’s color scheme. “We can change the scheme, and that’s not tied to ownership,” she says. “So we could grandfather the current scheme and have it be acceptable until you have to paint your house again.”

3. Pet Rules

“Assume your association is a pet community, so when a condo owner bought, he could have pets,” explains Mercer. “He recognized the condo rule could be changed if, say, 66 and two-thirds of his neighbors voted to change it. Now they’ve voted to change into a no-pet community. The board should want voluntary compliance, but it’s very unrealistic to expect people with pets to move or get rid of their pets to be in compliance. But it’s reasonable to expect that if you grandfather pets in and say, ‘For starters, you need to register your pets. Only those pets will be allowed to stay, and they can’t be replaced when they die.’ Now you’re working toward total, voluntary compliance in several years without the disruption, adversarial approach, and disenfranchisement of people.”

4. Smoking Bans

“There should be no grandfathering when there are safety concerns,” says Rosenbeck. Example? “If you take a health issue like smoking, and you want to ban smoking in the entire property, that gets a little more traction if you say, ‘Except in your unit, we’re banning smoking in all areas,'” adds Mercer. “Still, you might want to consider an area in the common elements that would be restricted as a smoking area rather than going cold turkey on all areas.”

“Every time I’ve been involved in a change that alters the fiber of a community, the association has provided grandfathering,” says Mercer. “It’s difficult enough to get an amendment that you risk it not being passed without grandfathering. The analogy I make is that of a local government authority that wants to change zoning and prohibit a light industrial use in a particular zone. The government can’t just say to someone, ‘And by the way you can’t run your business anymore. But it can say, ‘You can’t sell or change your business use, and once you end the business, it’s done.'”

Source:  http://www.communityassociationmanagement.com/rules/violations-and-enforcement/2461-qgrandfatheredq-rules.html

Avoiding the Special Assessment Trap


Don’t think owners won’t notice an extra charge from the association.  Prepare for a fight and plan ahead to avoid special assessments altogether.

Special Assesments for Necessary Repairs

Many community associations turn to special assessments when confronted by unanticipated repairs, but boards need to avoid making hasty decisions to fund these surprise expenses.

Special assessments should be the last resort – not the first step -in funding an expensive repair; they’re unwelcome surprises and can cause financial hardship.  Moreover, they are inherently inequitable because they fall on the people who happen to own at the time payment is due, without regard to length of ownership – a measure of how much an owner “consumed” the component being repaired.  Given these dynamics, it should not be surprising that some owners will search every nook and cranny of a special assessment decision and may emerge with troublesome defenses.

Owners may dispute a special assessment for many underlying reasons.  The challenges come from the disgruntled owner who simply doesn’t like the board or from the guy who disputes the wisdom of the project, timing, cost or the specifications.

The owner’s personal agenda doesn’t matter because he refuses to pay, but he will not stop there; misery loves company.  He will organize his neighbors, start a petition, appear at your next board meeting with a circle of supporters and wag his finger or wave his fist in your face.

Worse, he will encourage others not to pay.  Then the board may realize it doesn’t have enough support for the project.  Further, the board may be faced with difficult collection actions, lawsuits that cost money and create tension, and may need to delay the very work that the special assessment was intended to cover.

LITIGATION LEADER

In the experience of my law firm in collection work for community associations, special assessments are one of the leading sources of litigation.

Just when you think you have done everything correctly, you may find yourself embroiled in a legal dispute.  There will be a clever attorney on the other side, skillfully probing every step in your decision-making process.  Believing his claim has great merit, he will cloud the issues with distracting defenses, bury you under an avalanche of paper discovery, file an endless stream of meddlesome motions and posture for his client who sits by his side cheering him into battle.   It won’t be fun.

THE NEED FOR A PLAN

Hopefully, a special assessment will never will be necessary.  If a board plans properly and builds up its reserves, it may not be.

Unfortunately, some boards want to keep general assessments low, believing that owners consider only the monthly fee when determining how much they pay the association.  This is fiction; you can’t play hide-the-ball with a history of special assessments.

The association needs to engage in strategic planning to avoid the necessity of a special assessment; the adverse impacts of financial surprise and inequity are often too much to overcome.  Many managers are particularly good at initiating strategic planning because of their professional knowledge and experience, but even self-managed communities can map out a well-developed plan.

Strategic planning calls for an objective look into the future to minimize surprise.  What components and systems will need major repair or replacement in the future?  How much will they cost?  How will these needs be funded?

The board is responsible for preparing the annual budget, including reserves.  When asked how they determine reserves, some of my boards say they have been to Disney World, using the Magic Kingdom Formula of 5 percent.  Others simply contribute “whatever is left at the end of the year.”  Both approaches are arbitrary and subjective.

Many state laws and governing documents call for reasonable reserves for repair and replacement.  The key word is “reasonable.”  Since every community is different in terms of construction, quality of materials, level of maintenance, climate and other factors, each must be examined on its own.

The basis for determining what’s reasonable for your particular community should be a reserve study by an independent expert – one who does not stand to obtain the repair work, who has professional qualifications in this field and is designated by CAI as a Reserve Specialist (RS).  Couple the study with an energy audit to buffer rising energy costs.

If your association does not have a financial plan for reserves, is this a failure to plan or a plan to fail?  And what if the association has some reserves, but they are either inadequate or the board doesn’t want to spend the entire fund on one project?  If that happens, the next best approach is to borrow funds from an institutional lender, using an assignment of assessments as collateral.  Many lenders now offer such loans for community associations.

Borrowing has many of the equitable features of reserves because the debt service is paid in modest amounts over a period of years.  The obligation transfers from one owner to the next as sales occur, thus spreading the costs and benefits in the same manner as reserves.

Of equal importance is that the association would have all the funds up front to complete the project, and would be able to enter into contracts without worrying about whether all owners will pay a special assessment in full, on time and without the delay and cost of chasing delinquent owners.

Without a financial plan, how do you know where your community is going?  John Irving wrote in Hotel New Hampshire, “If you don’t know where you’re going, you don’t belong where you are.”  The challenge for associations – volunteer leaders, homeowners and managers – is to find out where they’re going by engaging in strategic planning, starting with an objective reserve study and an energy audit, followed by setting a realistic level of funding.  This is the best way to minimize the need for a special assessment.

If your homeowners or condominium association doesn’t have a financial plan, it also may fall out of favor with the Federal Housing Administration.  The agency frowns on special assessments, and it requires that the budget contain a line item of at least 10 percent for reserves.  Since Feb. 1, 2010, condominium associations need to get on FHA’s approved project list before it supports any mortgages in the communities.  Failure to be on FHA’s approved project list will discourage real estate listings, leading to reduced marketability and resale values.

DUE DILIGENCE

Sometimes, not even fully funded reserves can prevent a special assessment.  When it’s unavoidable, the board must exercise due diligence before imposing the additional fee.  Due diligence can be tedious and time consuming.  To cover everything, use the following 10-point checklist and document each step:

1.     Ask your attorney to review your plans, applicable statutes and governing documents.  Get suggestions for improving them to foster success.

2.     Follow all applicable procedures in the governing documents for approving the budget.

3.     Make sure you have a full board that is properly elected.

4.     Be sure all voters are qualified.

5.     Make sure you comply with provisions in statutes and governing documents for adopting a special assessment.  Some states have special approval procedures.  Virginia, for example, authorizes members to rescind or reduce a proposed special assessment by majority vote at a meeting.

6.     Be diligent in identifying and evaluating options.  Prepare a comparative analysis.  Be objective.  For example, if you are replacing the siding because it would cost less than continued repairs, collect reliable data to support this finding.

7.     Keep the owners informed throughout the process.  Remember your obligation to disclose information about the special assessment on resale certificates.  Better to include it, even if it is merely under consideration, than to surprise a new owner.

8.     Use competitive bidding to find the lowest and best proposal.  Three are usually enough; any more will just drive you and your manager nuts.  In selecting a contractor, remember lowest cost is not always best value.  Many of us have learned the hard way that the lowest bidder is usually lowest in quality and reliability, but highest in terms of contract management.

9.     Make sure the components and systems to be repaired or replaced are within the association’s authority.  For example, if you want to replace all the windows in the condominium, make sure the windows are common elements, not part of the units.

10.  Get an opinion letter from your attorney to make sure that you have satisfied all substantive and procedural requirements of your state statute and governing documents.

The old carpenter’s adage, “measure twice, cut once” is good advice for board members because it’s essentially encouraging due diligence.  If successfully accomplished, the tasks on your checklist will not only create the foundation for a successful project, but also will minimize the possibility of litigation by contrarian homeowners.

After your due diligence is complete, engage the owners in the process.  Avoid top-down implementation or the appearance that the project is entirely driven by the board.  Appoint a committee of homeowners to take ownership of the project and be responsible for presenting it to the members.  Even if you do everything properly, you will not succeed without broad owner support and acceptance.

Indeed, there is nothing special about special assessments.  They present lots of moving parts and traps for the unwary.  They can lead to litigation involving issues far more complex than the problems they are intended to resolve.  The better approach is to build reserves based on an objective reserve study and to augment funding through a loan.  If you have absolutely no alternative to a special assessment, exercise due diligence in your preparation.  And remember that old carpenter’s adage.

By Marvin J. Nodiff, esq.

Take Action Against Delinquent Homeowners



Straight Talk on HOA Collections

When homeowners don’t pay their dues, HOA and condo associations have a variety of tactics available to them to collect unpaid fees.
As difficult as it may be, there’s really only one way to deal with homeowners who aren’t paying dues or making arrangements to pay a portion of their dues on a  regular basis: get tough.

No one enjoys forcing payment plans, filing liens, or even foreclosing on their neighbor’s home. But when homeowners don’t pay their homeowners association fees, the association has to try some or all of those tactics.

That may seem harsh, but when homeowners can’t (or won’t) pay HOA fees, the rest of the neighbors must pick up the slack through higher fees, special assessments, or reduced spending on community upkeep and amenities.

Delinquencies Lower Resale Values

Nationwide, non-payment of HOA fees is among the top problems facing condo, single-family, and other planned development associations today, says Thomas M. Skiba, chief executive officer of the Community Associations Institute in Alexandria, Va.

Just a few homeowners who stop making HOA fee payments can cut into an association’s budget quickly. Annual HOA fees average $420 for single-family homes and $2,400 for condos, the U.S. Census Bureau says.

If too many homeowners stop paying their HOA fees, lenders may be unwilling to make mortgages or refinance properties in the community.    Fannie Mae, for example, won’t guarantee loans in condominiums where more than 15% of the homeowners are 30 days or more overdue on HOA fees. That can hurt property values.

The Sooner You Act to Collect HOA Dues, The Better

The sooner action is taken to collect past-due accounts, the better off everyone is.   In this economy, you want to work with people who are willing to pay a reasonable amount to reduce their outstanding debt as long as they stick to a payment plan.  But when they refuse to pay anything or default on an agreed upon payment plan, you need to take the gloves off and act for the good of the entire community.

How to Collect HOA Dues without Breaking Your Budget

First, read your Covenants. If they allow you to shut off water, suspend access to the community’s gate, eliminate parking privileges or deny access to the community amenities, such as the pool, tennis courts and fitness room, you want to notify the homeowner that their privileges will be suspended if they do not pay and use the Covenants as the main weapon in your arsenal.

Second, consult an attorney to determine the best way to suspend HOA’s privileges for delinquent owners . For non-essential services, you may require as little as a certified letter tot he homeowner before cutting off access to the amenities.  In other cases, where essential services are involved, you may be required to obtain a judgment against the homeowner before suspending their access to the amenities and other privileges.   In either case, homeowners act quickly when faced with a potential interruption in services or other inconvenience.  That’s when they way to talk and work out an agreeable payment plan.

Third, file a lien against the property. A lien is a court document that tells title companies the HOA has to be paid when the home is sold or the homeowner refinances his mortgage.

Fourth, make renters pay fees if their landlords don’t. Adopt a rule that requires all renters to assume responsibility for HOA dues if the landlord-owners don’t.  This gives the HOA a backup source for payment.

Fifth, try to negotiate with homeowners after foreclosure. Notify delinquent homeowners that you will be filing a 1099-C Cancellation of Debt form with the IRS if they don’t pay their HOA dues.  When filing your taxes, the amount listed on the 1099-C form is claimed as income.  Because the homeowner never paid their HOA dues, it is considered money that you gained.  Many homeowners will negotiate with HOAs to avoid receipt of a 1099-C, which would result in more taxes.

Finally, don’t waste money paying lawyers to file suit against delinquent owners. Suing delinquent homeowners who don’t have the means to pay is a waste of your HOA’s operating monies.  In most cases, the HOA ends up paying far more to the attorneys than they could ever hope to recoup if a judgment is obtained against the owner.  Taking a case all the way to trial could cost the HOA several thousand dollars.   Having an HOA officer take the case to small claims court is often the best option for an HOA.

Collecting HOA dues doesn’t have to be expensive or time-consuming.  Be firm with delinquent homeowners and be  smart about every HOA dollar you spend on collections and you will enjoy the results!