Tag Archives: Foreclosure

Audit the Associations Books?


Audits are Expensive and Should Be Done Selectively.

An audit is an extensive and methodical examination of all of the books, records and accounts that support the financial statements.  In most circumstances, they are costly and time consuming.  However, it is often prudent to audit the HOA books and records whenever a developer turns over a community to the homeowners to verify that the developer has fulfilled its obligations to the association, and won’t leave unit owners holding the bag for any unpaid fees.  Or an audit may be need if misappropriation of funds by an association or management company is suspected or a community is transtioning from self-management to a management company and experiencing extreme financial hardship.    In those case, a forensic audit must be performed to determine exactly where the money has been going.

A Review is a Less Expensive Alternative to an Audit.

A review is a report of limited assurance stating that the accountant is not aware of any material modifications that need to be made to the financial statements in order for them to conform with Generally Accepted Accounting Principles (GAAP). The accountant must perform sufficient inquiry and procedures to give a reasonable basis for that conclusion.  A review is a more affordable alternative for most associations and should be sufficient in most cases.

When governing documents talk about “audit,” it generally refers to some level of independent review of the books by a CPA.   Depending on the size and complexity of your HOA, an audit may be overkill and may not be warranted.   Rather than perform an annual audit, the Board may elect to perform an annual review.

Whether your HOA decides to do a review, a compilation, or a full blown audit,  we think it is a good idea to do on an annual basis.   Some HOA governing documents require it, others are silent on this point.

There are a variety of qualified CPA‘s in the Atlanta area that can do this work for your Atlanta HOA. Why is this a good idea? The easiest answer is a simple one: it’s smart, prudent policy. Even if you are confident in your Atlanta HOA management company, it is a good idea to do this as it shows the membership that you are being thorough in your desire to ensure the HOA’s funds are tended to in an appropriate manner. Regardless of whether you do an audit, make sure you review the financial reports you get from your property management company each month.

We are happy to provide financial report training to any of our clients. We’ll explain what the GAAP rules are and why we adhere to them in your financial reporting. We’ll also explain the rules of double entry and much more. If you are interested in getting more information on our financial report training webinars please contact us by going to our website at http://www.riversidepropertymgt.com.

CAI Alert – Community Association Legislation Support


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On behalf of CAI’s Legislative Action Committee, I wanted to alert you about an important piece of legislation we are promoting in Georgia. The proposed bill (number not yet assigned) establishes that, at the time of a foreclosure sale on residential property, the new homeowner shall take title to the property subject up to six months worth of homeowners or condominium owners association fees, if any such fees are due at the time of foreclosure.

This legislation is vital to our HOA’s and COA’s, many of which are suffering significant losses because these debts remain unpaid at the time of foreclosure. When such dues remained unpaid, every member’s property value suffers! This bill is a reasonable compromise with lobbyists for the bankers and realtors, who rejected our prior proposal. However, both of these groups maintain that they will not support any legislation that holds the purchaser responsible for any outstanding homeowner’s association fees.

Our advocates at the Capitol have asked that we reach out to our legislators and ask for their support of this important bill. Please call and email the Chairmen of the House and Senate Judiciary Committees, whose information is provided below.

Representative Wendell Willard
Chair, House Judiciary Committee
(404)656-5125
wendell.willard@house.ga.gov
Senator Bill Hamrick
Chair, Senate Judiciary Committee
(404) 656-0036
bill.hamrick@senate.ga.gov

Please also reach out to your local Representative and Senator, whose contact information can be located by typing your zip code into this linkhttp://www.votesmart.org/. When you contact them, please identify yourself as a constituent and tell them you are in support of proposed legislation to protect a property owners association‘s right to collect fees due at the time of foreclosure.  Please contact them as soon as possible!

Thanks in advance for your support of this effort.

www.riversidepropertymgt.com  (678) 866-1436

Via Email from:

Julie Jackson
CAI-Georgia
P.O. Box 2943
Peachtree City, GA  30269
Phone: 770-736-7233
www.cai-georgia.org
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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

CONDOMINIUM INSURANCE – WHO COVERS WHAT?


Most condominium association‘s “Declaration of the Condominium” (hereinafter referred to as declaration) follow the wording of Chapter 47C of the North Carolina Condominium Act with regard to the definitions of “common elements” and “units”.  The Declaration specifies what insurance is to be provided by the association and what insurance is to be provided by the unit owners.In the statute, 47C-2-102, Unit boundaries it says: “Except as provided by the declaration:

(1)   If walls, floors or ceilings are designated as boundaries of a unit, then all lath, furring, wallboard, plasterboard, plaster, paneling, tiles, wallpaper, paint, finishes flooring and any other materials constituting any part of the finished surfaces thereof are a part of the unit; and all other portions of such walls, floors, or ceilings are a part of the common elements.

(2)   If any chute, flue, duct, wire, conduit, bearing wall, bearing column, or any other fixture lies partially within and partially outside the designated boundaries of a unit, any portion thereof serving only that unit is a limited common element allocated exclusively to that unit, and any portion thereof serving more than one unit or any portion of the common elements in a part of the common elements.

(3)   Subject to the provisions of paragraph (2), all spaces, interior partitions, and other fixtures and improvements within the boundaries of a unit are a part of the unit.

(4)   Any shutters, awnings, window boxes, doorsteps, stoops, decks, porches, balconies, patios, and all exterior doors and windows or other fixtures designed to serve a single unit but located outside the unit’s boundaries are limited common elements allocated exclusively to that unit (1985 (Reg. Sess., 1986), c.877, s.1.)”

The Declaration of most associations specify that the association shall provide coverage for “common elements” and each unit owner must insure his “unit”.  This would suggest that a unit owner would need to include Coverage A Building under the standard condominium unit owners HO6 to cover the elements of the unit that are actually part of the building (contrasted to “contents” such as clothing, TV‘s, etc.).  The parts of the “unit” which cause concern are building type items such as floor covering, wall covering, built in cabinets and appliances, and interior non-load bearing walls and partitions.

Under 47C-3-113, Insurance (a), “Commencing not later than the time of the first conveyance of a unit to a person other than a declarant, the association shall maintain, to the extent available:

(1)   Property insurance on the common elements insuring against all risks of direct physical loss commonly insured against including fire and extended coverage perils.

47C-3-113 (b) “In the case of a building containing units having horizontal boundaries (multi-story buildings) described in the declaration, the insurance maintained under subdivision (a)(1), to the extent reasonably available, shall include the units, but need not include improvements and betterments installed by unit owners.  This seems to imply that the master policy should include all that comes with the unit at the time of purchase (with standard) allowances.  The unit owner would need to insure the value of any upgrades under the Coverage A Building part of his HO6.

An attorney who has much experience in preparing Declarations has responded to an inquiry as follows: “In response to your memo, please note that, per section 47C-1-104(a) of the Condominium Act “Except as specifically provided in specific section of this chapter, the provisions of this chapter may not be varied by the declaration or the by-laws.”  Section 47C-3-113 (the insurance provision to which your memo refers) states that it may be varied or waived “in the case of a condominium all of whose units are restricted to nonresidential use.”  Accordingly, regardless of what the declaration or by-laws say, unless the insurance is not “reasonably available”, if the condominium contains residential units with horizontal boundaries, the insurance must include the units (but need not include improvements or betterments installed by the unit owners.)

Therefore, we conclude that the Association master policy must cover these described items and the amount of insurance selected should reflect these values.

Another issue is the association policy deductible which can be as much as $10,000.  Perhaps the individual unit owner is uncomfortable with such a large deductible.  A solution would be to purchase an amount of Coverage A Building under the HO6 equal to the cost of his upgrades plus $10,000.  The association policy is primary but it does not cover “upgrades” nor anything under $10,000, so the solution suggested will work.  Also, the HO6 building coverage is not subject to a coinsurance clause.

In order for this solution to work, the association Declaration must follow 47-C-113 (b) of the statute.  The alternative method is to say in the Declaration that the associations will provide coverage on the “common elements” only and each unit owner will have to cover all parts of the unit (including walls, floor coverings, built-ins, etc.)  This method calls for the developer/builder to inform each unit owner as to what the replacement cost of such items is so that the proper amount of Coverage A Building coverage can be obtained by each owner.  Not only is this a cumbersome method, but it appears to be contrary to what is dictated by the statute.

Should Your Atlanta HOA Adopt The Georgia Property Owners Act?


Why Your Atlanta HOA May Want to Adopt the POA.

In 1994, the Georgia Legislature adopted the Property Owners’ Association Act (“POA”). The POA provides significant advantages to homeowners associations. Here are some of the most important advantages of the POA:

1.   Automatic Statutory Liens

After submitting to the POA, an association no longer needs to file liens at the county courthouse for unpaid assessments or other charges. Instead, the POA creates an automatic statutory lien against a delinquent owner’s lot for any sums owed to the association. The POA provides that the declaration of covenants itself serves as notice that there is a lien on every lot in the community for any unpaid assessment or other charges. As a result, closing attorneys, title examiners, purchasers or owners must contact the association for a statement of any amounts owed to the association prior to concluding a sale or refinance of the lot, or risk the existence of a lien. If the association is not paid out of the proceeds of the sale or refinance, the lien continues against the lot and will generally have priority over subsequent liens and mortgages.

Another benefit of the POA’s automatic lien is that it protects the association even if the association’s records have incorrect or misspelled owner names. Recorded liens are only effective if filed under the correct owner names. If the association’s records have an owner’s name misspelled the recorded lien may be ineffective. The POA makes the lien effective, even if you have incorrect or no information about an owner.

2.   Buyers and Sellers are Jointly and Severally Liable to Pay Assessments
The POA includes another provision that helps strengthen an association’s assessment collection powers. The POA makes buyers and sellers jointly and severally liable for all unpaid assessments. This means that, if the automatic statutory lien is not paid at the closing, the association can proceed against the new owner, who will be personally liable for all amounts owed prior to the closing.
3.   Tenants are Obligated to Comply With Association Regulations
The POA also requires that both owners and tenants must comply with all the provisions of the declaration of Covenants and the association’s rules and regulations.
4.   Fines and Suspension of Privileges
The POA gives homeowners associations a statutory power to assess fines against violators and to suspend the common area use rights of violators, if allowed in the Covenants. Fines constitute a lien against the violator’s lot, and the ability to fine significantly strengthens the association’s powers to enforce the Covenants and the rules and regulations.
5.   Late Fees and Interest
Submission to the POA allows homeowners associations to charge a late fee equal to the greater of $10.00 or ten percent (10%) of the amount due, and interest at a rate of ten percent (10%) per annum on unpaid assessments and charges, if allowed by the Covenants.
6.   Recovery of Attorney’s Fees from Owners
The POA authorizes the recovery of the association’s costs of collection of the delinquent assessments, including reasonable attorney’s fees actually incurred. This provision is extremely helpful with judges who otherwise are reluctant to grant the association its attorneys fees, when it sues delinquent or violating owners.
7.   Perpetual Duration
Prior to 1993, Georgia law at Code Section 44-5-60(d)(1) generally provided that Covenants expire after twenty years. That statute was amended in 1993 to permit Covenants to automatically renew, but the Georgia courts have held that Covenants in communities that were recorded prior to 1994 do not receive the benefit of the new 1994 law. One of the most important benefits of the POA is that it has a provision that states Georgia Code Section 44-5-60(d)(1) shall not apply to any Covenants contained in any instrument submitted to the POA. That means that if a community’s Covenants were recorded prior to 1994, submission to the POA now will eliminate the possibility that the Covenants will expire after twenty years.

8.   Ease of Adoption
In most communities, Board members can quickly and easily adopt the POA by obtaining the consent of the association members by mail or by going door to door, depending upon the specific amendment provisions within a community’s governing documents.

Once in place, the POA provides clear advantages to homeowners associations seeking to maximize their collections.

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!