Association boards have found themselves unwilling enforcers of properties and unpaid bills. That’s in part due to the fact that of the 300,000 homeowner’s associations in the country, over 50 percent of them face serious financial problems. So says a September 2010 survey by the Community Association Institute.

Because abandoned properties mean no one is paying the association fees, association boards are moving to force the issue legally. A number of states allow for boards to initiate foreclosure proceedings. That’s because banks, taxed with entirely too many foreclosures, are taking possession of the properties and allowing them to sit vacant.
That’s a lot of association dues not being paid.

Boards looking to improve their own financial woes could consider foreclosure proceedings as one option to recovering lost funds. The other alternative is to squeeze more money out of paying residents, which can create a larger turnover and more empty units. Instead, boards can develop a process by which to handle delinquencies.

Develop a foreclosure plan. Include things such as fines for late fee payment; lien language for delinquencies beyond 90 days; time frame for foreclosure proceedings to commence; determine who will enforce the foreclosure plan.

Adopt the foreclosure plan into the association bylaws and resident guidelines. Make sure all residents understand and sign off on the new bylaws. Spell out what fines are and when foreclosure will take place.

Communicate the new foreclosure language regularly. Remind residents that dues are the responsibility of all residents and that failure to pay will result in possible foreclosure proceedings. Use newsletters and mailed / posted notices to reach all residents.

Also, work with your association insurance broker to understand the additional risks that come with foreclosure proceedings and enforcement. Protecting the assets of the association and those of the board members should be second only to those of the residents.

Flickr photo credit: taberandrew

October 1, 2010 came quietly enough, but many associations and their maintenance staff may now be facing increased scrutiny from the Environmental Protection Agency. That’s because the EPA is now enforcing its lead-based paint Renovation, Repair and Painting rule. Lead paint is relatively harmless until it is disturbed. Through cutting, sanding, demolition, and other common maintenance procedures, the paint is turned to dust which is easily inhaled by adults, children, and pets. Ultimately, you are responsible for hiring a contractor that performs their duties in a way which will keep your unit owners/tenants safe during this work. By closing off the work area and completing the work carefully, contracts can minimize the danger posed. In addition to hired contractors, if you employ any maintenance workers who complete work on older buildings where lead based paint may be found, you should send your employee to a training class to stay in agreement with the law. 

Several portions of the bill required delay – mainly that part that required certification. The EPA delayed enforcements and extended the compliance assistance period so that companies could receive appropriate training.

The EPA also had extended the lead-safe training class deadline, allowing workers to sign up for classes until September 30, 2010. All training had to be completed by December 31, 2010.

Now that the deadlines have passed, association boards should only use contractors or maintenance teams that have current EPA compliance training. The EPA is honoring all existing lead removal and renovation contractor certifications, allowing for these firms to obtain the additional training during the grace period. If you or your favorite contractor have not yet received certification, contact the EPA immediately to discuss options available.

If you’re unsure about the painting materials used in your association’s construction or renovation, the EPA is providing chemical spot test kits that can be used on various surfaces, including drywall and plaster. They’re available to state-certified renovators, so check with your local certified lead renovation firms. Users must be qualified to read the tests and understand how the readings correspond with EPA guidelines. You can obtain more information at the EPA website.

Check your association insurance policy to understand your lead coverage and exclusions. Many companies will attach small limits to the policy, which could leave your association exposed in the event of a serious claim. If you’re unsure, give us a call. We can review your policy and discuss with you various options that can help alleviate the exposure. Additionally, always ask for proof that your contractor is certified by the EPA to conduct the work you are hiring them to complete.

How has your association handled this issue in the past? Did you simply have all paint removed and repainted, or have you chosen to simply deal with lead-based paint? Remediation can be expensive at times, and not always the easiest way to proceed. Contact your insurance agent and obtain quotes from certified contractors to discuss your options.

Flikr Photo Credit: Editor B

Want to find yourself on the wrong end of a discrimination suit? Just ban children from playing on your association’s grounds.

That’s how a Boston-based condominium association found itself paying out a $150,000 in fines for discriminating against families with children. The settlement has the association paying $130,000 to the families in question and $20,000 in civil penalties. This lawsuit and the subsequent fallout gives us a prime example of an association over-stepping it’s bounds. In addition to restricting the ability of children to play outside, the association was accused of intimidating, threatening, and interfering with the rights afforded to it’s residents under the Fair Housing Act. This entire situation goes to show how difficult it can be at times for an association board to manage the needs and desires of all residents.

This is not the first case where an association has found itself on the wrong end of a discrimination suit. Other substantial instances involve associations in Indiana, Atlanta, Florida, and Washington. Regardless of guilt or if the discrimination was intentional or simply a bi-product of an otherwise harmless determination by the board, these situations can be costly to defend and extremely costly should you be found guilty.

It all started when the association board banned sports being played in common areas and forbade children in the complex from playing outdoors on condo association property. That alone would have been enough to anger parents, but the board went one step further – too far, in the opinion of the court – and fined parents more than $500 each time their children were caught playing on condo property. Worse, the association board slapped a $1,000 fine on one mother who filed a state discrimination complaint, in an attempt to cover the board’s legal costs of the mother’s complaint.

If the actions of this association board sound at all familiar, be warned. Associations cannot operate above their own bylaws and certainly not above state and federal laws. The larger offense, and the one that was most discriminatory in the court’s mind, was the amount of the fines imposed on the families. Other residents were fined $10 for common-area rule violations – substantially less than the $500+ families were hit with.

Yet residents complain about noise and about the hazards caused by children playing outdoors and in parking areas. How do you as an association address these issues?

1. Hold an open board meeting. Have a special meeting to discuss the issues raised. Make sure to communicate thoroughly the meeting time and place and encourage residents to weigh in on the issue.
2. Form a task force. Include residents from both sides of the issue. Charge the committee with finding a workable resolution that allows all residents to enjoy the property. Make sure at least one association board member is on the committee or leading the process.
3. Discuss options openly. Conduct another resident meeting to address the recommendations of the task force. Ask for community input.
4. Adopt fair bylaws and regulations. If changes are necessary to the bylaws, make sure they reflect existing regulations. For example, do not impose hefty fines on one group, but minimal fines on another group.
5. Enforce regulations consistently. The best policy is one your association enforces across the board. Make sure the regulations are followed by all, and take corrective action when necessary.

Ultimately, be sure to contact your legal counsel and insurance agent to discuss issues that may arise. Has your condo association had an issue involving discrimination in the past? How did you handle this issue, what was the outcome?

Flickr photo credit: MOmilkman

It’s no isolated issue, and it causes significant health risks, cleanup costs, and ongoing maintenance. Sewers without proper traps can cause severe allergic attacks or potentially fatal consequences to residents. Broken pipes can cause raw sewage to empty into buildings. As a result, nasty stenches can reduce property values and associations that can’t seem to locate the cause and apply the right remedy can find themselves part of expensive claims.

Interestingly a recent lawsuit in California for damage to the interior of a unit from common area pluming found the Condominium Association liable.

Association boards tend to have a reactive approach to drainage issues. What’s needed is a preventative process that allows associations to reduce potential issues and costly repairs. In order to prevent backups or line breaks, associations should regularly inspect the sewer and drainage systems. A drainage maintenance process should include these four easy steps:

1. Schedule regular inspections. Twice a year, drainage systems should be inspected by licensed plumbing/engineering experts. Associations should invest in camera-based inspections to ensure trees and plants have not damaged drain pipes.
2. Conduct landscape maintenance. One of the most common reasons for a backup includes tree roots that have damaged pipes. Work with your plumbing expert to locate any potential problems.
3. Communicate dos and don’ts with residents. Even products labeled as flushable can cause serious backups. Make sure residents know that items such as flushable cat litter, feminine products, and pasta or rice products should never go down drains or toilets.
4. Review your apartment or condo association insurance policy. Examine your policy limits against the size and estimated replacement costs of a sewer or drain system. Most master policies offer limits from $25,000 to $100,000, depending on property size.

Has your association completed the 4 simple and inexpensive fixes that could save you thousands of dollars in the future?

Flickr photo credit: mojorider2

Almost every state in the country has been experiencing below freezing weather this year.  The mid-west and northeast states have been hit hard by the freezing weather. These states are used to this type of winter weather.  The southern states, such as Tennessee, Georgia, North Carolina and South Carolina are normally immune to the long periods of freezing weather.  Not so during the winter of 2010 and 2011.

A freeze up condition of your sprinkler system can cause an obstruction that will prevent the sprinkler system from working properly.  The sprinkler piping could also burst and cause extensive water damage to your building and contents.  

The following are a few precautions you can take to help prevent the freezing of water-based sprinkler systems: 

• Make sure the areas of the building with a wet pipe sprinkler system are heated above 40F and well insulated.  
• All electrical conduit, air handling ductwork and telecommunication lines that penetrate heated areas from unheated areas should be insulated to prevent air transfer between spaces.
• Check for damaged or missing insulation in attic areas.  If the attic sprinkler system is a wet pipe system the attic should be provided with a reliable source of heat. 
• Normally unheated attic areas are protected by a dry pipe system. Dry pipe systems can also freeze if there is a low point in the piping within the unheated attic area. The pitch of the dry pipe system should be checked to make sure that water is not trapped in the sprinkler pipes.
• Your sprinkler system should be inspected and tested by a qualified sprinkler contractor on a regular basis.

You can obtaining additional information regarding the water-based fire protection systems maintenance and testing standards at www.nfpa.org.

Thomas Russell is a Senior Risk Control Representative with Westfield Insurance. He has over 30 years experience in the insurance industry.

If you’re like most apartment associations or condo boards, you simply renew the policy each year, assuming that the cost-of-living increase in coverage is adequate. Nothing could be further from the truth.

Properties change. Buildings age, new buildings go up, new property features are added, and renovations are completed. If associations were doing things correctly, there would be a review of coverage every time the property is altered or at least annually.

Worse, some associations decide early on that covering the property at less than its replacement value will save them money. That may have been true years ago when property values were much lower. But do you know how much that deductible translates into in today’s dollars?

For example, Skyline Apartments’ association bought their policy in 1995. They decided that the property, then valued at $800,000, could be covered at 80 percent. The association put aside the additional 20 percent – $160,000 – for their deductible. Each year at renewal, they simply renew without reviewing their coverage. Board members came and went, and still the property coverage was left unchanged.

Flash forward to 2010. Skyline’s association is now filing a claim for damages due to a tornado, which destroyed the building. However, the damages amount to $1.8 million thanks to increased property values. The association is now on the hook for $360,000.

Worse, since the association didn’t properly evaluate the replacement cost of the building, the insurer might reduce the claim settlement to match only that amount originally insured, and could even tack on penalties  if they were included in the contract.

When did you last review your property coverage? Do you carry deductibles? If so, what can your association afford to pay? Is that in line with what you are contractually in line to pay should something occur?  Property values have become so unstable in this economy.  It’s important for the life of your association and the trust of your homeowners that the values on the properties are accurate.  If you don’t have a current valuation, put it on the agenda, get it done, and then make sure to have your insurance policies updated.

Flickr photo credit: bitmask

The more common areas of concern are those pools, tennis courts, walkways, and parking areas. But associations should look deeper into the property and locate maintenance issues before they become large setbacks. 

Five areas to consider:

Foliage. It’s not just the trimming and care of your property landscape that should concern you, but also the types of plants and trees. Some species are prone to disease. That can create epidemics of insects and infestations that can kill off much of your expensive landscape plants. Check for white fly infestations, which can spread to all plants and destroy pricey shrubs. Also, learn what types of trees are on the property and what diseases are currently attacking them. For example, ash trees are experiencing an emerald wood borer outbreak that’s deadly to the tree. A dead tree is a hazard to buildings and people. Remove any trees for which you cannot take preventative measures.

Energy use. It doesn’t hurt to get an energy audit to understand where your association and resident units are losing precious energy. Call in your local utility companies to inspect the property and make recommendations that could save thousands.

Foreclosures. Sure, it’s not up to the association to take care of units not belonging to them. But to protect the overall value of the property, consider doing basic maintenance and lawn care in and around vacant units.

Periodic maintenance. Most associations create a schedule of regular maintenance, but if you see something broken or rotted now, replace it. It could halt further, more costly damage or injury.

Animal damage. Nooks and holes in building facades are great hiding and nesting places for birds and animals. Make sure to eliminate any unwanted residents by repairing holes and closing off areas where squirrels and birds could nest.

Photo credit: j-ster

Call it cooking the books, fudging the numbers, whatever you like. Your association board is looking at a potential case of fraud. One or more of your board members may be skimming funds and manipulating the accounts in order to do so.

But if you suspect another board member, should you go to the board with the evidence? Not before you notify the authorities. In cases of suspected fraudulent activity, the actions you take (or fail to take) speak volumes in a court case should your residents sue the board collective over the issue. If you show proper due diligence, you could spare your board a costly lawsuit.

All associations should have a process in place with which to handle fraud investigations. The following six items are basic guidelines. For more detailed advice and assistance, you need to contact an attorney.

- When fraud is suspected, board members should inform the board attorney and local fraud division authorities.

- Remove the records in question to a designated third party, typically the board attorney or an outside accounting firm. Seek your counsel’s advice on whom should be in possession of the suspect records.

- Hire a forensic accountant to conduct a thorough audit and investigation.

- Document the incident and case progression in association minutes. Maintain comprehensive files documenting the process from the first day.

- At your attorney’s prompting, notify the board of the suspicions and investigation. Make sure to coordinate this with your attorney’s permission so as not to hamper the investigation.

- Also, seek your attorney’s advice on how to handle the person or people in question. Ensure that you’re not violating anyone’s civil rights in an attempt to protect your board’s financials.

Walking into a potential fraud situation can be very intimidating.  If you follow these basic steps, and contact your association’s attorney, you can protect both your integrity and that of the association.  Associations are fraught with mistrust and handling the situation correctly will do a lot to ensure the fundamentals tenants of most associations.

Flickr photo credit:  !!sahrizvi!!

That’s because associations are often required if not expected to keep an arm’s-length distance between their personal businesses and that of the association. If the bylaws state that the association will entertain bids for the various services, it is in their best interests to prohibit board members from submitting bids themselves. It smacks of nepotism and can set your board up for an unsightly lawsuit, one that could be waged against the association board as a whole, as well as individual members. If you’re not insured for directors and officers risks, a lawsuit could drain both association coffers and your own bank account. 

Even unrelated business dealings should be avoided. For example, if your board member owns a home inspection company, imagine the commissions to be had from residents! For that reason, the board member should not do business with residents in communities in which he or she holds a board position.

Likewise, using your connection as a board member to obtain resident lists in order to solicit business is also bad form. The reasons are many, primary being that boards could find themselves named in lawsuits waged by unhappy clients of the board member in question. Insurance coverage will not extend to individual board members’ outside business dealings.

Talk with your association insurance broker to understand the limits of your current coverage. And review your bylaws and state laws to ensure your board members are operating within the law.

Flickr photo credit: crystaljingsr

Likely not. Your agreement is not with the person renting the apartment or condo. Your written agreement was signed by the resident in question. The renter has no idea usually that the resident isn’t paying his bills, nor does the renter have control over the resident’s actions. Also, renters pay maintenance fees as part of their rent payment to the owner. It’s the owner’s responsibility to forward those payments to the association, not the renter’s. Neither the association’s agreement with the owner nor the agreement between the renter and owner is set up to force a renter to pay an owner’s expenses, nor should they.

What is the recourse for the association? Can you as an association evict a paying tenant from an apartment or condo you don’t own because the owner isn’t paying the bills?

While your association’s legal counsel will be able to advise you in detail, I don’t think forcing a renter out of a unit by bypassing the resident is possible. However, you as an association may be able to begin foreclosure or delinquency/lien action against your resident, which could allow your association to recoup some of the delinquent association fees.

Unfortunately, associations have little recourse with renters when unit owners won’t pay their bills. Short of forcing a foreclosure and taking over the property itself, the association has to follow the same procedures as with any other unit owner who is delinquent in paying dues.

If your association has attempted to seek payment from renters, that could result in an errors & omissions claim against your association. Make sure to conduct association business in accordance with all bylaws and regulations governing association practices.

Flickr photo credit: NNNIIIIICCCCCKKK HUM