Associations are allowed to charge reasonable late fees. But the definition of reasonable, and the frequency and application of reasonable, could land your association in hot water should you not lay out your terms from the start. Late fees should not outpace the amount due, nor should they be so high that collection becomes impossible. Many associations assess a $25 late fee, which meets the reasonable criteria.

Look at your late-fee process. Do your bylaws allow for a late fee to be collected should association fees become past due? If so, make sure the fee is reasonable, and that you and your occupants understand the assessment process and frequency of any subsequent late fees. Courts in the past have found that compounded late fees do not fall within the definition of reasonable fees because associations have not openly stated the fees will compound each month the bill remains unpaid.

Also, make sure that it is clearly defined in your contracts with unit owners how late fees will be assessed. It is well within your rights as an association to charge a late fee for each overdue bill. For example, if Fred Smith is late with his $350 June assessment, a late fee off $50 applies to that bill. Should it remain unpaid in July, associations should not tack on another late fee. It is past due at $400. However, if Fred fails to pay his July assessment as well, he now owes the association $400 for July in addition to the $400 he owes for June.

To make sure you’re able to collect late fees, establish a written collection process, with clearly stated late fees and application of those fees. If you intend to compound late fees, say so in your documentation. Also, provide each unit owner with the process, in writing, preferably on the agreements signed upon occupancy. If you need assistance devising a workable late fee/collection process, contact us.

Flickr photo credit:  David Blackwell

Once again, the government is ramping up efforts to tally the country’s population. With the 2010 census about to get underway, the US Census Bureau is asking apartment and condo associations to help them reach as many residents as possible. Since participation in the census is a federal requirement, associations need to determine how census workers will gain access, especially in secured facilities.

And make no mistake – census workers are given carte blanche when it comes to gaining access and possibly gaining repeated access in order to fully complete their responsibilities. Associations cannot deny access to any census taker who has shown proper identification.

In order to comply with federal regulations, make sure your property managers or any security staff understand that access must be granted to census workers. That includes allowing them access to secured buildings and any apartments they request. They are allowed to knock on doors, ring doorbells, use call boxes, etc. Also, there may be times when the census workers must return to the building to attempt resident contact again. If census workers cannot locate occupants, they are within their rights to ask property managers and associations for occupancy information. While you’re not expected to supply the information immediately, you should provide the requested information within a reasonable amount of time.

But how do you know if the census worker is legitimate? All census workers will be issued a census badge, which property managers may ask to see. When in doubt, contact the nearest Regional Census Center to verify a census taker’s status.

Associations should expect to see census takers after the April 1st deadline, in which all residents are required to return their mailed questionnaires. Expected in-person visits are slated from May through August of this year.

Flickr photo credit: bob the lomond

Take the example of Ohio-based condo association Lakewood Condominium Association, which is suing their property management group on allegations of stealing over $830,000 and allowing overdue association bills to go unpaid. The property management group is charged with, among other things, lying about the association having over $217,000 in CDs in the bank. The CDs, according to court documents, were withdrawn in January 2006, and over $378,000 in reserve funds remain missing.

 It’s hard enough deciding to hire an outside firm to manage the property. The impact on profits is significant enough that many associations opt to handle the management side in-house. But if the task is too much for your association to handle, there are ways to approach hiring an outside firm that can help lessen your risk.

Determine your needs:

1. What do you expect the management company to handle?
2. Decide the parameters of your relationship with the property manager.
3. What percentage of rented or occupied units do you require as a minimum?
4. Will your manager oversee property projects, such as remodels or upgrades?
5. Will the manager set the annual budget, and who will handle annual inspections and reports?
6. How will you verify monthly financial statements?

When looking for a manager, ask the following questions:

• Is the company licensed (if applicable in your state)?
• What are the manager’s insurance coverage amounts? Get copies of all policies, including those covering the company’s employees?
• Does the manager have experience managing similar properties?
• What’s the collection process for rent and association fees? Delinquencies?
• What does the manager charge? Are there any additional fees? If so, for what?
• Will the manager be proactive in preventing issues, or is it a more passive response process?

Get and check references. Also, make sure the company has a physical location and visit it. Expect your property manager to be present at board meetings. Work with the manager to establish a transparent financial relationship so that your association doesn’t become a victim.

What have your experiences been with property management?

Flickr photo credit: Thewmatt

The idea for the Federal Housing Administration’s new rules and enforcement was to allow for more buyers to qualify for FHA loans, thus increasing business for condo and apartment associations. But how good is it?

In fact, realtor associations and builders groups are opposed to the new rules, stating that the FHA has just made it that much harder for new building projects to be delivered and for existing apartment and condo complexes to qualify for the federal lending program. Apartment and condo associations agree. One section of the new FHA rules limits how many buyers of condo and apartment units can get an FHA loan. And the rules limit the number of FHA-backed loans to half of the existing units in a building.

 Among some of the new requirements is the stipulation that loans will be approved only for units in buildings where the association boards have deposited a minimum of 10 percent of its annual budget in a maintenance and repair reserve account. If your association property has a small number of units, the requirement puts FHA loans out of reach for your unit buyers.

Worse is if your association is over a month late in assessments, your buildings are excluded from FHA qualification. Likewise, if more than 10 percent of all units are owned by more than one investor, the property will not qualify.

The new FHA rules and enforcement are designed to safeguard the financial health of the organization, which is holding either delinquent or foreclosed status on 18 percent of its insured loans. Its own financial reserves are now below federal minimum standards.

If your association’s property is already above the federal loan threshold, there’s not much you can do to bring your property within compliance. Talk with an experienced association insurance broker to understand how these new rules will affect your association and what steps you can take to protect against the financial impact of the new federal loan limits.

Has your association been affected by the new FHA rules? If so, how?

flickr photo credit: HUD Public Affairs

For additional information:

HUD: Condo/PUD/Subdivision Lookup

HUD: Mortgagee Letter 2009-46B: Condo Approval Process for Single Family Housing

HUD: Mortgagee Letter 2009-46A: Temporary Guidance for Condominium Policy

HUD: Mortgagee Letter 2009-46 A & 2009-46B Frequently Asked Questions

The larger issue may be a depletion of funds available, but a sound insurance policy can help your association recover more quickly. The underlying issue, however, could be more harmful in the long run. In order for an embezzlement to occur, at least in the minds of your residents, someone had to be ignoring something. True? No. But getting beyond that perception can be difficult, if not impossible.

1. If your association is the victim of embezzlement by one of your board members or staff, don’t attempt to hide it from your residents. Instead, become proactive in informing your residents on the situation and its progress through any legal channels.

       2.   Provide residents with written communication that details the alleged activity (and make sure not to blame anyone lest you set your association up for a libel or slander lawsuit), what is missing, and how your homeowner’s association board is addressing it.

        3.   Remember to continue your communications with your homeowners. Update them regularly even if there isn’t much to report. They need to see their homeowner’s association is on top of the situation and working toward a swift resolution to the issue. Reporting the problem to them and then ignoring further communication sends a signal to residents that the board is uninformed or ignoring the situation. While neither may be true, residents can’t know what’s being done without you telling them.

A number of business insurance policies cover damage to reputation and loss of income as a result of that damage. Contact your homeowner’s association broker to discuss what options are available to you. Your broker is an excellent source for developing a communications plan that puts the minds of your residents at ease. That can go a long way to alleviating any damage to your reputation or future business.

Flickr photo credit: Arenamontanus

 Most apartment associations have rules that prohibit or limit greatly the ability of owners to rent their units. The strong argument has always been that the unknown variable – the tenant – could be a detriment to the value of the property as many unit owners in the past have been reluctant to live in a mixed-use community. However, with so many empty units and so much financial strain on both apartment associations and homeowners, flexibility is the new buzz word of the industry.

 For starters, new buyers may balk at purchasing a unit with rigid ownership terms. In a stagnant real estate market, smart associations will adopt more flexible rules regarding what unit owners can do with their properties. Allowing long-term rentals and taking part in the tenant vetting process can give associations some control over the rental while giving the unit owners the flexibility necessary to avoid foreclosure.

 Associations should limit how many people can occupy the unit. Also, setting a consistent rental rate and conducting background screenings on all rental applicants can help associations maintain property integrity and ease the concerns of existing owners. Those owners wanting to rent their units should be required to file all leases with the association and pay all association fees and any administration costs.

 If your apartment association is considering allowing rentals, check with your association insurance broker to understand how these changes could affect your coverage. Remember that any change to the association rules should be run past your broker to avoid any gaps in coverage.

 Flickr photo credit:  interpunct

Wrong. See, most states do not allow for associations to restrict or deny its residents any amenities as a means to force payment. Oh, you want to, but oh no, you can’t. It’s about protection for the consumer, not the association. Your homeowner’s association is limited to taking only the corrective action it has set forth in writing as a means of collection.

Practically speaking, most utility providers can’t fulfill such requests anyway. Cable companies and telephone service providers are bound by their own set of policies, and they have a direct relationship with your delinquent residents. As long as the residents pay their cable and phone bills, there’s no way you’re going to convince the companies to shut off services even if it were possible.

As much as associations dislike it, they do have to consider collection procedures. First, clearly state your homeowner association’s policies: when payments are due; when late charges are added; when residents will be sent a notice of lien; at what time a lien is registered against the owner’s unit; and how long before the delinquencies add up to a foreclosure situation. Also, boards must state their final approval of all foreclosure settlements or else they risk forfeiting the right to hold out for the full amount due.

Work with your homeowner’s association insurance broker to develop a clear collection and enforcement policy. Just make sure you understand that denying a delinquent homeowner access to common grounds and amenities is not just a bad idea – it’s prohibited.

 Flickr photo credit: Leo Reynolds

 That’s because some homeowners require the use of service animals. Seeing-eye dogs are the obvious exception to your board’s rules. And the exception should be made, because to deny a disabled person the right to animal assistance is in direct violation of federal and state disability legislation. But some pet owners are going to great lengths to claim disabilities in order to keep pets that wouldn’t otherwise fall under the definition of a service animal.  What about a service monkey to assist the disabled, or a guide horse for the blind?   It’s an area of the law that lacks clear definition, and while the Department of Justice has a proposal pending that would exclude exotic animals (such as snakes or other wild animals, there’s no clear legal precedent to follow.

 So how do you as a board, decide who in your community is in need of a service animal and who isn’t; what type of animal is considered a service animal and what isn’t. And more importantly, can you legally make those decisions? While your community association may not be comfortable defining what constitutes a service animal, you may be able to put parameters on that animal’s interaction with the rest of your community. For example, if a resident claims that he needs his pet raccoon to reduce his stress levels, your board could require that the animal not come within say 500 feet of another resident.

 Community associations should consult with a legal expert to address the issue of service animals. Find out if your state allows for your board to require proof of disability, as well. Check also with your insurance broker to understand what policy requirements you must meet in order to maintain proper coverage.

Has this been an issue for your association?  How did your board handle it?  Do you agree or disagree with their decision?

 Photo credit: The Guide Horse Foundation

 Such is the case for one Florida-based condo association, whose association board announced recently that its residents are delinquent to the tune of $675,000. That figure represents half of the West Palm Beach-based Palm Beach Grande association’s resident population. With 106 of its 304 units facing or in foreclosure, it’s a crisis situation for the condo association.

 Without condo association fees, owners of condos who aren’t delinquent are beginning to experience a shortage of services that they expect and pay for. That leaves condo association boards fighting a larger issue – how to maintain contractual obligations without bankrupting the condo association? Frustration on both sides of the equation are apparent. Condo association owners will wage complaints and possibly litigation over the condo association’s inability to afford basic property maintenance and services. Condo association boards have their hands tied and are openly upset about delinquent owners’ obligations and how their negligence affects all owners. Yet there’s no easy resolution.

 A few condo association boards have gone to the authorities to seek solutions. In some cases, boards are asking for the right to rent vacant units, gaining landlord control and applying rental fees to association costs. In some cases, condo association boards are voting to enter bankruptcy proceedings in hopes of reorganizing and erasing some of the bad debt owed.

 If your condo association is facing a large delinquency or foreclosure situation, talk with your condo association insurance broker to discuss potential solutions and all risks involved.  Anyway you look at it, this is a troubling situation. What is your association doing about foreclosures? How are you maintaining cash flow?  How have you adjusted your budgets?  Comment and share your solutions or ideas with others facing similar issues.

 Flickr photo credit: etgeek

However, privacy can be pricey. The condo association board now faces a costly final project phase – a storm water system – and they’ve gone back to the township, hats in hand, looking for some help. Help, it appears, isn’t forthcoming. Moreover, the project plans were expected to follow township regulations involving setbacks and structure placement. On closer look, the township and the condo association members realized compliance was rather spotty.

While this township’s commissioners ended with sincere offers of help if help was even possible, most condo associations facing such a predicament would come up just as empty, but a bit more battered in the ego department. It begs the question – how much control does your condo association need over the elements in your condo property? As this case illustrates, insisting on control without first understanding the impact of future costs associated with said control is short sighted at best.

Most condo association insurance policies do cover errors and omissions. Does this type of oversight qualify? Unlikely. The board in this case made a conscious decision – a group decision – to declare the roads in their complex private. The insurer in this case would look to the decision-making process. Did the board members consider the risks of such a declaration? In this case, it could be argued that the condo association board took on the full responsibility of its roads (and its drainage issues) with full knowledge of the risks.

This illustrates how all decisions regarding the condo association’s control can have adverse financial effects on the condo association. If you’re not sure, call your condo insurance broker / specialist. Get a risk assessment on any decision that gives control to your board that would otherwise be shared with local authorities.

Flickr photo credit: Massimo Valiani