I wanted to take a few moments this week to talk about a question that comes up in almost every resort-area shared ownership community (condo, co-op or HOA)–how do you deal with the influx of new or transient residents in your community? While renters can be very nice people, and many make great neighbors, it’s also true that, unlike owners, renters have no skin in the game, and therefore typically are much less careful about the rules and taking care of community property. So in every “new neighborhood”, having a plan in place for dealing with seasonal residents is crucial.

First off, it’s critical that any association, no matter how small, has appropriate security rules in place to manage entry into the property. If your community is completely open to the public, with no doors or gates of any kind, you really have to expect to have no ability to manage this issue. While totally open communities are a nice concept, in my opinion they are not worth the loss of security for your residents (except perhaps in very remote, quiet areas of the country where security concerns are a complete non-issue). In most resort communities, however, security is paramount, as you’ll find that visitors who have nothing to do with your neighborhood frequently try to use the facilities by sneaking onto the property. Why should you care? Well for one, having strangers on your property poses a danger to residents, as even the nicest-looking group of people may contain criminals. Second, anyone who is injured on the property is going to become a problem for the association, whether or not they were allowed to be there. Third, complete strangers have absolutely NO concern for the integrity of the property they are using, and are much more likely to damage that property than even a renter (who at least knows that they have to live with their neighbor/owners for an extended period of time).

In my own beach condominium, we have had many strangers from the beach attempt to enter our property. We have found people using our pool chairs and beach chairs, and even just wandering around the deck. I hope everyone reading understands why that’s a serious safety and liability concern, and why we’ve cracked down on our own access rules (including requiring all authorized guests or owners to wear brightly-colored wristbands at the pool for easy verification).

The second issue, and this again is an issue of basic security, is knowing which residents are authorized to be on your property. While it’s unrelated to the seasonal issue, we have had situations where jilted lovers/ex-wives have attempted to enter an owner’s unit, many times with an express threat of harm. We also had a terrible domestic violence issue in our building, a double murder that, while not a security issue in itself (the murderer was a renter who was authorized to be in the unit, and had access keys), clearly highlights the critical nature of controlling ingress and egress into a neighborhood. Ultimately, this is an issue that needs to be handled by management and the board. Not only do they need specific procedures at entry points to check for access authority, and to make sure that new residents are properly registered and vetted when appropriate, but every employee needs to keep their eyes open for anything strange going on in a unit or home. And every neighbor, for that matter. On the night of the murder in our building, the shots were reported by unit owners in neighboring units, which allowed our security staff to respond as quickly as possible.

Third, if at all possible according to your documents, limit the number of rentals allowed in any property during the year. Long-term renters are far more likely to be good neighbors than short-term renters who are essentially using the property as a hotel. It’s true that in the current economic environment many investor-owners may need constant rental turnover to keep their heads above water, but the potential for long-term damage to the community is significant, both in terms of reputation, wear and tear and overall safety. That, in turn, reduces property values and makes long-term success for owners impossible. So despite the natural thirst for short-term gain, a prudent investor should support attempts to limit the volume of renters in a community whenever practical.

Last, don’t be afraid, as a board, to take action against owners who are violating your access and rental rules! You may feel uncomfortable confronting your neighbors, but I guarantee you’ll feel a lot less comfortable if something terrible happens to one of them as a result of an unauthorized trespasser. Have consistent, strong rules, and instruct your management to enforce them every single time they’re violated. That’s the only way to insure the integrity of the community.

Again, anyone who has any questions about condos, co-ops or HOAs please email me at info@newneighborhoodspublishing.com–I’d love to answer some more questions in my future blogs.

I was recently forwarded the following question from a reporter, and I thought it was so timely and relevant that I would answer the question in my blog. It goes to the issue of deadbeat owners–how can you motivate them to pay, and what can you do when they don’t?

I read your article with interest as our HOA is in a similar position with an owner not paying his dues.  We are slightly in a different position as the owner in our building is renting the place out.  We were going to change our HOA rules to include an addendum along the lines of:

“When a unit owner is more than one calendar monthly behind on its monthly and/or any other outstanding fees such as insurance but not restricted to those items. The HOA will have a right to seek reimbursement of those funds through other means. Such as where rent is being received on the unit the HOA will have a right to contact both the management company and the renters directly to seek reimbursement of funds from rental income. In the event that such outstanding funds are not available the HOA will have a right to disconnect any services it is providing to the default unit owners such as but not restricted to water”. 

Have you heard of any HOA doing such a thing and in your experience do you think it would work?

I would be grateful for your advice

Regards, Perplexed

The short quick answer is that you may be able to collect rent, but you certainly cannot cut off their water. But why? How did I come to that conclusion?

I’m going to start at the very beginning (always a very good place to start). The rights granted to any shared ownership community, whether a condo, co-op or HOA, are granted to them either by state statute or the Covenants, Conditions and Restrictions (CC&Rs) on the property. This is a very important concept for people to understand–it doesn’t matter how creative you get, if you’re trying to do something that is not at least generally allowed by the powers granted by state law or your documents, it’s not going to fly. So then the first place for the reader above to look is the state statute, and, because he’s in an HOA, his CC&Rs.

In this state, Florida, the relevant statute, FS 720, happens to be pretty broad, saying that “The powers and duties of an association include those set forth in this chapter and, except as expressly limited or restricted in this chapter, those set forth in the governing documents.” When you read through 720, there is no provision that precludes associations from regulating renters, so the general concept would appear to be safe.

Now, let’s look for a moment at the specific proposed language in the covenant above. The real kicker, the teeth in the rule, is the right to suspend services from the unit. This issue is directly addressed by the HOA act, which says:

If the governing documents so provide, an association may suspend, for a reasonable period of time, the rights of a member or a member’s tenants, guests, or invitees, or both, to use common areas and facilities and may levy reasonable fines, not to exceed $100 per violation, against any member or any tenant, guest, or invitee.

Note very carefully what it allows–it allows associations to suspend the right to use common areas and facilities, and that’s it. You can’t turn off their water, or electric, or block access to the property, or remove their gate key (while the roads may be a common element, the statue specifically states that residents much have the right to enter and exit, and the right to park).

So the general concept of the rule proposed above, that of collecting rents from owners, would seem to be safe, but the right to turn off their water is not. But this is only the beginning of the investigation. After determining what rights are granted by the statute, a board considering such a rule must next look to their own laws, the governing documents. As mentioned above, in the case of an HOA this is usually called the Covenants, Conditions and Restrictions (CCRs). So to Perplexed, the question would be: do your documents allow the association to approve or regulate leases in any manner? Because if so, a clause governing collection of rent should probably be attached or amended to that section, and if not, the association has a lot more work to do.

Again, this is an issue that a lot of people don’t understand, especially those who tend to rail against the sweeping powers of community associations–they’re not so sweeping! Associations can only take actions that are allowed by state statute or their governing documents.

If the HOA has no power of any kind to regulate rentals, it’s going to be very difficult to pass a new rule governing them, as renting one’s unit is arguably a vested right that would require approval of 100% of the owners to pass. However, if the governing documents do give the association the right to regulate rentals, there are some options. One would be to require a standard form of lease to be signed by every new renter, and then to include a clause in that lease stating that the association may collect monies directly from the renter if the owner is deficient on his or her maintenance. Another option, if the documents allow, would be to do something more similar to that suggested by Perplexed–specifically write a rule into the documents that allows the association to collect rent directly from renters if the owner is in arrears. It’s really going to depend on the language of the documents, and this is where a good attorney can be worth the cost. Paying a few thousand dollars for a competent lawyer is a drop in the bucket compared to the many thousands you may lose over the years to deadbeat owners.

Now, as stated above, in an HOA in Florida you do have the right to suspend certain use rights, such as the right to use the pool, the clubhouse, or other facilities. And this can certainly give teeth to any regulation yoy write into your documents. But what Perplexed is really asking, and what we all ask ourselves, is whether you can make life so uncomfortable for a renter that they are constructively evicted from the unit, creating hardship for the owner and forcing them to pay their dues. And the answer to that, largely, is no.

So how in the world do you force an owner to pay maintenance? Why would they ever pay? The answer to that question is the same for condos as it is for HOAs, and it’s foreclosure. The Florida acts give associations the ultimate power over deadbeat owners–the power to own their homes. If an owner does not pay maintenance, you can put a lien on their property, and after 30 days you can foreclose on that lien and force sale of the property (in which case, the association can sometimes take possession for themselves, but this is a topic that’s too complex for a single blog). But what if the owner has a huge mortgage on the property? Won’t the association be subject to that mortgage?

No they won’t. The property is still subject to that mortgage, and the bank can come in and retake the property if they foreclose on their own lien, but the association has no contract with the bank and will never owe the bank any funds directly. So what’s the negative of foreclosing on a property? The main negatives include the cost of a foreclosure action (usually a few thousand dollars) and the fact that, once the association owns the property, any back-due maintenance ultimately owed by the foreclosing bank will be wiped out (as the association, the new owner, is now responsible for any unpaid maintenance, although they can always collect back maintenance from the original owner, if he or she is solvent). Despite this, the huge benefit is that you’ve just removed a home from a deadbeat, opening the door to an owner who may actually be able to pay their dues! In the meantime, the association may be able to rent out the home and make enough money to cover the assessments that weren’t being paid until the bank forecloses on their own lien (which could take years) or the association is able to find a new buyer for the home. Foreclosure is the gold standard for dealing with deadbeat owners, it’s a power available to every SOC, and it’s in every board’s best interest to establish a clear, strong collections policy that includes foreclosure when appropriate.

Now don’t despair yet, because there is a light on the horizon. A number of Florida legislators are proposing laws during the upcoming session that will both specifically allow associations to collect money from renters when owners are delinquent, and that will grant greater rights to suspend use of common elements, such as cable television. These laws would make the situation at Perplexed’s HOA much easier to manage, and if they’re important to you I recommend that you send a letter to your Florida legislator urging them to support such laws.

In any event, Perplexed, good luck, find a good lawyer, and let me know how it turns out! I’ll keep everyone posted through my blog. And please feel free to send me questions through the website–I’ll try to answer as many as possible. The forums are a great place to ask questions as well, and to get advice from SOC owners all over the nation! Let’s start those posts!

Update on this question:

Later today I spoke with the gentleman who asked this question, and he confirmed that his community is actually a condominium, not a planned development governed by a Homeowner’s Association (an HOA). This is an important distinction, and it brings up two points. First, condos, co-ops and HOAs are all different, and they are not interchangeable. They are often guided by totally different laws and statutes. Like the writer, many in the general public use the term HOA to cover any shared ownership community, but the only way you can know exactly what kind of association you have is by reading the documents.

Now, on to condominiums. The reason it’s important is because, unlike HOAs, condominiums are a construction of state statutes. They don’t exist without the law–in this case, Florida Statute 718. Because FS 718 lays out the rights and duties of condominiums, if a right is not granted under that statute, it doesn’t exist (the legal explanation of this is a bit more complex, but for laypeople it’s enough to understand that they only rights associations have flow from the statutes).

Unlike FS 720, FS 718 does not give condominiums the right to restrict access to the property in any manner, or to restrict use of the common elements. In fact, it specifically says that those rights can’t be restricted. So, under Florida law, condominiums cannot prevent owners from using the pool, or cut off their cable TV, or water, or turn off their gate keys–all of this is prohibited by law. While it is still allowable to collect money from renters (subject to that power existing in the documents), the only other power available is to foreclose. Now, that doesn’t mean that these restrictions aren’t tried in many communities, and some lawyers probably sanction them–but they’re almost certainly not legal. That’s why it’s so important, if you live in a condominium in Florida, to contact your legislators and urge them to support legislation to allow condominium associations to pass use restrictions for deadbeat owners.

This recently published Op-Ed was written by myself and my father. Hopefully our representatives in government respond to the problem before the damage is too great to cure.

The worst housing crisis and economic crash since the Great Depression have created a dangerous financial storm that threatens to destroy thousands of Shared Ownership Communities (condos, co-ops and HOAs) throughout the United States. The danger is quiet, but staggering—over 60,000,000 Americans live in SOCs, or almost 20 percent of the population.

SOCs rely on maintenance payments from owners to pay for a host of municipal-type services provided to residents, including landscape maintenance, security, infrastructure improvements and even social services. But many owners, hit hard by the financial crisis, have chosen not to make these maintenance payments, pushing the responsibility for this “bad debt” onto their neighbors. As a result, maintenance costs in some neighborhoods have doubled or even tripled, forcing a small, hard-hit cadre of well meaning residents to cover the costs of operating an entire community.

This problem is being exponentially worsened by lax federal and state rules regulating bank foreclosures, which allow banks to sit on potential foreclosures, and even actual judgments, for years, during which time they have no obligation to help cover the costs of maintaining the community. And in many states, even once a foreclosure is finalized the bank is only responsible to pay a tiny fraction of past due assessments, again requiring other, more responsible neighbors to write off the debt and cover the difference. Court efforts to compel banks to expedite their foreclosures have largely failed, with most courts claiming they have no power to make such requirements.

Like their larger municipal cousins, shared ownership communities require funds to operate a host of essential life services, and these costs are often fixed, regardless of whether one or many owners choose not to pay their bill. As a result SOCs (and the community volunteers that serve on their boards) are scrambling to find ways to compel owners to pay their share of the common expenses. In desperation, many have investigated extreme solutions such as cutting off delinquent owners’ electricity or water, or preventing them from parking in the community, though many of these potentially effective motivations are blocked by state laws and court rulings.

Based on their total lack of movement on these issues, federal and state governments appear blissfully ignorant of the danger that this “SOC storm” presents to all citizens. The collapse of shared ownership communities, which currently provide a large percentage of common municipal services, will place a potentially insurmountable strain on the ability of state and local governments to provide these services to the millions of Americans who have been paying privately through their SOCs. As community associations dissolve their empty and abandoned homes will become large blights on even higher income municipalities, atrophying the property tax base and putting the government in further financial difficulty. It is critical that our legislators take immediate actions to prevent this collapse, beginning with tying bank bailouts to mandatory funding of assessments on units for which lenders hold mortgages, even while foreclosure proceedings are ongoing. Similarly, restructured mortgages should mandate that unit owners bring their assessments current to be eligible. To help heal the damage, small business loans should be made available to community associations suffering financial stress. And finally laws must be passed that give associations the authority to deny non-essential services, such as cable television, Internet and telephone services to non-paying owners, along with the right to restrict access to recreational and social amenities. Without this relief, scores of the nations SOCs will become blighted neighborhoods, hampering economic recovery for the entire nation.

In the current difficult financial market, every single shared ownership community is facing a common problem–owners who fail to pay their maintenance. Maintenance in SOCs is largely a fixed cost, and when one owner doesn’t pay, that cost is passed on to the other owners in the form of even more maintenance. It’s a constant, vicious cycle.

To combat this, state governments have generally given associations an extremely powerful “stick” to use to encourage payment–the risk of foreclosure. If a unit owner does not pay their maintenance, an association may generally place a lien on the unit (a notice to potential buyers that there is a debt due that must be made whole before the unit can be sold), and then after time has passed the association may foreclose on that lien–force a sale of the property, sometimes to the association itself.

However, the decision of whether or not to foreclose on a recalcitrant unit owner is not a simple one, especially in the past 5 years. When an association forecloses on a lien, that foreclosure is subject to any superior liens–ie, a first mortgage. That is, even if a condo or HOA forecloses on a unit, if the bank that provided the primary mortgage calls in their loan the association must turn over the property, or the value of the loan. Now, in a good market, when first mortgages are only for 70% or 80% of the value of the property, that decision is fairly simple–the association can resell the property for market value, pay off the bank, and even make a small profit. But today, that procedure has gotten turned on its head. Because of bad lending practices many loans were made on properties for nearly 100% of their then-market value, and after the crash those properties have become leveraged for far more than they are worth. Not only does this affect borrowers and banks, it affects shared ownership communities. Boards can no longer simply vote to foreclose on every unit where maintenance is unpaid. For example, let’s assume a unit in a property is worth $500,000 in the current market. However, that unit was bought for $750,000, and mortgaged for $700,000. Now assume that the owner has stopped paying maintenance (they may also not be paying their mortgage payments, which we’ll get to in a moment). If the board were to foreclose on the unit to collect, they would eventually own a property worth $500,000 at market, but they would never be able to repay the bank loan! As a result, when the bank comes calling, the association would lose the property, having paid the costs of foreclosure for nothing. Certainly, not a sustainable situation for any SOC, and not a good way to collect on debt.

Complicating this issue is the fact that recalcitrant owners are often not paying their mortgages, either, and the primary banks may file their own foreclosure proceedings. Now, if the banks were actually foreclosing, that would be fine–the bank would eventually own the property, and they would be responsible for maintenance payments just like any other owner. But what is currently happening, all around the country, is that banks are sitting on foreclosures, even foreclosure judgments, simply so that they do not have to pay maintenance to condo and HOA associations. If the bank has a judgment of foreclosure, and the association files their own foreclosure, the bank would simply effect the judgment and force the association to pay off the mortgage or turn over the property. It’s a no-win situation for SOC boards throughout the United States.

So what’s an association to do? Some difficult choices must be made. One strategy is to foreclose on every unit that is not paying maintenance, no matter the lending situation, to establish a precedent that encourages owners not to ignore their maintenance. This strategy, however, can get quite costly if foreclosures are high and if a large percentage of units have been improperly leveraged. Another strategy is to foreclose as early as possible, whenever possible, and try to rent out the units to recover as much maintenance as possible before the bank has a chance to file their own foreclosure. This strategy sometimes works well, as banks typically can take up to 2 years to push a foreclosure through the court system (mostly due to universal bank disinterest). A third strategy is to decide every foreclosure on a case-by-case basis, depending on the loan amounts owed to the primary mortgagee (as an aside, how do you remember that a mortgaGEE is the person who owes the money in a loan? Because the bank thinks “Gee, I hope they make their payments!”) The risk of this strategy is that any owner who is over-leveraged knows that the association will never foreclose on their unit, and it is essentially a free pass for them not to pay their maintenance.

The current economic times have presented very difficult issues for all association boards, and SOCs will have to make due the best they can until the crisis passes. Encourage your legislators to pass laws that force banks to pursue foreclosures aggressively, or that require banks, after filing a foreclosure, to pay maintenance to the association, whether or not they have effected the judgement. There is no simple solution to this problem, and every SOC board will have difficult choices to make in the months, and perhaps years, to come.

Like all blogs, I tend to spend a lot of time talking about various problems that Shared Ownership Community (condo, co-op and HOA) owners may have, and various ways of fixing them. But we all tend to forget that, for all the trials and tribulations of shared ownership, one of the biggest benefits of any SOC is the increased social interaction that we have with our neighbors. In fact, social events can often make or break a community, healing wounds and helping us to put aside neighborly differences. Here, then, are some ideas of things you can do with your community that will help everyone have a happy new year.

Have a Party! You don’t need a social budget to have social events. We have BYOB cocktail hours in our condominium every few weeks where owners can meet and simply enjoy each other’s company. Sometimes the condo will use a few dollars to buy some appies, but mostly people just bring what they’re in the mood to eat and drink. If we drink enough, we may even play some games (Jenga being a popular option). Nothing too brainy, just having fun with your neighbors. Now, if your association can afford it, a social budget may allow you to plan at least 2 or 3 large social events per year, complete with music, catering and drinks. We generally supplement those events with a modest entry fee, and they are always well attended. Pot-luck desserts are also a lot of fun, and if you get your children involved, you can even turn it into a pajama party. And while it may not be an obvious effect, well-planned and well-attended social events almost always have a positive effect on property values (really, who doesn’t want to live in a happy, friendly neighborhood?)

Play with your pets! Do you live in a pet friendly building or community? A great idea is to create a pet committee that is responsible for events where people can get together and have fun with their dogs (and perhaps very outgoing cats). Play dates in the dog run, Halloween costume parties, training sessions and more can all be sponsored by various local businesses. For example, many dog trainers or doggy day care centers would be happy to bring some treats and present a training seminar for even a handful of new potential clients. Pet people tend to be among the most outgoing in any community, so pet-themed events are often among the most popular and well-attended.

Play with your kids! Many of our favorite holidays throughout the year are best enjoyed with our children, and it’s easy to get people together for fun, well planned events with the kids. Halloween is a perfect opportunity for a neighborhood costume party or even a parent/child pumpkin carving contest. Even communities for older persons can enjoy and occasional planned event with the grandkids. Trim the community Christmas tree (and light the Menorah), have an Easter egg hunt or supervise sparklers and loud patriotic music on the 4th. Getting the kids involved is a great way to get the community together.

Get educated! Depending on the age and style of your community, educational events might be quite popular with residents. Authors are especially willing to visit communities to give speeches and presentations (and sell their books, which is only fair), but lots of others might be willing to speak at your community, including local politicians, or even professors. Or, consider bringing in an art fair where art students are able to display and sell their artwork at a significant discount from gallery prices (though, with any consumer event, make sure you get the pulse of the community first–some love these types of events, and some, not so much).

If you’re a board member, I hope these ideas stimulate you to brainstorm ways that you can get your community together and have fun. The goodwill you build throughout the year will result a lot less stress when contentious issues come up at meetings later on. As always, everything comes back to the same basic idea–just be neighborly!

As the end of the year approaches, many associations around the country are dealing with the renewal of their insurance policies. Especially in coastal states, these policies can often amount to a quarter or more of the annual budget, so of course this is a tremendously contentious issue for board members. How much insurance is appropriate, and is any amount ever too much?

The vast majority of state statutes, not to mention almost every SOC document, provides that the association must insure the common elements for some large amount, anywhere from 75% to 80% of replacement value, all the way to full replacement value. Of course, the question of “full value” depends on an independent appraisal, and some of these may not be so independent. Is a higher number always better?

An insurance broker recently approached our association with a sure-fire way to save money on insurance. In Florida, every association is required to insure the property against hazards for “the replacement cost of the property to be insured.” Ordinarily, this means that the association gets a full appraisal of the property, and then purchases both hazard and windstorm (hurricane) insurance for that full amount. His argument, however, is that the damage that can be expected in a windstorm is far lower than other hazards (such as a fire, which could potentially destroy the building). So when this agent solicits appraisals from his “independent” appraiser, he asks for three different numbers–replacement cost for windstorm, flood, and then all other hazards. The windstorm appraisal is typically only a quarter of the total value of the property (using the theory that a windstorm is unlikely to damage the actual foundation of the property or make it uninhabitable), thereby saving many thousands of dollars in insurance premiums.

Certainly an attractive proposal to boards who are constantly pressured by owners to save money! However, it is my opinion that this strategy is extremely risky, and here’s why. This type of appraisal system, assuming that it is even legal (and it does clearly require some interpretation of the statute), requires a leap of faith that a windstorm event would NEVER result in a complete loss. If it ever did, the association would, in fact, be uninsured for that loss. The broker’s opinion was that, in fact, a windstorm could never result in a total loss of the property.

However, based on prior storms, this philosophy is simply not accurate. In fact, prior to Hurricane Andrew it was common to insure properties against windstorm damage for far less than other hazards, using exactly the above argument. However, anyone who was in South Florida for Andrew knows that many properties suffered a total loss, and not always in ways that were predicable. In one large condominium, the pressure created by the storm created a back flow in the water system that caused the pipes at the top of the building to burst, raining down a flood of water into the building that destroyed the property completely. There is absolutely no reason to assume that modern buildings, simply because they are built using post-Andrew construction standards, could NEVER suffer a complete loss in the case of a windstorm. So any board that would elect to use the above reasoning to secure insurance that is below full replacement value is taking a tremendous gamble. Further, many policies will not even pay out on an appraisal that is later found to have been incomplete or undervalued (even if the damage claimed is within policy limits.

So how does this story apply nationally? Every region of the country has different hazards that must be insured against, and the costs will vary significantly. Owners and board members should be careful that their passion for savings doesn’t overwhelm common sense and good business practices, because spending even thousands of dollars per unit each year in insurance is a drop in the bucket compared to the devastation of a total loss event. So make your insurance choices carefully!

The question I wanted to discuss today is one that comes up frequently for condo, co-op and hoa board members, especially where finances are concerned. Should board members be making decisions based on their own best judgment, or responding to the will of the majority of owners in the association? Or, put differently, what exactly is the duty of a democratically-elected representative?

Of course, this issue is not unique to Shared Ownership Communities. It frequently arises in national politics as well, especially as politicians are paid representatives, and therefore have a vested interest in making their constituents happy. It is the main impetus for pork politics. Even the President, despite being elected by the nation as a whole, is not immune to public opinion politics. A good example is the current discussion of the military’s “don’t ask, don’t tell” policy. President Obama promised, during the election campaign, that review and reconsideration of this policy would be a priority of his presidency. However, nearly a year later no action has been taken, due mostly to public discomfort with the concept of gays serving in the military. Whichever way you come out on this issue, this is a prime example of a politician supplanting his own judgment to satisfy the perceived will of a majority of his constituents.

That said, how do such issues translate to the world of condos, co-ops and hoas? Since it’s the end of the year, let’s look at decisions concerning budgeting for 2010. Despite a modest recovery, the economy is still in rough shape. Most people have fewer discretionary funds today than they did 3 years ago. However, many costs have risen as well. As fuel prices rise, so do the costs of electricity, gas and building materials (which raises not only utility costs but also the predicted costs of reserve savings). Insurance has also risen dramatically, especially in coastal states that have seen significant storm activity in the past few years.

Therefore, even though many people can afford less, the cost of operating an association have risen, and continue to rise. Most laws require association boards to prepare a budget that accurately predicts the costs of ownership, and that assesses 100% of that amount to owners. Still, you can expect that many owners, even a majority in some communities, may demand that their board members either maintain an identical budget to prior years or even reduce the budget by some specific percentage.

This creates a real issue for board members. Directors have a fiduciary duty to maintain the common elements of the community and often a statutory duty to collect sufficient funds for operation. But a majority of owners, that majority having the ability to recall the board members at will, often demand that the board members ignore those duties and prepare a budget that, in some cases irresponsibly, reduces collections below what is necessary.

Now, certainly decisions can be made that may legitimately reduce costs without breaching a board member’s duty to constituents. Optional services can be cut, fat can be trimmed, and alternative service providers can be considered. But even when all that has been done it is common for owners to demand further cuts in maintenance, citing the economy (loosely) or simply the gut concept that maintenance is “too high”.

It is at this point that board members often split between those who feel their duty to their constituents is limited to using their best judgment, even if that judgement results in a decision that is different from the will of the majority of owners, and those directors who feel that their directorship is essentially a rubber stamp of the majority. Unfortunately, due to the nature of shared ownership these decisions are often colored by personal relationships, and a desire to be viewed favorably by one’s neighbors.

Edmund Burke, an Irish politician and theorist, stated that “Your representative owes you not his industry only, but his judgement; and he betrays, instead of serving you, if he sacrifices it to your opinion.” That is, Edmund Burke was a firm believer in the idea that representatives owe their constituents their judgement and hard work, not their agreement. Such a philosophy translates directly to decisions made by SOC directors, and especially those made at budget time. Often, individual owners will have little knowledge of the finances of the community, despite having open access to the books and records and despite having been sent one or more drafts of the budget (just as in national politics, it is sadly rare for the “public” to take the time to educate themselves thoroughly on important issues, and I applaud those of you who do, as it is a critical aspect of community involvement). They may fail to attend finance committee meetings (which by many laws must be open to all owners) and often fail to prepare detailed arguments on how to solve the association’s financial problems. Yet despite this, there are board members in associations throughout the country who ignore their own research, industry and judgement in making budgetary cuts that are harmful to the long-term health of their community, simply based on the will of inactive but vocal owners. It is these board members, in my opinion, who are not adequately representing their constituents, as they are allowing community pressure and personal issues to override their duty to the association as a whole. I strongly agree with Mr. Burke’s philosophy, and I recommend that all board members, while making sure to listen to the concerns and suggestions of their neighbors, ultimately make decisions that they know to be for the good of the neighborhood. In the end, that is the best way to serve your community.

Hi everyone, sorry for the blog vacation! In October I had my first child, a baby girl. Of course, I’ve been taking some time to be with her.

Starting next week I will be back blogging on a weekly basis, so please check in regularly! If you have any ideas for topics, please post them in our forum.

We’ve recently revamped the website, and I hope you like what we’ve done. Again, if you have any comments at all please post in our forum or send them to info@newneighborhoodspublishing.com.

Ryan

[Original Post September 21, 2009]

Like animals, people view their homes as their personal “den”–a safe place where they can raise their family and not worry about the dangers of the outside world.  So it’s not surprising that one of the most common conflicts that arises in shared ownership communities, and especially condominiums and co-ops, is the question of whether an owner must turn over a key to management.  It’s one thing for strangers to have the walk of the building, but to be able to actually enter your home?  That’s a little hard for many to swallow.

First, understand that a number of state laws specifically allow an association to request keys for emergency entry.  Further, many association documents will have a clause mandating that a key to every door be turned over to the management office.  If you’ve read the book, you’ll remember that your “documents” are a contract, and you are legally bound to abide by the provisions they  contain.  So at the outset, understand that in many or even most situations you will be legally required to provide a key to the staff that operates your community.

Remember also that it’s a basic principle of life in a shared ownership community (condo, co-op and hoa) that you give up some of your basic homeowner’s rights for the good of the community as a whole.  You can’t expect to have the exact same privileges in an SOC as you would in a traditional detached home.

But then, why would management need a key to your unit?  Why not simply call you when they need entry?  Let me lay out some common situations, and why having a key is so important for your staff.

Let’s start at the top and work our way down.  The first situation involves true emergencies.  Fire, floods, gunshots, heart attacks–these are the situations where, if management does not have a key, they will certainly break down your door.  In a true emergency, that may not bother you–better to pay for a broken door than to have your home destroyed by an electrical fire.  But be certain that, in an emergency, management has every right to enter your unit by whatever means possible (in the situations above, it would most likely be police or firefighters doing so).

The second situation, and one that is far more common, involves small emergencies, such as water leaks.  These are the ones where a lot of conflicts arise, but remember that small problems become big problems very quickly.  Assume, for example, that the neighbor three units underneath you has water damage from a leak in her ceiling.  To troubleshoot the leak, the manager or superintendent will have to enter each unit above the apartment and investigate for signs of damage, evidence of overflowing or clogged pipes, toilets and sinks or even active floods.  Sometimes, the source of a leak can be several units above, and many of these investigations reveal damage that unit owners wouldn’t even know existed (for example, water stains on the ceiling of a dark closet, where mold commonly develops).

So say, for the moment, that you’re a person who refuses to give their key to the management office.  Now imagine that you have a leak in your unit that is actively destroying your wallpaper.  What if every owner in the building above yourself also refused to hand over their keys to management?  The office would have to call each owner individually, wait for a response, find a time when the owner could allow them into the unit, sometimes even fight with the owner about management’s right to enter the unit–and all the while your damage is getting worse.  Not really fair to you as an owner, is it?

Even when it’s not a true emergency, issues like water leaks, hazardous smells (chemical smells or gas, for example) and pest problems need to be investigated by management immediately, and if owners have not provided their keys to management, it is absolutely guaranteed that the damage to one or more units will be significantly worse than if they had.

The final category involves everyday, 9-5 maintenance.  In a high-rise building it is common for staff to have to enter individual units to investigate maintenance issues like balcony or wall cracks, pipe noises, electrical issues that affect multiple units, fire sprinkler issues and even reports of foul odors (that can sometimes be evidence of hoarding problems).  While these issues are not likely to damage units in the short term, requiring management to get individual permission to access each unit is extremely inefficient, costs significant money in wasted time, and is likely to result in greater remediation costs once a problem can be fully fleshed out.

In my opinion, every set of documents in a high-rise building should require a key to be turned over to management.  Not doing so can result in dangerous situations during true emergencies (and require the staff to break down doors), can lead to increased unit damage due to hazards like water leaks, and will cost significant money in lost time and inefficiency when carrying out day-to-day maintenance activities.  If you are an owner who has been recalcitrant about turning over your key, please consider the arguments I’ve made and see if maybe giving a semi-stranger a key to your home is a lesser evil than the potential damage that occurs otherwise.

[Original Post September 9, 2009]

Since the launch of the book, we’ve received a number of comments from readers who have expressed desperation at the state of their shared ownership community, especially the condition of the board of directors (usually as a tyrannical dictatorship spending their money at will and ignoring every rule in the house).  Now, these complaints tend to be occasionally overstated (I know from the hyperbolic criticisms that have been thrown at my own board), but there’s no question that SOC boards exist that do seem to pattern themselves after popular South American dictators.   The constant question that arises in these situations is how do we fix it?  How do we bring them down?  While the answer to that question, recall, is simple, the reality is often complex, so I thought I’d write a bit about our own civic responsibility in the modern age of SOCs.

In a traditional 1950s suburb, being a good neighbor, a good citizen of the community, required little more than pleasantries and an occasional favor.  But ownership of property in common with your neighbors introduced a totally different social dynamic into neighborhoods.  Volunteer board members, many of whom have no financial or business training, are expected to run a sometimes large and complex business that is the typical SOC operating association.  These communities do not self-select motivated members who are competent to run a large non-profit business.  Sometimes, there is not a single owner who has the skills ordinarily required to be a director of a corporation.  That, in and of itself, is an enormous problem for SOCs.  Over time, some board members take the opportunity to educate themselves and become spectacular directors, some learn just enough to get by, and undoubtedly there are some who have no interest in, nor aptitude for, learning how to run a business.  There is no question, however, that the health and success of an SOC is directly related to the competency of the board of directors.

So let’s assume for the moment that you live in an SOC with the board from hell–they’ve been ignoring the rules for years, they appear to be siphoning off funds, or at least turning their heads at bookkeeping irregularities, and the property has gone into total disrepair.  How do you, as a single owner, break the cycle and bring order back to your community?

First, remember that, universally, a motivated SOC ownership may recall a board of directors, for any or no reason, by vote of a majority of its members.  No question, this is easier said than done.  In many communities it is extremely hard to motivate owners to get involved in the SOC, which is viewed as an unwelcome and unnecessary intrusion into their otherwise complex lives (you do tend to wonder, of course, why buyers never consider that SOCs are not like traditional communities–it’s part of why we wrote our book).  It’s not uncommon for an SOC to never hold an annual meeting, despite the requirement to do so, because of disinterest on the part of the community.  Staging a recall, therefore, takes motivated leaders and a concerted pr campaign.  Let me give you some ideas.

To begin with, someone has to take charge, and that person might very well have to be you.  The concept of SOCs introduces civic involvement on a much smaller scale than ever before.  Unlike municipal governments, where civic volunteers are paid for their good deed, SOCs are a pure democratic society, and they require someone to step up and take the reigns.  Everyone has some sort of skill that would be helpful in community organization.  Perhaps you’re a good writer, or a good speaker.  Maybe you’re an artist who can prepare fliers or even design a website.  Maybe your skill is simply being friendly, and you can offer your time to visit neighbors and explain to them, face to face, what’s going on in your community.

The first step is for a person or a like-minded group to organize themselves an an opposition force.  These people should meet, discuss their goals (anything from influencing the board to removing them) and then start plotting strategy.  Recalling a board is a true political exercise!  It’s no different than the political battles you see during national elections, just with fewer funds.  Start by educating your neighbors about the problems that exist in the SOC.  Be very careful not to toss around wild accusations, or you may very well be guilty of libel.  Instead, access the records of the association and compile information about their budgeting, bookkeeping and expenditures.  Note anything that looks unusual.  Make a master list of complaints, and then compile those into easily understandable bullet points.  You want to make the information as understandable as possible, and get your neighbors motivated by the facts.  True, there are always some who won’t care, but if the board’s actions are truly egregious, you should be able to motivate a majority.

But how do you get your message out?  You can learn lessons from President Obama’s 2008 campaign.  Prepare a flier with the basic issues laid out and have volunteers spread throughout the community, talking to neighbors.  If you’re in a condominium, park yourself in the lobby and hand out fliers as people get home from work–you have a right to free assembly in most situations.  Set up a website with a catchy title, like www.recalloceanboard.com.  Even if you don’t have a web designer or a lick of experience, there are free programs on the web that will allow you to set up a nice looking website where you can post your arguments.  And as you reach your neighbors, try to get them actively involved, as well.  Ask if they have any skills that might help organize the community.  Maybe they know a lawyer who can help out the opposition group!  Remember that, under most laws, you have access to the addresses and phone numbers of the other owners in the community, so you have the right to send out a flier or, if you think you can be unobtrusive, give your neighbors a call.

At some point during this process, it may be necessary to pick among the community organizers to determine who will run for the new board once the old directors are removed.  Again, it may just be a basic civic responsibility that a motivated and qualified citizen throw their hat in the ring for the job.  It will be easier to motivate owners to follow your cause if you have already chosen a replacement board, laid out their qualifications and discussed, in detail, what changes will be made if the recall is successful.  And be a clever marketer!  Information given to owners should be short, sweet and to the point.  Tell them how they will benefit from the change, and what will happen to their investment if nothing is done.

What if you are scared that the old board will retaliate against you, and you don’t want to make waves?  This part gets a little tricky.  Certainly, you can prepare fliers and a website anonymously, and may be able to motivate owners that way.  But any good movement requires at least one public leader, and the recall simply may not succeed unless someone is brave enough to take charge.  If a board member threatens violence, call the police.  If your home or car is vandalized, call the police.  Chances are, these crimes will be easily traced to the few motivated suspects.  Sometimes civic responsibility requires bravery.  Even board members have to regularly deal with threats, and sometimes even property damage and violence.  The key is to stand tall, don’t back down, and report even the slightest infraction to the authorities.

Just a note–there are people out there who are unstable, and do not follow the normal rules of personal responsibility.  If an angry owner or board member were to truly threaten you with violence, ie, leave a threatening letter or even brandish a weapon, take it seriously.  These are crimes, and they can be prosecuted.  Get a restraining order, make sure your alarms are all working properly, and be vigilant.  But by the same token, living a terrified life is no life at all.  Sometimes, you just have to take a leap of faith and hope for the best.

So after months of community organization, fliers, websites, personal meetings, phone calls and the like, you believe you’ve organized a large enough group to effect a recall.  Go to management, call a special meeting (which usually requires the written assent of some small percentage of owners), and tighten your message.  The special meeting is the battle royale!  Make sure you have facts to back up all allegations, that your presentation is water tight and that you clearly explain the problems the community is encountering and how you and your group intend to solve those problems.  Get as many supporters to attend the meeting as possible, and make your case.  If you’ve organized properly, you should know in advance whether you are likely to win the recall, but sometimes votes change, and it often comes down to the wire.

If you win…congrats!  Do a better job than your predecessors–it’s a far harder task than it seems.  And if you lose, remember that you’ve knocked the board back on their heels, and they’re probably scared.  There’s a good chance they’ll clean up their act, but if not, keep going to meetings and calling their bluff, and when the next election rolls around you’ll be a well known commodity who is likely to earn a spot on the board.  Sometimes, change must come from within, and it doesn’t always happen in a day.  So keep plugging away, stay involved, and good luck!