We’ve Moved!

September 20th, 2010

For anyone following the New Neighborhoods blog on RSS, or if you just have a direct link to this page, please redirect your link or RSS feed to www.poliakoffoncondohoaliving.com.  A great, beautiful new website, social media features and way more content.  Enjoy!

Ryan Poliakoff

New Blog site coming soon!

August 19th, 2010

Hi all, just wanted to apologize for the brief delay in new blog entries.  We are currently readying a new blog site that will have more frequent updates, links to news, better categorization and other fun additions.  The next blog is written and ready to go when the site launches in a few days. :)  Thanks for your patience!

How To Run a Successful Condo, Co-Op or HOA Board Meeting

July 22nd, 2010

Hello again, and welcome to our new “How To” feature!  In the next few blogs, we’re going to cover a number of practical areas that will help board members and homeowners manage common issues in Shared Ownership Communities (SOCs).  In our book, New Neighborhoods, The Consumer’s Guide to Condominium, Co-Op and HOA Living, we devote an entire chapter to running meetings, but I’m going to try to distill that advice into a smaller package.  If you’re still interested in more information, of course I recommend the book as a great resource.

As explained in New Neighborhoods, Condo, Co-Op and HOA boards are democratically elected groups of owners who are tasked with overseeing the corporation that operates the community.  Elections are periodically held to elect new directors (or retain old ones) and generally it is those directors who serve as the officers of the corporation as well (although in most states it’s not strictly necessary that officers be either directors, or even owners, except perhaps the president and treasurer).

So once officers are elected, they must find a way to conduct the business of the association, and that is usually done in the context of a MEETING.  Now, a corporate board meeting is not the same as going to a book club luncheon.  There are certain corporate fomalities that need to be used if you want to ensure a smooth and conflict-free environment.

1) Know your Rules (Of Order)

Over 100 years ago a very smart American named Henry Robert published a procedural rulebook called, simply, Robert’s Rules of Order.  Robert’s Rules is today the gold standard for all meeting organization.  What Robert’s does is explain, in exacting detail, how a meeting is run–who the chairperson is, when each person may speak, how to make motions, how they are seconded and voted upon, etc.  The documents of your SOC very likely specifies that some form of procedural rules should be used at all board meetings, and it’s likely that Robert’s is mentioned by name (although there are other very good options).  Now, if you’re in a tiny condominium with four owners, and all four sit on the board, it’s reasonable to hold your board meetings at a coffee shop somewhere and be quite happy and efficient.  But once associations involve dozens, even hundreds of unit owners, it really does benefit the board if a rule system like Robert’s is strictly followed.  Otherwise, the chairperson of the meeting (usually the president) is going to find herself trying to maintain order in a large meeting as if it were a classroom, and that generally doesn’t work very well with adults.  When I was elected president of my own condominium, the very first thing I did was to buy a copy of Robert’s Rules for all of my board members.  And by the way, Robert’s works great in any formal meeting–charity boards, fraternal organizations, and of course all corporations (like condos and HOAs).

2) Stick to the Plan (Your Agenda)

Another legal requirement of most SOC board meetings is that they must be noticed in advance (48 hours is common) by posting an AGENDA in a public place on the property.  An agenda is simply an outline of what issues will be discussed at the meeting.  Any items not on the agenda cannot be discussed.  Now, obviously this can be an inconvenience to board members, who often want to chat at the last minute about items that aren’t on the agenda, or that were forgotten.  But the idea of posting an agenda is to allow owners to accurately know what issues will be discussed at a meeting so that they can attend if an issue is important to them.  So I’m not particularly fond of agenda items that state “discussion of any and all business that may be important to the association.”  That may be legal, but it certainly goes against the intent of notice requirements and makes it impossible for owners to adequately participate in meetings (more on that a bit later).  Instead, I strongly recommend that agendas be explicit and specific, outlining all items that might be discussed (it’s always OK to table a matter if needed) and whether those items are old or new business.

3) Embrace your Inner Exhibitionist (Do it in the Open)

The current trend among laws around the country is to mandate that the vast majority of SOC meetings must be held in a public place, open to all members.  Under many laws, members must be allowed to speak on all issues on the agenda for some minimum amount of time.  Generally, the only exceptions to these rules involve legal meetings, which are required to be closed to maintain attorney-client confidentiality (the attorney represents the association itself, not the owners, and so the only ones who may be privy to the attorney’s advice are the officers and certain employees of the association.  Otherwise privilege is broken, and any advice may be requested by third parties, such as the opposition in a lawsuit).  But assuming that we’re talking about a typical board meeting, whether or not your documents, or the laws of your state require open meetings I would STRONGLY suggest that all of your meetings be open to members.  Look at it this way–directors are democratically elected by the owners to represent the owners in a mirror of our own American governmental system.  Nothing looks more corrupt than an elected government operating in secret 100% of the time.  That’s why our own federal government is largely open to the press–look at TV channels like C-Span.  This is just a very basic element that is core to our democracy, and ultimately SOCs are supposed to be mini representative democracies, themselves.  The owner’s don’t have final say on decisions, but they are supposed to be able to contribute.

The main reason that boards fail to follow open meeting rules is because it’s inconvenient for volunteers, who ordinarily have their own lives to manage, to have to meet in a big formal meeting every time they want to make a decision about the community.  In the modern age it’s tempting to simply send around an email to discuss issues among the board at their convenience.  But remember that the main reason owners may attend meetings is so that they can comment and add their thoughts on issues that affect their community.  Often, you will find that an owner has an unusual expertise in an area being discussed by the board, one where his or her advice is welcome and even essential.  Or, you may find that a contrary position as presented by an owner is convincing enough to change the board’s mind about its course of action.  Either way, it’s never a bad idea to allow owners to participate and comment as much as possible.  Ultimately, it serves as a CYA for the board–actions taken at open board meetings, where owners are allowed to participate and comment, always carry a greater impression of propriety than a decision made in secret by a quiet cabal.

4) Let the Man Speak! (Dissent is Your Friend)

It’s a normal human reaction–when we are criticized or disagreed with we tend to get defensive, and even feel like we are being attacked.  So it’s not surprising that board members often find themselves shouting down contrarians in the audience at a meeting, and those disagreements can even turn violent.  But honestly, there’s no reason for that to happen.  Part of serving as an elected official is becoming tolerant of criticism and dissent–in fact, that’s probably the hardest part about serving as a board member in an SOC.  It’s hard to listen to your neighbors tell you you’re making a mistake!  But disagreements become far more virulent if opponents aren’t allowed to vent a bit.  Sometimes, just the act of speaking ones mind is enough to allay concerns about procedure, even when the ultimate decision goes against the owner’s wishes.  If you are a board member, and especially if you are a board president, try to allow yourself to take criticisms, disagreements and even nasty comments for what they are–the thoughts of a fellow neighbor or owner who simply wants to be heard on an issue and, you’ll sometimes find, makes perfectly reasonable points that you simply may or may not agree with.

But what I can assure you is that if you DON’T allow a dissenter to speak at an open meeting, if you dismiss him, or cut him off, you’ve now permanently turned that dissenter, who may only have an issue with one particular topic being discussed by the board, into a full out ENEMY of the board of directors.  This person will now attend every board meeting, making sure to criticize the board for every decision they make (whether or not that owner agrees with the decision or not).  And really, why not?  It’s only fair that an owner, with an equal stake in the decision to each and every board member, has the right to speak his or her mind when that decision is being made.  Listening to dissenting opinions is good management for any corporation.

Now, that doesn’t mean that every meeting must become a free-for-all of shouted diatribes and screaming matches.  Instead, the chairperson of the meeting can use the Rules of Order (remember number 1 above?) to control when people can speak on an issue and for how long.  Be strict about the requirements–every owner may speak, but for no more than 3 minutes, and the chair retains the right to cut off discussion if it becomes off topic, or something of that nature.  But cutting off dissent entirely is a bad decision for any board, and the moderate amount of discomfort it saves at meeting time will ultimately translate into a huge cauldron of dissent later on.  So let them speak, bit your tongue, thank them for their comments and move onward with the agenda.

5) Confidence is Key (Trust in your Judgment)

Edmund Burke, a famous Irish politician, once said that “Your representative owes you not his industry only, but his judgment; and he betrays, instead of serving you, if he sacrifices it to your opinion.”  SOC boards, just like most democratic governments, are representative democracies, not pure democracies.  By and large owners don’t vote en masse on individual issues.  The reasons for this are basic and practical–the vast majority of people, engaged in their own complex lives, cannot reasonably be expected to educate themselves about every issue facing a corporation, at least not enough to make a well-judged decision about the subject.  And further, unlike board members, individual owners have no legal duty to the association, and can make decisions that are personally preferable, but globally inadvisable.  So once an issue has been discussed, and every owner has had an opportunity to weigh in on the subject, it’s up to each board member to use their best personal judgement to decide how to proceed, given their duty to the association as a fiduciary (a person in a unique position of trust).  You can’t be an effective director if you make decisions based on the rumblings of one or two of your friends, or in an attempt to keep other owners from disliking you, or simply because you’re intolerant of conflict.  Serving as a board member requires some internal fortitude.  It’s your responsibility as a director to make your best, well informed decision, consistent with the requirements of the association, even if a majority of owners would disagree with that decision.  A very common example of this is when a special assessment is needed to perform some form of advisable but non-emergency maintenance on the property.  Especially in difficult economic times you’ll find that a large percentage of owners oppose the expenditure, but deferred maintenance is almost always more expensive down the road.  It’s well within the rights of a group of board members to decide that a decision is in the best interests of the association as a whole, even if it goes against the stated will of the majority.  Remember, if a true majority of owners rejects a board, they can always recall the members and elect a new board that they believe is more representative.  Still, this rarely happens in practice because a true majority of people rarely disagrees with the decisions made by a board that follows the rules I’ve discussed above.  And, even in that rare case where your neighbors recall you from the board, it’s better to be rejected for sticking to your own ideas than retained for caving to those that you don’t agree with.

Well there you go, some practical tips for SOC directors and homeowners for how to manage board meetings!  Until next time, good luck and always remember to be neighborly!

Emergency Mode! Tips on Dealing With Disasters in Condos, Co-Ops and HOAs

July 7th, 2010

Hi again!  The last couple of weeks have been pretty rough at my building–a string of bad luck minor disasters, one after another, have severely tested management’s ability to respond.  But so far they’ve come through with flying colors–and I thought I’d share our experiences and give my thoughts on some of the factors that go into dealing with emergencies effectively and efficiently.

“Disaster” number 1–About two weeks ago, one of our compressor pumps, which pushes water into the cooling tower to operate the building’s air conditioning, broke down.  Because two others were also being repaired at the time, we were down to a single pump providing water for the entire building’s cooling needs.  Of course, the night this happened (a Sunday, when else), the AC in the building went out entirely, on a balmy 90 degree Florida evening.  By the next morning staff had gotten it running again, but only by working creatively to adjust the valves so that enough water was going into the tower to do the work of 4 pumps.  In the meantime, our air conditioning contractor is completely rebuilding the pump (there was a bent shaft, among other issues).

“Disaster” number 2–Within a day or 2, a second emergency struck–the water main that delivers potable water into the building developed a serious crack, leaking tremendous amounts of water underneath the driveway and threatening to rupture entirely.  If that were to happen, the building would lose water completely.  It’s one thing not to have air conditioning–it’s quite another to go without a shower for weeks.  Fixing the water main was therefore a true emergency repair.

I don’t want to go into too much detail about the specifics of these repairs, but I’ll give some background regarding the water main just so that readers can appreciate the scope of the problem.  The water main had cracked once before, and had therefore been repaired just a week earlier.  That repair required tearing up a six foot section of the driveway, cutting through 2 feet of concrete, excavating dirt and repairing a broken joint that connected the water main pipe to the building.  During that process, one of our two garages needed to be shut down for two days, the building was without water entirely for a day, a parking garage across the street was rented at a significant sum–it was a serious inconvenience for residents.  We thought, however, that the problem was corrected.

To our horror, just a few days later the water began again pouring out into the garage, this time with significantly greater force.  We assumed that the contractor had somehow botched the repair–but now it appears that we are dealing with several different construction defects that contributed to the repeated failure of the pipe.  It’s impossible to tell at this point the exact cause of the water main break, but our engineers are investigating.

For the moment, the important issue is not who caused the leak, or how it occurred, it’s HOW to fix it, and fix it properly.  And that’s where a good management team, good board, and good planning all come into play.  Let’s look at the individual elements.

1)  Good Management–The absolute most important factor in any shared ownership community (SOC) in dealing with disasters is having a management team that you can trust, that is competent to deal with the issue and that is either properly informed or knows how to inform themselves.  We’re lucky to have a great manager and a very knowledgeable chief engineer at the property, and both are dedicated enough that they put themselves on 24/7 call to help deal with the problem.  Of course, when it first began, we assumed that the driveway could be dug up and repaired again in a day or so, but the damage has turned out to be far more extensive–now we’re running on over a week of excavation.  You know that big red dog, Clifford?  Well it looks as if Clifford is having a field day on the side of our building.  There’s a giant hole dug into the driveway that actually runs underneath the driveway for several yards.  When the project started, the digging was all done by hand (occasionally one would see dirt being flung out of the hole, just like a dog digging under a fence), but the excavation ended up being extensive enough that a vacuum truck was brought in to suck the dirt out of the hole.  And that vacuum truck has now been here for days, just sucking dirt and emptying it away from the property–I can hear it buzzing downstairs as I write this blog.

So the manager and chief engineer, both appropriately dressed-down for digging, have been putting themselves in the thick of the repair, jumping into giant holes in the ground, peering into dark mining-shaft tunnels and coordinating with the pipe contractor.  Without their dedication, and without the board’s trust in their abilities to coordinate the repair effectively, this emergency would have become a full-on nightmare for the board.  It is absolutely critical, long before disaster strikes, that SOCs ensure that they have the absolute best management team in place that they can find and afford.  If you as an owner have any concerns about your property manager’s ability to direct an emergency situation, now is the time to speak up to the board, BEFORE there is an issue that turns into a true catastrophe.  I feel strongly that our management team has effectively prevented an emergency situation, admittedly unpleasant and stressful, from becoming a building-clearing nightmare scenario for owners.

Now, I certainly understand that there are smaller properties around the country that cannot afford an independent manager, and where the board members run the show.  While this is sometimes necessary, it is simply never ideal.  Directors and officers are rarely trained in SOC management, and are even less likely to be able to effectively deal with emergency engineering issues.  They will be at the whim of the contractors who are advising them, and will be under tremendous pressure from the other owners to fix any problems quickly (and quickly is not always the best policy–sometimes doing repairs deliberately and taking your time is the way to prevent future problems).

2)  A Good Board–The second, very important factor in dealing with emergencies is having a good board of directors, one that is not afraid to make decisions, that is willing to meet on short notice to deal with important issues and that has good communication practices.  When an emergency arises, it will often be up to the board to rapidly consider repair proposals, analyze engineering reports and authorize the expenditure of large sums of money.  To do that properly, it takes dedication, and it takes bravery, because there are always some owners who will balk at the idea of spending any money on a property, even to repair a life-safety issue.  Serious issues may take tens of thousands of dollars to repair, and in most properties that money must be recovered either through insurance or a special assessment of the owners.  This is exactly the time when a board needs to act professionally and not be swayed by neighbors who might be shouting in their ear to do one thing or another.  Instead, board members should remember their duties to the association (maintain the property, maintain the property, maintain the property) and do what’s needed to satisfy residents’ basic needs.

3) Good Contractors–Emergencies like this are why it’s critical to cultivate strong relationships with contractors that you can trust.  Sure, it’s all well and good to save money on a major project by going with the lowest bidder, but picking the lowest bidder is not always the best choice.  Sometimes, the lowest bidder is actually the lowest for a reason, and may be using cheaper, less well-trained labor or cheaper materials.  And while picking the lowest bidder on a small project that is less important to a property is attractive, consider the long term value of working with a contractor who, for a bit more money, you trust to do the really difficult work at the property.  At our building, we attempt to use the same contractors for certain issues (air conditioning, elevators, plumbing, landscaping, etc.) and accept that the cost may not always be, to the dollar, the cheapest option available.  The decision more than makes up for itself in consistency, efficiency (though superior long-term knowledge of the property) and a desire, on the part of the contractor, to deal with emergency repairs quickly and appropriately.  Consider this–who is going to do a better job repairing an issue, and spend more time and effort on the repair–a contractor for whom the repair is a one-shot deal, or the contractor who expects to get future work out of the property?  Long term contractors will almost always be the best choice in dealing with emergency repairs, and it pays to have contractors that you trust available at a moment’s notice.

So because we have a great management team, a dedicated board and trustworthy contractors at a moment’s call, an emergency that might have been catastrophic has instead been livable, if annoying, for our residents.  Despite the pipe repairs, a smart bypass with a fire hose has ensured that we have plenty of water (although not really hot water, as there’s not quite enough pressure to run the boilers at a super-hot temperature), and the A/C hasn’t gone down since that first Sunday evening.  A life-safety problem that could have been a total nightmare (a totally dry building for weeks) has instead been just another bump in the complex pathway of SOC maintenance and management.

Until next time, good luck with your own properties, and if disaster strikes, don’t panic!  Just make good choices and trust in your team.

Can You Ever Be Too Safe? Tips on Security Systems for Condos and HOAs

June 25th, 2010

At the outset, let me state that I am not a security expert.  I have, however, spent the past year working with my board of directors to design and implement a quarter-of-a-million dollar security system in our beachfront condominium.  So I thought it might be helpful to share our experiences, and to explain some of the decisions we’ve made and why we made them.

As we discuss in our book, New Neighborhoods, shared ownership communities (SOCs–condos, co-ops and HOAs) are microcosms of society–they have good people and bad people, considerate people and inconsiderate people, all living within a small geographic area–in a condominium, right on top of one another.  This can lead to a lot of uncomfortable conflicts, and, in some cases, even violence.  It’s imperative, therefore, that SOCs have at least SOME plan for protecting their residents and properly securing the property.  This is the first layer of risk management, and perhaps the most important–risk avoidance.

Of course, not every risk can be avoided, and not every crime can be prevented.  Take, for instance, domestic violence.  Can you imagine sitting in your living room and hearing shots and screaming coming from a nearby unit?  It may not be particularly common, but it happens, and it happened about a year ago at my own property.  After a four-hour lockdown of the 240 unit building, infiltration by a swat team and dozens of police officers, and after scouring hours of video camera footage, it was determined that a renter had shot and killed his wife and her adult son, and fled the property.  A terrible tragedy, but one that also illustrated a number of issues with our security system and procedures that the residents felt needed to be rectified.

The first obvious problem was with the system itself.  Like a lot of new properties that were finished at the end of the housing boom, our developer seems to have skimped on a few items towards the end of construction, and the security system was one of them.  As president at the time, I found myself as the main liaison between management and the police as they searched the building for the suspect.  Our security system, as described by one policeman, was a “big-box” special–13 cameras, a 48 hour DVR and an almost totally unintelligible interface for reviewing footage that required the user to squat under a counter pressing physical buttons with no labels.  I sat at that DVR searching for footage of the shooter for over two hours before finally finding a clip of him riding the elevator down to his car, wiping blood off of his face with his shirt.  Of course, at this point he was long, long gone.  The problem is that it was hard to determine whether he had left the property, or might be hiding in a staircase or the garage, which forced SWAT to continue to clear the building long after the incident.  Big fail for Mr. Security System.

In addition to the confusing user interface, the cameras, and their location, were both woefully inadequate.  Once we saw the suspect leave the elevator at the garage level, we had absolutely no idea where he went.  There were no cameras in the garage, and the single camera on the garage door was aimed in such a way that it was impossible to see who was inside cars that left the property.

The third issue that arose was with our building procedures.  When the shots first occurred, nearby residents immediately called the front desk.  An UNARMED security guard was then sent upstairs to investigate.  In retrospect, this decision was extremely dangerous for the guard, and in fact it appears that he arrived at the unit just after the suspect had fled.  If he had encountered the suspect in the elevator, it’s quite possible that there would have been another fatality.

At our next board meeting, it was widely agreed that it was worth a significant investment on the part of owners to improve building security.  This decision was hammered home only a couple of months later, when two extremely expensive cars were stolen from our garage within a 2 day period.  While it seemed to have been a planned and targeted event by professional thieves, that was the last straw for owners.  Time to take action.

Our first decision as a board, and in my opinion one of our best, was to agree that none of us knew enough about security to make such a significant decision without the advice of a professional.  One thing we did not want to do, however, was to simply bring in a security camera manufacturer and let them advise us on an appropriate system for our property, as we felt they would be unavoidably biased towards a particular solution.  Instead, the board decided to hire a security consultant, at a significant cost (5 figures) to prepare a detailed security analysis of our property, and to recommend not only electronics, but also rules and procedures that we needed to implement.  It was to be a comprehensive report, and we prepared a very detailed Specification of Work (SOW) for the consultant to follow.  After vetting the candidates we chose a consultant with experience in hotels, country clubs, and even prisons, one who was universally respected as an expert.

While the cost of hiring a consultant was significant, I feel the decision was absolutely mandatory.  The consultant’s report identified dozens and dozens of small flaws within our procedures that could be rectified at little or no cost and would greatly contribute to our risk management.  For example, he pointed out that the flowers on a table in front of the welcome desk were too thick, and significantly blocked the view of visitors entered the building.  So we simply instructed our florist to stick to tall, skinny arrangements.  He also noted that the white parking bumpers in the garage blended into the concrete and were easy to trip over–we painted them all bright yellow.  Again, these are small things, and some of them were obvious, and yet to have a report detailing all of them, and how to remediate them, was invaluable.

In addition to identifying hazards, the report corrected many of our basic security procedures (i.e., don’t send an unarmed guard to investigate a shooting), and a separate technical report made very detailed recommendations about cameras and the type of system we needed on the property.  In short, his report was comprehensive, and invaluable to our board.  Well worth the cost of hiring an expert.

So our next step, in addition to simply implementing changes to procedure and working on small projects (fixing doors and locks, correcting line of sight issues, etc), was to determine how exactly to solicit bids for a security system that we knew could easily cost six-figures.  We chose to use a strict, closed and blind bidding procedure, implemented by one of our board members who happens to be an expert in bidding and contracts from his line of work.  Eight companies were invited to bid based on their reputation, and four chose to bid on the project.  They were all presented with a very detailed SOW that contained not only camera locations but storage requirements and even suggestions on technology.

It took several months for this part of the process to move forward, and eventually all four bidders were brought in for a traditional “dog and pony” show where they were invited to demonstrate their technology and proposal for the board.  This included live demonstrations of their operating systems (user interfaces) as well as the cameras they would be using.  As with all of our board meetings, residents were invited to not only attend but to walk with us, room to room, as we visited the presentations.  After 2 hours of live demos the board convened again and decided that two of the bidders were clearly superior to the others, with preferable technology (a modern, IP based camera system with a host of “megapixel” high resolution cameras) and easy-to-use user interfaces.  We voted to request best-and-final proposals from both companies.  Througout this entire procedure, no company was allowed to know what the others were bidding, or even the systems they were proposing.  For these final bids we made sure that they were based on an apples-to-apples, exact technical specification so that all variables could be removed from the bidding process.  Next week, we will be making our final choice.  It will be over a year since the incident that sparked our review, but I honestly believe that our detailed and deliberate approach to solving our problem will dramatically improve security in our building, and was clearly the way to proceed.

So, as SOC owners or board members, what can you learn from our process, and even our mistakes?  Let me point out a few of what I believe were the most important lessons we learned:

First, whether you are in a building with four residents or four hundred, make sure that you have clear, written security procedures for your staff to follow, and that those procedures cover all conceivable events.  Have written procedures for disasters, crimes, accidents, fire, flood, etc.  No one should ever have to wonder what they need to do in an emergency.  It should all be on paper, in detail, ideally in a security manual.

Next, don’t be afraid to hire an expert to help your community to make difficult decisions, especially those that involve technology or a particular expertise.  In our case, the security consultant added only a small percentage to the total cost of the project, but his report and advice made it dramatically easier to improve our security and to select an appropriate camera system.  I strongly believe that any system we would have solicited from a security installer, absent the expert’s advice, would have been functionally inferior.

Third, consider strict bidding procedures for large projects, whether security or otherwise.  Large corporations use detailed bidding procedures for a reason–it ensures that the corporations are getting the best value for their money, and the best product.  The same procedures can be used to excellent effect in the smaller arena of an SOC.

Fourth, post-event analysis is an important function of a security system for residential communities.  Now, this is a point that I know some would argue, but I feel that the most important value of a camera system is not preventing crimes–it’s allowing police, insurance companies and others to properly analyze crimes and accidents after they occur.  Management of a condominium or HOA carries with it a lot of liability, and associations can be responsible for bad acts that occur on their property, even if committed by third parties, depending on their procedures.  The association should not only try to protect owners, but also needs to protect itself in the event of a dispute over the cause of an incident.  Liability for personal injury, and especially a wrongful death, can total millions of dollars.  In addition, SOCs need to protect against petty crimes, like vandalism, trespassing, and even improper use of common areas, and a good security system makes it much easier to enforce the rules of the community.  Of course, your first responsibility as a board member is to try to protect residents and their property.  But it’s unreasonable to assume that ANY security system is going to prevent crimes and accidents.  Post-event analysis is therefore an important function of a security system.

Last, don’t underestimate the importance of user interfaces.  Many SOCs have an unavoidably-revolving door of employees that might work for the property in different areas, especially security.  For a camera system to be effective, it needs to be easy to use–ideally idiot-proof.  Any new employee should, with a minimum of training, be able to access camera views and review archived footage.  If the system in your community is so complex that only one or two employees or residents know how to use it, and if even the police can’t figure out how to work it, then you have a significant problem.

I hope you find my experiences helpful, and good luck protecting your own community!  I’m confident that my own community will be far safer for residents because of the diligent, deliberate way that we pursued this very important capital upgrade.

Condo and HOA Commandos–How to Avoid Being One

June 15th, 2010

This blog topic is addressed mainly to board members around the country, but it will be interesting to everyone who lives in a Shared Ownership Community (SOC–condo, co-op or HOA).  In reading a number of other condo blogs, I’ve noticed in the comments section that one negative term gets thrown around pretty consistently–Condo Commando.  The question today is, what is a condo commando, and how can you avoid becoming one?

Perhaps since the invention of condominiums (well, maybe a day afterwards), people have been using the term “Condo Commando” to describe the exploits of a certain group of condo owners or board members.  The problem is that the term has never really been well defined.  For example, the anti-condo/hoa crowd uses the term to describe pretty much every condo board member who would deign to enforce a rule or regulation.  In their parlance, every single board member in the country is a “condo commando,” and they’re all worthy of scorn.  To others, condo commandos are those board members who attempt to use the condominium association for personal gain, using threats and false complaints to abuse particular owners.  And to some, condo commandos are the busybodies, whether on the board or not, who take note of every slip and infraction in the community to serve as grist for the rumor mill.

Whatever your definition of condo commando, however, it’s clear that it’s not intended as a compliment.  In the Toronto Star, one writer defined commandos as:

def. n. An egocentric person on a condominium’s board of directors who rules by intimidation, putting his/her interests ahead of others, abusive to the property manager and any board member who gets in the way. Dominates meetings, won’t let others speak. Can be prone to angry outbursts

Now, ignoring for the moment those people who use the term to refer to anyone who tries to enforce a rule or regulation in a condo or HOA (because, frankly, every board member has a legal responsibility to do so), the term condo commando as it’s most frequently used seems to have a few common characteristics.  A commando:

  • overuses legal options to deal with disputes
  • is power hungry
  • fails to follow proper corporate procedure
  • enforces rules arbitrarily
  • accepts kickbacks

Pretty clearly these are all things to avoid, but let’s talk a bit about each one individually and see how we can avoid falling into the commando trap.

Overuses Legal Options to Deal With Disputes–This is a common complaint among ordinary residents who feel that their association is constantly harassing them with threats of legal action.  And certainly, there are plenty of board members around the country who feel that “sue first, sue later” is always the best policy.  But if you’re a board member, remember that lawsuits are really, really expensive.  Before resorting to a lawsuit or legal action on any issue, try to exhaust every other avenue.  Start by having your manager talk with the violating owner–sometimes that alone will solve the problem.  Next, look to your fining procedure or your grievance committee for possible non-legal enforcement methods.  Then, consider whether mediation or arbitration is a legitimate option.  Only after an owner has consistently ignored all attempts to modify their behavior should the board resort to legal resolution.

That having been said, it’s important for owners to remember that they DO have responsibilities, including paying maintenance and following the rules and covenants of the community, and that sometimes the only remedy available to SOCs is to bring the owner to court to compel them to act in a particular manner.  Certainly, given the current financial climate liens and foreclosure actions may be the only collections remedy that is available to boards (if you’re interested in collections specifically, check out my past blogs on the issue).  Just because a board has authorized a lawsuit doesn’t make them “condo commandos”.

Power Hungry–In our book, New Neighborhoods, we talk a bit about what we call the “high school election model.”  Condo elections tend to bring out some unpleasant characteristics in otherwise perfectly reasonable people who are campaigning for an elected position for the first time since high school.  Some of these people are inevitably those who feel that they deserve to be in a leadership position.  And for a few, especially those who felt cheated out of a leadership position earlier in life, they take to board membership with an unhealthy zeal.  To paraphrase one web commenter, the best board members are often those who don’t want to be on the board.  For those who don’t respect the democratic system that is inherent in any SOC, leadership can easily be confused with control.  The power hungry commando will often be a micromanager, taking it upon him or herself to have the final say on any issue that arises in the community.  She may view herself as a Solomonesque arbiter of disputes between neighbors.  He will probably burn through managers at a rapid clip.  This type of commando can be especially dangerous if the rest of the board is particularly wishy-washy and refuses to stand up to the “bully.”

For anyone serving on a board, it’s imperative to remember that board service is a civic duty–one that requires personal sacrifice and some humility.  It’s not an opportunity to live out regal fantasies or dictatorial dreams.  The board of a condo, co-op or HOA is an elected, representative body that has certain responsibilities to the association.  Think John Adams, rather than Fidel Castro.  Please, please don’t serve on a board because you think you deserve to be a leader, or that you’re the only person who could possibly be in charge.  Serve because you think you can do a good job for your community.

Fails to Follow Proper Corporate Procedure–by this we’re talking about all of the corporate niceties that make any business run smoothly: hiring the right people (and letting them do their jobs without micromanaging them), engaging in formal bidding for large projects, proper budgeting, record keeping and finance, and transparency to the shareholders (the owners).  Condos and HOAs are, at their most basic level, non-profit businesses, and they must be run like businesses.  Keeping a condominium association afloat is not the same as doing your personal finances.  Especially in the largest associations (where budgets can often be in the millions of dollars) you need qualified and properly trained employees to run the association.  Large construction projects should be bid to multiple contractors, and depending on the scope traditional blind bidding procedures should at least be considered.

Enforces Rules Arbitrarily–nearly all SOCs have a set of rules and covenants that must be followed in the community, and that inevitably brings up an issue of enforcement.  Unfortunately, it seems to be very, very hard for ordinary people to be completely neutral when it comes to rules enforcement–and yet, complete neutrality is what is both morally appropriate and expected under the law.  The principle of selective enforcement states (loosely) that an owner who is breaking the rules can defend himself against enforcement of the violation if he can prove that the rule has not been enforced consistently.  So it’s not ok for the president of an association to ignore his best friend’s kitty if the condominium has a no-pet rule, but then try to enforce that rule against other residents.  Board members should also never use threats of enforcement to attempt to manipulate owners.  In my opinion, the best policy is to simply instruct management to enforce every rule in the community equally, across the board, against every owner (even other board members).  Though there are some who will still accuse a totally neutral board member of being a “commando” for enforcing rules in the first place, you simply can’t please all of the people all of the time, and consistent, across-the-board enforcement of rules is perfectly reasonable in an SOC setting.

Accepts Kickbacks–OK, so this one really should be a no brainer, but just for the sake of saying so, accepting money from a contractor for granting them a contract is at best totally unethical, and in many states can be a crime.  You should be receiving NO compensation for your service to your community, either from the association itself or from third parties.  On the other hand, any board member can expect to be accused of stealing or accepting kickbacks at least once in their term of service–it’s inevitable that someone in your community will think that you are stealing simply because you are in a position to do so (a lot of people seem to have a pretty dire world view).  So in short, don’t steal, but don’t get upset when someone inevitably accuses you of doing so.

So there you have it–five of the most common reasons that board members sink into the “condo commando” pitfall and some thoughts on how to avoid them.  And don’t listen to the haters–condos and HOAs provide a great lifestyle for millions of Americans, and there are hundreds of thousands of hard-working, reasonable and fair board members out there as well.  Don’t let a few bad seeds spoil the entire SOC apple.

Crist Vetoes Architect Shield/Banning Deadbeat Owners From your Condo or HOA: Good Idea?

June 3rd, 2010

First, an update on a previous blog.  A few weeks ago I wrote about a terrible bill that had passed the Florida legislature, one that would have shielded architects, engineers and others from negligence lawsuits.  Happily, Governor Crist has listened to his constituents, and not the lobbyists, and he vetoed the bill.  Good for you Charlie!  To his credit, Crist has shown no fear when using his veto on bad legislation, and this was a good decision.  No professional group deserves complete immunity from lawsuits for unreasonably careless acts.  Congrats to those who successfully fought this law.

I wanted to dedicate the majority of today’s blog to another new change in Florida law, but one that has already been implemented in other states (and has applied to Florida’s HOAs for years).  It’s a new tool in the arsenal of dealing with owners who don’t pay their association maintenance–deadbeats.  If you recall from previous blogs, the main tool that shared ownership communities (SOCs–condos, co-ops and hoas) have against deadbeat owners is filing a lien on their property, and eventually foreclosing on that lien.  However, that is a fairly drastic step to take, and it can be costly–thousands of dollars in legal fees, depending on the complexity of the case.

The obvious question for owners is, if these deadbeats are not contributing to the common elements (such as the pool, tennis courts, and other recreational facilities), why should they be allowed to use those facilities?  Why can’t we ban them?  And this new law in Florida allows exactly that.  The text of the new law reads as follows:

718.303(3)–If a unit owner is delinquent for more than 90 days in paying a monetary obligation due to the association the declaration or bylaws so provide, the association may suspend the right of a unit owner or a unit’s occupant, licensee, or invitee to use common elements, common facilities, or any other association property until the monetary obligation is paid. This subsection does not apply to limited common elements intended to be used only by that unit, common elements that must be used to access the unit, utility services provided to the unit, parking spaces, or elevators.

OK, so there’s some interesting stuff hidden in there.  Just by the language itself, if a unit owner is behind on his or her maintenance for over 90 days, the association can block that owner or the occupant/renter of the unit from using the facilities of the condominium.  However, this restriction doesn’t apply to certain categories, such as utilities, parking spaces, elevators, etc.

The first obvious question for Floridians is, what about cable TV?  When this law was originally being discussed, one of the main abilities association boards were clamoring for was the power to shut off a deadbeat owner’s television.  In many associations, the cable television bill is a bulk contract paid by all owners as a common expense–so if your neighbor isn’t paying his bills, you’re paying for his television.  There’s a strong psychological issue with many people when it comes to television–the idea of deadbeats lounging on your dime is simply anethmatic.  So really, the most common request from board members and owners was for the legislature to specifically allow boards to cut off non-paying owners’ televisions.

Unfortunately, the law doesn’t seem to do that.  The language of the statute exempts “utilities,” and depending on who you ask, cable television does seem like a utility.  The law probably wasn’t intended that way, and even some of the architects of the law have said they have no idea if cable TV is included in the restrictions.  This is going to be one of those wait and see situations, where an aggressive association is going to test the issue in court, and allow a judge to clarify the statute (and fight over that clarification for a decade).

Also, it’s unclear from the law whether common services may be restricted, like valet or towel services.  The law does say that the association may suspend the use of common facilities and association property.  Valet parking spaces are always some form of common element or association property, as would be towels.  But it does also say that you can’t limit parking spaces–does that only apply to owner-assigned spaces, or valet as well?  Hard to tell, but I would argue that, until we hear otherwise, associations can restrict these services as well.

Note also that you explicitly cannot ban owners from using access points, like gates and elevators.  So you probably can’t turn off a deadbeat owner’s gate key or elevator fob, as much as you may want to do so.

In any event, now that we’ve established that you can ban deadbeats from the common elements, the real question becomes should you ban deadbeats–and if you do, how?

The entire concept of a law like this ultimately comes down to psychology and human nature.  On the one hand, paying owners get a psychological boost from the idea that there are no free rides.  It’s the old Little Red Hen analogy–you can’t eat the cake if you don’t help make the cake.  Among paying owners, you can bet there will be a clamor to ban deadbeat owners from using common facilities.  Still, we have to remember that the clamor does partly base itself on a feel-good philosophy–does it have actual utility?  We need to dig a bit deeper to find out.

As for the deadbeats themselves, and whether such a ban will influence there desire to contribute to the association, that’s probably going to depend on the particular deadbeat.  Some non-paying owners are absentee investors who may or may not have renters in their units.  They will only care about a ban of the common elements if it affects their renters, and that of course requires that the association be aggressive against renters of deadbeat units.  Other deadbeat owners may simply be so down on their luck that they are completely unable to pay  their maintenance (and usually their mortgages as well), and banning these owners from the common elements will again simply provide a psychological boost to paying owners–it’s unlikely to encourage them to pay money they don’t have.  The most likely owners to be affected by a deadbeat ban would be those who have the money to pay, and do live in the community, but simply choose not to pay for reasons of arrogance or a lack of commitment to the concept of shared ownership.  These owners may be impacted by an inability to use the common elements, and may be convinced to start contributing if such a ban is enacted.

Question 1–What does a ban accomplish?

So the first question for any community or board considering enacting a common element ban would be:  What does it accomplish?  If the ban doesn’t force a single non-paying owner to pay their maintenance, but it makes the paying owners feel better about their contribution, is that a sufficient reason to enact a ban?  It may very well be–there’s clearly a legitimate purpose in encouraging paying owners to continue to pay.  Or, you may decide that, without a likely affect on the deadbeats themselves, a ban simply creates a ton more work for the association with no real benefit.  And this gets to the second principle question every community and board needs to consider before enacitng a deadbeat ban:

Question 2–How do you enforce the ban?

Consider this for a moment–your condominium decides to ban deadbeats from all of the common elements, including the pool, the tennis court, the gym, and even from using valet.  How do you make sure the owner isn’t cheating?  This may not be too much of a problem in a condo with ten units, where every owner is easily identifiable–but what about condos with hundreds of owners?  Do you hand out photographs to the staff, relying on them to enforce the ban on recognition?  Do you hang police house style wanted posters around the common elements, stating that the owner pictured isn’t allowed to use the facilities?  And would such action violate the various federal privacy laws that protect debtors?  And what about if an owner or staff member does catch a deadbeat using the pool–how do you kick them out?  Does the owner enforce the ban themselves, or do you call security?  And what if the owner refuses to leave–call the police?  I really can’t answer such questions, because they’re discussions for every individual community to have–I’m simply trying to demonstrate that enacting a ban is not as simple as declaring that deadbeats can’t use the common elements.  Boards need to consider enforcement of these rules as well, if they are to have any impact.

Now, for some non-paying owners, the simple threat of expulsion (and a desire to avoid conflict) will be enough to keep them from using the facilities until their account is up to date.  And maybe that, combined with the feel-good nature of a ban for paying owners, is enough to enact such a ban in your community.  But as a board member of my own condominium, I have concerns about effecting policies that have no real “end game,” that may not be practically enforceable.  So before we enact such a ban in my community I’m going to insist that the board discuss our enforcement options and plan, and really know why we want a ban before we begin to enforce one.

To sum up, I don’t want it to be misconstrued that I am against deadbeat bans–I think, used properly, they can be a very effective tool for associations to encourage payment of maintenance.  I am simply illustrating that bans are more complex than people may realize, and it’s incumbent upon any responsible board of directors to consider all aspects of a ban before making it a part of their community’s way of life.

Til next time, thanks for reading, and I hope you find this discussion useful!

Condo Poop Patrol–How do you Control Messy Pets in Condos, Co-Ops and HOAs?

May 24th, 2010

So let’s admit to begin with that it’s very hard to be taken seriously when you’re talking about poop–but it’s a serious issue for millions of people around the country who live in Shared Ownership Communities and like to live a dog-doody free lifestyle.  This is not going to be a blog about banning pets from condos.  I’m a dog owner, I love pets, and while I respect the right of those who wish to live petless to do so, I don’t expect it to be the norm.  But what I don’t like is going down to my community’s dog-walking area and finding it layered in other dog’s excrement.  Many who live in pet-friendly condos have the same problem; and in HOAs, the problem expands to people’s front lawns.  And lest you assume that this issue is trivial, note that a lot of neighbor battles, even violent ones, can be traced back to disagreements over picking up poop.

First of all, for the small percentage of people who fail to understand why dog poop is an issue, or think that it’s too trivial to deal with, dog poop is not nice stuff.  It attracts scavengers, it can contain worms, it smells bad and it’s a terrible mess to get out of your shoes, your children or, worse, your dog’s fur (how many of us have seen our dogs rolling happily in the grass, only to find that they decided to coat themselves with another dog’s poop?  It’s gross, but it happens all the time).

To start, nearly every condominium, co-op or HOA that allows pets will have some kind of clause in their documents that requires owners to clean up after them.  If by some chance your community doesn’t have a rule that says that owners must pick up after their dogs, consider your nuisance rule as a possible tool to deal with owners who cannot be bothered to bend.  However, it would be far more effective and clear for your board or membership to simply pass a new rule that requires pet owners to pick up after their animals.  Honestly, I can’t think of a single responsible pet owner who would disagree with such a rule (though, as you’ll see below, such people clearly exist).

However, having a rule in place is only a tiny fraction of the enforcement conundrum, as a large portion of people will simply ignore the rule.  I’m frankly not sure why this is–I would assume that everyone prefers walking their dog in an area without crap on the ground, but apparently that’s not a universal opinion.  Some people are physically unable to pick up after their pets, so choose not to; some people honestly believe that it’s not their responsibility; some are house workers who simply don’t care enough about the community to comply; some are just lazy and don’t like to bend over.  Whatever the reason, it’s a disgusting problem that exists in every single pet-friendly SOC in one way or another, so managing the problem is a paramount, universal issue that’s going to come down to enforcement.  Here, then, are some tools that you can use to combat the poop problem.  First you have to catch the violator, then you need to decide on an appropriate punishment.

1) Registration/Tags:  The first problem you need to deal with is determining which dog owners are the common violators, and that requires knowing which dogs are allowed to be on your property, and which ones are not.  It’s a minor inconvenience to ask owners to register their pets with the association office.  Ask for a photo of the pet, and place it on a page with the pets breed, color, and contact information for the owners.  You may also want to consider requiring owners to put a visible neighborhood tag on the dog’s collar (and we’ll get to why in a moment).  Now, some people will certainly resist the requirement to register their pets.  Some are probably violating association rules regarding number or type of pets (because every single community has SOMEONE violating those rules), some don’t feel it’s anyone’s business what types of pets they have, and some are simply to “busy” to take the time to register their pets.  But be persistent.  Registration of pets is one of the first lines of defense against disrespectful owners (and yes, owners who refuse to pick up after their dogs are disrespectful–disrespectful to other owners and to their neighborhood.  There’s just no two ways about it.)

2)  Enforcement:  This is where the real trick comes into play–how do you catch people not doing something?  Before anything, start with the obvious options.  Place a “reminder” flyer in a prominent place, asking residents to pick up after their pets.  Send out an email or letter if appropriate, as well.  Explain in the flyer or letter the negatives of dog poo (and yes, some people do need to be informed that there are negatives).  See if making owners more aware of the problem can help improve compliance.  Fair warning though–it rarely does.

After that, if you have security in your property (especially if it’s a condo) they should be instructed that people who they witness not picking up after their pets should be stopped, asked to pick up, and if they refuse, their name and unit number should be recorded (or, if they’re trespassers, they police should be called).  Many security guards will ignore an issue like this, thinking it’s outside of their purview.  But condo and HOA security guards are not simply there for “security”, they also need to be able to identify basic rules violations as well.  So if your community is having a repeated problem, make sure that management is specifically directing security to keep an eye out for violators.  This, by the way, is where dog tags become useful.  It enables a security guard, at a glance, to make sure the dog is authorized to be on the property, and if needed to check the unit number for future enforcement.  Second, you may want to add cameras to the typical dog-walking areas.  These cameras don’t need to be monitored 24/7, but they should have some recording capacity (a few days at least) so that if an acute problem begins to develop they can be reviewed for compliance.  You will often find that the same few people are constantly breaking the rule, over and over, and may not stop until there are consequences.  If you don’t have cameras or security, consider getting together all the responsible dog owners and asking everyone to keep an eye out for poop pick-up violators.  A “neighborhood watch” type of arrangement may be your only defense against the mess.

And for the really technologically advanced, here’s a new tool in the aresenal.  It was recently reported that a condo in Massachusetts is considering DNA testing dog poop to figure out whose dog left the mess.  Apparently, we are seeing the genesis of a new TV hit–CSI: Dalmatian.  You can read more about this story here:  http://news.discovery.com/animals/pet-dna-calls-out-poop-scoop-offenders.html

3)  Punishment:  It seems silly to be talking about punishing people who won’t pick up after their pets–you’d assume that all people would be willing to comply with this simple, neighborly step of pet ownership.  Unfortunately, in the real world that’s often not the case.  Even after reminding people to pick up after their dogs, even after catching them in the act, a number of people will simply not pick up poop, thinking that the job is beneath them or that it’s not their responsibility.  So your association may have to resort to punishing them to get the point across.  There are three main threats that can be used against owners:

Embarrassment:  For some reason, condos and HOAs have no problem using embarrassment as a tool against non-paying owners (publishing a list of delinquents for everyone to view), but embarrassing people about violating other rules is often viewed as unreasonable.  That said, if you want to try it, you can consider a simple policy of posting flyers in the mailroom, stating something like “please remind Mrs. Jones to pick up after her dog, Champs.”  While I’ve never tried this in my own community, my gut feeling is that it’s far more effective to call people out on a simple, easily correctable issue, like picking up dog poop, than convincing them to pay their maintenance.

Fines:  The main enforcement tool available to SOCs is fining owners for rules violations.  A typical fine is $100 per occurrence.  But what are you going to do when they don’t pay the fine?  Are you going to put a lien on their property for a dog poop fine, or even foreclose on the unit?  Most states will not let an association foreclose for non-payment of a fine, so this often becomes a toothless threat, as the fined owner knows there are no consequences for non-payment.  Still, some owners will be willing to pay fines, and the threat of fines do have at least some deterrent effect.  And even if the fine is never applied, the simple act of bringing an owner in front of the grievance committee may be enough to convince them to pick up after their animal.

Doggie Exile:  This is certainly the most extreme remedy, but for repeat offenders you may have no choice.  Most pet-friendly documents have a provision that allows the association to expel the dog from the community if it becomes a constant nuisance (usually due to violent behavior or constant noise and barking).  Still, a board could easily argue that a pet who is never picked up after is a nuisance, and may not live in the neighborhood.  Now, pretty much any pet owner will respond to a threat to remove their dog, so this enforcement tactic is perhaps the most ultimately convincing.  Still, it should only be used in the most severe of recidivist cases, against those people for whom threat of embarrassment or fines have no effect.

Dog poop may be a silly topic, but it is a serious problem for a lot of communities, especially neighborhoods with a large cultural mix (not all nationalities or cultures are used to picking up after their animals).  Unfortunately, the only real way to deal with the problem is the way you deal with any other rules violation–make sure a clear rule is in place, enforce the rule, and punish accordingly.  Hopefully your association can convince the majority of your neighbors to keep dog walking areas neat and clean, because it’s never fun to deal with dog poop–especially from someone else’s dog.

New FHA Condominium Guidelines–What You Need to Know

May 11th, 2010

In February of this year, the FHA passed a new set of lending guidelines that significantly changes how condominium units are approved for FHA-backed loans. It’s important for condo owners and board members to understand these new guidelines and how they impact your community. I’m going to provide a bunch of background information, so if you’re perhaps a real estate agent who is well versed in FHA procedure, you can skip ahead a bit.

The Federal Housing Administration is a government agency created during the Depression (now part of Housing and Urban Development) that provides mortgage insurance on loans. It’s a common misconception, but the FHA does not actually loan money or create loans. Instead, it insures private lenders that their loans will not fail. In exchange, FHA approved loans often have consumer friendly terms (though, not as “friendly as the Adjustable Rate Mortgages that were popular before the housing crash). FHA loans are extremely popular–as many as 25% of the loans in the United States are FHA-approved loans.

Until February of 2010, a lender could get spot approval of a loan on a single condominium unit if the building was not on FHA’s list of certified properties. However, as of February 1, 2010, the FHA has removed the spot approval process entirely. Now, the only way to get an FHA loan for a condominium purchase is if the entire project/building has been pre-approved by the FHA, either because the bank or the condominium has submitted the necessary paperwork.

First of all, this raises an important issue for board members. If you want to encourage sales in your building (and any smart board member should want to encourage a robust resale market), you have to make sure that your association is preparing the required forms for FHA approval. If your condominium is not FHA approved, you are potentially removing 25% of the market for units.

The tremendous problem, however, is the FHA guidelines themselves. It is certain that a huge number of condominium projects, perhaps even a majority, will not satisfy the very stringent new requirements for becoming an FHA approved property. And, unlike in the past, there will be no way for a buyer to get approval for a single unit. Here are some of the new guidelines, and why they are problematic:

1) Maintain a reserve equal to 10% of the annual budget: Even completely healthy condominium properties often fail to maintain a reserve of this size, and in many states condominium owners may chose to waive collection of reserves entirely. A truly distressed property, one that needs the government’s help, will never be able to budget for basic services (like water and garbage) and still maintain appropriate reserves. Reserves are kept for emergencies—many communities have actually used their reserves to weather the current crisis.

2) Make sure that no more than 15% of owners are more than 30 days late on condominium fees: Again, this is a guideline that seems ignorant of reality—in the current economic environment, even healthy properties can have delinquency rates over 15%, and the vast majority of distressed condominiums will never reach this threshold. There are struggling-but-functional condominiums in the country today where over half of the units do not pay maintenance, but the solution to this problem is to get the abandoned units into the hands of new buyers—not to preclude the entire property from one of the country’s most popular loan programs. This single guideline realistically exempts every single property that the government desperately needs to assist.

3) Assure that no more than 10% of the unit are held by a single investor: Not only is this guideline misguided, but it conflicts with the current trend in state law, where states are actually making it easier for investors to buy large numbers of unsold units. Abandoned or empty, ownerless properties contribute nothing to a condominium, and force the other owners to foot the bill. When investor-owners purchase large blocks of units in distressed condominiums, they have legal responsibilities to pay maintenance on those units and contribute to the upkeep of the property. That’s a good outcome for distressed communities—the FHA guideline, which would block this practice, is perplexing.

4) Have no more than 25% of the space used for commercial activity: Many extremely successful condominiums, especially in large cities like New York, are designed with large percentages of commercial space–the rents paid can reduce dramatically the maintenance load on owners. The commercial owners attract buyers to the condominium, particularly those who appreciate the convenience of having in-building amenities like restaurants, shopping and entertainment. Again, this guideline appears to ignore marketplace realities and blocks help for distressed properties that could otherwise be quite successful.

There are FHA guidelines that are quite reasonable–such as allowing access to financial records or requiring fidelity insurance. And the FHA has clearly passed these rules because it believes it is protecting the government from insuring bad mortgages, or at least mortgages in properties that it believes will fail. But the government, through the FHA, is using a butterfly bandage to close a gaping wound. The condo market has already crashed and failed–the government needs to provide tools that will allow investors, buyers and agents to sell the backlog of empty units and replenish the coffers of shared ownership communities. It should not be passing regulations that will make it even more difficult for buyers to clear real estate stock. And these new FHA guidelines will make it so difficult for some condominiums to move their empty or unsold units that the communities will be destined to fail. Like the earlier Freddie Mac/Fannie Mae guidelines, the new FHA guidelines are misguided, don’t respect the realities of the current marketplace and in the long run will hurt buyers, instead of encouraging them.

UPDATE: I sent a letter to HUD asking them how a condo may file for pre-approval. Unless I’m misreading their response, it appears that any approval must be done through an FHA approved lender, which certainly makes the process far more arduous:

“Please read Mortgagee Letters 2009-46a and 2009-46b that all apply to change is the approval method of condominiums. You can access the Mortgagee Letters at the following URL:

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/

Under the new rules that took effect December 7, 2009, there are two approval methods; HRAP (HUD Review and Approval Process) and DELRAP (Direct Endorsement Lender Review and Approval Process).

Condominiums approval under HRAP/DELRAP must be submitted by an FHA approved lender, thus cannot be done by an individual, HOA, etc. So if you are not a lender, you will need to enlist the help of an FHA approved lender to get your condominium FHA approved. If you are a unconditional DE approved lender with FHA, then you should use the DELRAP approval unless the condominium meets conditions specified in the Mortgagee Letters. If you are not a unconditional DE approved lender (i.e. a broker, builder, part of the HOA of the development, etc.), then you must go through the HRAP process. For information on how to submit condominiums for approval via the HRAP process, please contact the Home Ownership Center (HOC) in your region for information due to this e-mail address is geared for the technical support of the FHA Connection website. To reach the HOC, please call 1-800-CALL-FHA (1-800-225-5342) or e-mail info@fhaoutreach.com.

As for the DELRAP process, we are able to provide instructions for that process since that is done on the FHA Connection website. If you meet the requirements stated in the Mortgagee Letters, the first thing that you need to confirm is that you have the “Condominium Approval Maintenance” authorization set to “Update” on your FHA Connection user ID. If you are not sure, the application coordinator in your company can check if it is set and set it if it is not.

Once that authorization is set, do a query in the Condominiums function where you get the error saying “No Record Match Your Selection Criteria”. When you get that error and you have the authorization mentioned set, you will also see a “Establish Condominium Project” button. You would click that button and complete the form that comes up to submit the condominium for approval. You would complete that form and you will find a field on that where you point to where the PDF file is located on your computer for recorded documents and another field where you point to where the PDF file is located on your computer for unrecorded documents.”

I’ll keep researching this and report back when I know more.

Terrible Bill in Florida Shields Architects/Engineers from Legitimate Malpractice Claims–Great Risks for Condos, Co-Ops and HOAs

April 30th, 2010

[Updated with some new explanations, sorry for the delay!]

So while I try to keep my blog purring along on a national scope, the Florida Legislature today did something so questionable, with so many negative consequences for Shared Ownership Communities (SOCs) that I felt I had to brief my readers. If you live in Florida, PLEASE contact Governor Crist and ask him to veto this bill. You can reach the governor at Charlie.Crist@myflorida.com. Governor Crist has proven that he listens to his constituents–it’s time for us to speak up once again.

Senate Bill 1964 protects design professionals (architects, engineers and others, the majority of whom are perfectly nice and respectable people) from lawsuits due to their negligent design. That’s right–even when these engineers do their jobs badly, and even if a building is unsafe as a result, you will not be able to sue them to recover your economic damages.

First, some background. For many, many years, Florida law has recognized that professionals have a duty to perform their services according to a reasonable standard of care, and if they don’t, they are liable for damages caused by their carelessness. This includes purely economic losses, such as the cost to remediate the mistake or the reduction of property value. The reason this is important is because of a principle called the “economic loss rule,” which is legal mumbo jumbo that states that you can’t recover purely economic damages under tort (negligence) law unless you have property damage or a personal injury. Florida follows this rule for some types of lawsuits, but courts have been very clear in ruling that this can’t possibly apply in lawsuits against professionals like architects and engineers, because there are almost NEVER personal injury or property damages from their mistakes, and therefore they would essentially be unsueable except under contract law (where the remedies are far more limited, and are not always available to 3rd parties who are harmed by the error).

So the Florida legislature decided to overrule decades of precedent by passing a law that says the economic loss rule does apply to cases against design professionals. Therefore, under the new law, they can almost never be sued for negligence. Here’s the text of the law:

(1) A claimant contracting for the professional services of a design professional does not have a cause of action in tort against the design professional for the recovery of economic damages resulting from a construction defect.

The language is a little weird from a legal standpoint (only one of a number of problems with this bill), but it’s intent is clearly to wipe out well established legal precedent and to shield design professionals from liability. So who is covered by this limitation on liability? Architects, engineers, surveyors, interior designers and even landscape architects. If any one of them is negligent (if they act in a manner that is not reasonably professional), you cannot sue them in tort to recover your damages, unless they actually hurt someone (there’s an exception for personal injury) or their negligence damages someone else’s property.

Now, I have nothing at all against these types of design professionals–my mother is an interior designer, and I have good relationships with the engineers that I work with through my condominium. I simply feel that all people should be responsible for the reasonable consequences of the mistakes they make as a result of not doing their jobs within the bounds of reasonable care.

Think for a moment how incredible such a law is, and how much it proves just how important special interests are in government. Let’s say you hire someone to design a balcony overlooking your orchid garden. The engineer draws up the plans, and a contractor builds the deck. But a week later, the deck collapses, not only crushing your orchids but costing you double the original construction cost to repair. Turns out the engineer wasn’t quite paying attention and designed the deck with too few supports for the weight.

Now under current law, you would be able to bring the engineer to court and sue him for negligence, so that you can recover your economic damages–the cost of fixing the problem, perhaps the cost of the damaged orchids. Florida law recognizes that this is a legitimate lawsuit, and why not–how else would you hold professionals accountable for their carelessness?

But now, under this new law, the engineer would be totally protected from a negligence lawsuit. For some reason, he now gets protection that isn’t afforded to anyone else. Can you imagine if the legislature passed a law that said that lawyers could not be sued for damages cause by legal malpractice? People would flip. Who would tolerate such a law? Nobody gets that kind of protection–not accountants, or doctors or graphic designers. The only possible reason the legislature would pass this bill is because construction design professionals have enough pull with politicians to grant themselves a totally unprecedented legal shield.

Now here’s the $6,000,000 question. Why should SOC owners care? Every single condo, co-op and hoa, at some point in its lifespan, will need to make repairs or additions that require a design professional. Roofs, balconies, clubhouses and roads all deteriorate, and their repair and/or replacement usually requires that the association hires an engineer or architect. For many years, Florida’s courts had established that design professionals are, under tort law, responsible for economic damages caused by their negligence, just like EVERY OTHER TYPE OF PROFESSIONAL. But now, thanks to Florida’s consistently tone deaf legislature, that consumer protection has gone out the window. If your condo rebuilds it’s roof, and the engineer you hire designs it improperly, when that roof collapses and destroys half of your property your only recourse will be to go after insurance proceeds. When you hire an architect to design a storm drain, when that drain proves ineffective and your property sinks from flooding, you will have no recourse anymore. That’s why this bill is so dangerous for condos, co-ops and hoas. Design professionals are a constant element of the reality of repairing, securing and upgrading large properties, and if this bill is signed into law they will now be exempt from being responsible for damage they cause due to their own negligence.

Put simply, this is bad law, and it should be vetoed by the Governor. If you live outside of Florida, keep an eye on your own legislatures to make sure they don’t get any cute ideas, and if you live in Florida take the time to email Crist and let him know that we don’t take our legal protections for granted. SB 1964 is bad for SOCs, it’s bad for Florida, and it’s just a bad idea.