Archive for March, 2010

Choosing a Manager for a Condominium, HOA or Co-op—What Are The Qualifications?

Thursday, March 25th, 2010

This week I’d like to discuss an issue that can be a difficult burden for board members—choosing an appropriate property manager. While small properties of only a few units may be able to be managed by an owner or two, most larger properties will require a manager of some kind, whether that person is part of a management company or an independent manager. While I don’t intend to go into the pros and cons of hiring a management company (an issue we discuss in detail in New Neighborhoods), I would like to discuss qualifications that you should look for in your actual management candidates.

Licensing: First realize that, in many states, managers of associations that are larger than a certain number of units are required to be managed by a person who has obtained a state license. This may be true even if an owner is willing to manage the property herself. For example in Florida, if you are managing a property of greater than 10 units, and you are getting paid, you must have a Community Association Management license. These licensing procedures are intended to protect associations by ensuring that anyone managing your property has at least some minimum knowledge of the laws that govern shared ownership communities (SOCs). There are plenty of arguments that such licensing has no effect—nevertheless, in many states it’s a primary requirement.

Education: Based on years of interviews, I can say that a large number of SOC manager candidates tend to have no more than a high school education or a GED, and for some properties that may be all that’s required. Other candidates may bring with them different types of community college or correspondence degrees, and a few will be college educated, or even have advanced degrees in accounting, engineering or business management. But how much education is really needed, especially for smaller properties? Well, start by imagining the types of duties handled by a typical manager. At the very least, they must communicate with owners, employees and contractors (repair people, service people, etc.). Some of that communication will be in writing. So, in my opinion, a bare minimum for the job of manager is an ability to write clearly and understandably, with a minimum of grammatical errors, and to speak in whatever language is appropriate for your community. The problem is that a college education doesn’t guarantee literacy these days, nor does lack of a degree preclude a person from being able to write quite well. So I’d recommend that, along with a resume, you request a writing sample from every candidate. Such samples can be letters written to owners at other properties, demand letters, contracts, etc. Proper communication absolutely is the number one responsibility of any manager.

In larger properties, especially properties with budgets that reach into the millions, a manager with an advanced degree can be very helpful. Managers with accounting or business training are often better equipped to handle complex budgeting issues and collections problems. A candidate with an engineering background may be appropriate for a property where physical plant issues are common, and upkeep and maintenance are a constant daily battle. Either way, remember that a degree does not guarantee competence. Consider whether the degree is a correspondence or online course, as opposed to a degree from a more established institution, like a university or vocational school.

At some properties, especially those in vacation communities, a hospitality degree may be extremely helpful. Owners and guests at condos in resort areas often expect their buildings to operate like hotels, and a manager with some training in hospitality may be able to smooth the transition between a true hotel and an SOC that is trying to provide hotel-style services.

Experience: Your candidates for manager will often run the gamut from greenhorns just stepping up from an assistant manager position, to managers with 20 years of experience in properties all over the world. The amount of experience you require is going to depend in large measure on the size of your property and it’s specific needs. For example, if you live in a small condominium with only a dozen or so units, it would be quite acceptable to hire a manager who has never had their own property, especially if that person has solid experience as an assistant at other, larger communities. Often you can get a quality, up-and-coming candidate at a lower salary who will do an excellent job. In contrast, if you are looking for a manager at a top resort property with hundreds of units, frequent rentals, hotel-like services and a delinquency problem, hiring an inexperienced manager, even at a reduced cost, can end up being a nightmare for the board of directors. If you are on the board, insist that you hire an appropriately experienced person at a reasonable market price (and realize in advance that many of the owners may be shocked by the salaries and demand for quality association managers).

Also consider the special skills that the candidate brings to the table. Are you having problems with employees? Look for a manager who may have worked in those positions (valet, security, front desk) and worked her way up through the system. She may be better able to relate to your employees. Or, alternatively, is your building plagued by seasonal residents who spend countless hours of office time demanding hospitality services? Look for a manager who has worked at hotels, especially one who is an experienced hotel manager. Are your common areas falling to bits due to neglect or developer negligence? Consider a manager with a broad maintenance/engineering background, especially one who has served as a property’s chief engineer. Managing a large, complex property is not a job that can be done by just anybody—it’s often a daunting task (far more involved than understood by people who have never volunteered or served on the board) and requires a lot of specialty training. You owe it to your community to find a manager that suits your needs, rather than settling for the first licensed resume that passes across your email in-box.

Personality: A manager’s personality is also a large aspect of their ability to do a quality job, and is a good reason that at least one board member should interview every candidate, even if a management company is in charge of the property (if your contract with the management company gives the association zero control over the manager placed at the building, and if the manager is a full time employee, you may want to consider adding the right to oversee the position in your next contract). Neighborhoods that have been running smoothly for years, where disagreements are uncommon, may find that a mild, laid back manager is the perfect fit. But such a person would be quickly overwhelmed at a community where owner disputes are a daily occurrence, the staff is disrespectful and lazy and the engineer is allowing the common elements to dissolve. That type of SOC should be looking for a general, a manager with a strong hand who can whip employees into shape, take charge of staff and deal politely but firmly with difficult residents. There’s a huge spectrum between these two extremes, and the only way to tell how a manager will behave is to ask them questions that are designed to evoke thoughtful and complete answers. Consider questions like “describe one situation where you had to deal with an angry owner,” or “have you ever had to manage an employee who wasn’t doing their job properly.” Questions like these can provide insight into the manager’s style and personality, and can give the board a good indication of how that person will handle disputes at the community (or if the person is even competent to handle disputes). Developing good interview skills will go a long way towards avoiding the revolving door of unqualified or inappropriate managers.

Still, even armed with all this information, finding the right manager is often a difficult task that may take several attempts to get right. Don’t be afraid to insist that your management and staff perform at a high professional level, and if your owners and board are unhappy, insist that a change be made. Even more than the management company you may hire, your on-site manager is the most important aspect of any community, and the quality and competence of that single employee will often make or break the experience of living in your neighborhood. So be prepared, make good choices, and good luck!

Deadbeats, Revisited–Further Options for Dealing With Non-Paying Owners in a Co-op, Condo or HOA

Thursday, March 11th, 2010

In an earlier blog I reviewed some of the options available to shared ownership communities (SOCs–condos, cooperatives and HOAs) when owners aren’t paying their maintenance dues. In that article I dealt mostly with Florida law, because the question came to me from a Florida homeowner, although the concepts are universally applicable. This time, however, I want to look at the Uniform Code (the Common Interest Ownership Act), which is law in about 25 states, and also touch on a couple of other options that are available to SOC boards.

First, here’s some information on uniform laws. Uniform laws are model statutes written, generally, by the National Conference of Commissioners on Uniform State Laws, in an attempt to standardize laws across the United States. The idea is that it makes laws more stable and understandable to more people, and it also ensures that court decisions between jurisdictions have some relevance to other states.

You can skip to the next paragraph if you’re not interested in the nitty-gritty of the legal issue, but this might interest some: there are two main court systems in the US–the federal system, which governs laws created by the federal government, and the 50+ state systems, which govern laws created by the states. This, by the way, is a huge oversimplification, but civil procedure is a year-long class in law school, so we have to make do. Only certain activities are governed by the federal government, usually those that are specifically laid out in the Constitution, and most often those issues which affect “interstate commerce”. Everything else is reserved to the states. Most crimes, for example, are state law issues–only certain larger crimes which cross state lines become federal issues for a federal court (ie, when a kidnapper drives from Kansas to Missouri). When a court makes a decision interpreting a law (and that’s what courts do–interpret laws written by elected representatives) that decision becomes precedent which is used by future courts in making their own rulings. But courts give a lot more weight to decisions within their own system–a court in Florida will consider a decision from a court in California, but it won’t be totally determinative, particularly because their laws are often so different. So the idea of Uniform Laws, overall, is to ensure that laws between the states are very similar, so that court decisions are far more consistent and precedents in other jurisdictions can be used by various courts.

In any event, in this case the laws we’re discussing are the Uniform Common Interest Ownership Act (UCOIA), an attempt to standardize laws for condos, co-ops and HOAs among the states. New Neighborhoods co-author Gary Poliakoff is one of the writers of this law. We deal with the uniform code quite a bit in the book, and it pulls ideas from laws in various states around the country to attempt to produce a uniform, go-to legal system for SOCs.

So what does UCIOA say about dealing with deadbeat owners?

Section 3-116 of the Act states that the association has a statutory lien on a unit for any assessment levied against the unit OR fines imposed against the unit owner. This is a significant change from many state laws which do not include fines among lienable offenses. Now, some of you may be worried that a board could simply levy unreasonable or unfair fines against any owner they don’t like, putting a lien on their unit when they don’t pay, but most state laws prevent this type of action, requiring fines to be approved by a committee of owners that are totally unrelated to the board. And also realize that if an association cannot file a lien over a fine, fines then have very limited value. Why would anyone pay a $100 fine if the association can’t effectuate the fine? Is the association going to sue the owner in small-claims court? (The answer–yes, your association certainly should, for exactly this reason, and that’s discussed a bit below). In any event, UCIOA allows liens for unpaid assessments and unpaid fines.

Under UCIOA, liens are automatic. The association doesn’t have to pay an attorney to file a lien–the fact that the declaration of the association is publicly recorded constitutes notice and perfection of the lien. If you don’t pay your bills, there is automatically a lien on your property. A boon to associations, making the job of collections dramatically easier, which is critical for the health of SOCs. The lien is superior to every other lien except primary mortgages, tax liens or liens recorded before the documents were recorded (which would be extremely rare in non-converted communities). The association must enforce the lien within 3 years, or it goes away.

Next the Act talks about enforcement of liens. It essentially says that liens are to be foreclosed upon just like any other real estate lien, subject to the laws of the particular state. Interestingly, it also allows that, in co-ops, if an owner doesn’t pay their assessment that owner may be evicted. The statute also specifies that the debtor is liable for any deficiency in the ultimate foreclosure sale (ie, if the debtor owes $100,000, and the property sells for $50,000, the owner still owes the association 50 grand).

So the intent of the UCOIA committee was to take the experience of some of the top SOC practitioners in the country and provide tools to solve collection issues faced by today’s communities. These tools are extremely strong–instant liens, liability for all deficiencies and even eviction in certain cases. This acknowledges the reality that shared ownership communities are based on the concept of shared expenses, and any owners that don’t share those expenses are not only letting down their neighbors but putting the entire neighborhood at risk.

Also important to understand is the concept that, even if the association forecloses on a unit and sells the property, the owner is still liable for any assessments that remain. How does the association collect? Through a lawsuit. This is where collections can get extremely expensive, and where boards need to make decisions that balance collections with financial realities, as well as the deterrence value provided by such lawsuits. Note that this principle holds even when a bank forecloses on a property. Many states have a safe-harbor provision stating that a bank is only liable for a tiny percentage of unpaid maintenance. However, even if the bank forecloses on a property because that owner hasn’t been paying their mortgage, the debt to the association is still valid! Any maintenance left unpaid by the owner may be collected by the association, through a traditional lawsuit.

Now, here’s the catch. Lawsuits are extremely expensive. Most assume they’re expensive because lawyers are crooks, but that’s not really accurate, as anyone who has tried to file a lawsuit on their own can attest. To file a lawsuit, you have to write a complaint against the defendant. A complaint is a document that lays out, in detail, why you believe you are owed money, and the exact specifics of the harm caused to you. Complaints are usually 5-10 page documents, and then they need to be filed at the courthouse in person. How long does it take you to write a 5-10 page document? I’m a professional writer, and writing a complaint takes me a minimum of a few hours, because the facts need to be exact. So let’s assume an average of 10 hours to write a complaint against an owner for non-payment of dues. Let’s also assume an average attorney charges $150 per hour (think that’s robbery? Do you have $100,000 of debt from law school? Lawyers charge a lot for the same reason doctors do, and in fact for the same reason IT professionals do–their training is costly and difficult).

So just filing a basic complaint against an owner is going to cost the association around $1500, at a minimum. That’s just to get the complaint written, filed and served. But to do anything else with that complaint requires many, many hours of the lawyer’s time, going to court, filing “memoranda of law” (memos) that argue the case and the law to the judge, and eventually fighting the complaint at a trial. This basic procedure has been around for centuries. You can expect any lawsuit to collect maintenance to cost the association $25,000 at a minimum.

So how can the association possibly file such an action in any but the most egregious cases of delinquency? Some don’t bother, and that’s certainly a valid decision. But consider the very important deterrence value of a lawsuit. If an association never files a lawsuit against an owner to collect dues, why would any delinquent bother to pay? Out of their respect for goodness and humanity? We already know they don’t care about their neighbors, so that certainly won’t work. Consider that, in a very large association, delinquencies can total hundreds of thousands of dollars. If a single $25,000 lawsuit, even over a small amount of money, can convince other owners to avoid the fight and pay their dues, that lawsuit has paid for itself tenfold. So the decision to file a collection lawsuit is not only guided by the amount of money owed, but by the deterrence value of suing the owner. Of course, in a small community with few delinquencies, filing a lawsuit probably won’t make sense. But for big properties, the board needs to consider the big picture.

Realize also that the association may be able to file a lawsuit in small claims court if the amount due is small enough, and that is almost always worthwhile. Small claims courts are the only courts in most states where a corporation may represent itself (without a lawyer), and the costs, other than time, are minimal. Small claims lawsuits to collect maintenance are a great option for smaller properties or when only a small amount is owed. Small claims lawsuits are also a great solution to collect fines, which are nearly always limited to small amounts by statute.

Whew! That’s a lot of information in one blog, I hope you found it useful. As always, please send any questions or blog ideas to info@newneighborhoodspublishing.com.

Seasons Change–Dealing with Transient Owners or Renters in a Condo, Co-Op or HOA

Tuesday, March 2nd, 2010

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.