I understand that the elected Board members are the only persons able to make motions and vote on them at a "Board Meeting." Is it true that at a "Membership Meeting”, either Annual or Special, that the members have the right to vote on issues affecting them, such as election results, budget proposals or even reversing or rescinding actions the Board may have taken?

In short, the association members are not just an audience to the Board at such "membership" meetings, it is actually their meeting Chaired usually by the President of the Board with all the rights to vote and make and second motions.  Am I correct in this assumption?

Answer:

You are correct that the issues which are discussed and voted on at meetings of the board of directors are subject to discussion only by board members. However, the Virginia Code does allow homeowners to be present and there must be some time allotted at each such meeting for owners to address the board about any issue pertaining to the association.  This is generally referred to as the “owners forum.”  Time limits may be imposed.

The manner of conducting annual and any special meeting of members/owners are largely dependent on the provisions of the Bylaws for your particular Association. For example, in almost all cases the Bylaws will provide that the members have the right at the annual membership meeting to vote for election of the Board Members whose terms are expiring.  Also, together the Declaration and Bylaws likely will set out what powers the Association has as a whole, and which, if any, of those powers can be exercised by the members exclusively, rather than the Board.

Unlike Board meetings, there are no hard and fast rules about how the agenda is developed, what the level of comment and discussion is to be allowed from the individual members and whether there are votes taken on those items. You are most likely to find information related to Board and Member meetings in your Bylaws and suggest you start by carefully reviewing those provisions. Also you may find that your Bylaws provide that your meetings are governed by Roberts Rules of Order which is the internationally recognized authority on the conduct of meetings of all types of organizations. The Virginia Code does limit comments by members at these meetings during the owners’ forum to items appearing on the agenda, and, again, members may be given a time limit.

Unfortunately, there is no "per unit" or "safe" amount that you would look for in the Association's financials, nor is there any particular formula to use. The amount which should be set aside for long-term maintenance may be drastically different for each different Association, because all Associations have very different maintenance needs. For example, a homeowner association with a community clubhouse and pool will have much higher common area maintenance needs than a homeowner association with no common areas other than a sign at the front of the neighborhood. In the world of condos, there are generally more "common" items that are paid for by the Association than would be found in an HOA, but every condominium regime is structured differently with regard to which portions the owners pay for and which portions the Association pays for.

Notwithstanding the foregoing, you should obtain and carefully inspect the most recent reserve study for any Association you're interested in buying into. Both the Condo and POA Acts require that all Associations perform a reserve study at least once every 5 years, and that they re-visit the results of that study at least once every year. The reserve study is supposed to show a breakdown of all of the long-term common area maintenance needs of the Association, and then give a suggested amount which should be collected from the owners each month so that there will be no large or unexpected special assessments for maintenance in the future. If you find that the Association has no reserve study, that's a warning sign that the Board is not keeping track of reserves and maintenance responsibilities like they should be. If you do obtain a reserve study, then you can compare the findings in that reserve study with the financial records of the Association to see if they're staying "on track" with how much they're supposed to be collecting and saving each year.

Generally, you are not able to get access to financial records or reserve studies for a condo association until you receive what's known as a "resale package." And you generally do not obtain a resale package until after you've signed a contract to purchase a condo unit in that association. From the date you receive the resale package, you only have 3 days in which to review the package and cancel the contract if you see something you don't like. Thus, there is a very narrow and specific window of time during which you can obtain and review the information needed, and to make a decision on what to do. The details of resale packages for condos is described in Virginia Code Section 55-79.97.

Dear Managers and Board Members,

                             UPCOMING EDUCATIONAL LUNCHEON

          Please take note and mark your calendars for an upcoming educational luncheon which our Community Association Law team is presenting for CAI Chapter on May 26, 2009 (Southside) and June 16, 2009 (Peninsula). The topic is Due Process Hearings. We will be talking about the purposes for them, preparing for them, conducting them and enforcing the results. This is going to give you practical pointers from our experience in dealing with this excellent tool for rules and covenant enforcement when done correctly.  We hope to see you there. You can register using the attached form.

                             VA AND FHA LOANS FOR CONDO UNITS

          Also, we want to take the opportunity to tell you that there are some condominium communities which have documents which do not comply with VA and/or FHA regulations which impose requirements for declarations and bylaws. This can be corrected by amending the documents. We have done this for communities within the past year where sales were stalled and the sales prices were in range for VA and FHA loans. This is important for communities which are still under developer control or have not been out of developer control for more than a year.  Without the proper provisions, unit owners in these communities will be unable to refinance or sell their units via VA or FHA loans which have become popular again in our new home lending environment. We have “renovated” several sets of documents within the past year so that they do comply and can get project approval. Please let us know if you would like a review of your documents after which we would provide a letter outlining any recommended changes. If the project has been in unit owner control for over a year then “spot loans” should be available via FHA and VA without document amendments.

With best regards,…… and please visit us at www.vahoalaw.com.

                             The Community Association Law Team

                             Michael A. Inman

                             Jeanne S. Lauer

                             Steven L. Lauer

                             Gregory J. Montero

Q.  I am the President of a 6-unit condominium and recently one of our owners said we are required to do a Reserve Study. Does VA law require the board to conduct a reserve study or just to have a reserve? If yes, how often? We are a small association with minimal maintenance and common property. We'd rather handle this ourselves but we obviously also want to follow the law.

A.  Thank you for bringing up this topic – it is quite timely as you will see.  Further, even though you are a small condominium association, the Association is probably responsible for replacing almost all components of the building(s) which are of significant value to the owner, so your reserves are as important as any larger association.

Both the Condominium Act (§55-79.39 et seq.) and the Property Owners’ Association Act (§55-514.1 et seq.) require that Associations conduct a reserve study at least every five (5) years to determine the necessity and amount of reserves required to repair, replace and restore the capital components; review the results of that study at least annually to determine if reserves are sufficient; make any adjustments the board of directors deems necessary to maintain reserves, as appropriate; and provide a copy or summary of the reserve study report to prospective purchasers.  Since these provisions went into effect on July 1, 2002, the last possible date that an association can do the study and be in compliance with the law was July 1, 2007.

The study is restricted to components of the Association property which are to be replaced by the Association according to the documents.  This is usually just common elements (such as streets, community buildings and recreational facilities), but it can include portions of limited common elements or units if the documents so specify.

While the law does not specify who must conduct the reserve study.  We strongly recommend that unless your Association truly requires only minimal replacement of common facilities that you have the reserve study done by an independent architect or engineer. 

A reserve study typically consists of three parts:

• Components.  The estimated replacement cost, estimated remaining life, and estimated useful life of each capital component or item, whether or not a part of the common elements, for which the association has the obligation for repair, replacement or restoration and for which the board of directors determines funding is necessary.

• Funding.  The current amount of accumulated cash reserves set aside to repair, replace or restore the capital components and the amount of the expected contribution to the reserve fund for each fiscal year.
• Procedures.  A general statement describing the procedures used for the estimation and accumulation of cash reserves and the extent to which the association is funding its reserve obligations consistent with the study currently in effect.

If inadequate funds are set aside, members could claim the board is negligent in its fiduciary duty to be prepared to replace Association assets which become obsolete or fail to perform their function; that is, to protect association assets.  With the amount of the detail and knowledge of building materials required, it pays to have a professional prepare reserve studies when you have more than two or three types of items for which you are responsible.

In summary, we strongly urge all associations regardless of size who have not complied with state law to either prepare their own study or hire an independent professional to prepare it for you. In addition to doing the initial reserve study, remember that you are required to have it updated at least every 5 years and to review the study each year to make sure the board is properly funding its reserve requirements.

Also be mindful that the resale disclosure laws require that the study or a summary thereof be furnished to each prospective buyer with each and every resale certificate.  Failure to prepare a reserve study or properly fund it could result in mortgages being denied for home sales and potential liability for Board of Directors.  If you are a professionally managed community, your manager will be able to direct you to a qualified professional to perform the study.  If you are self managed, you may wish to visit the web site of the Southeastern Virginia Chapter of the Community Association Institute (www.sevacai.org) which has the names of sponsors displayed, a couple of which prepare reserve studies.

Section 523 (a) (16) of the Federal Bankruptcy Act excepts from the debtor's discharge all assessments which become due and payable after the debtor's bankruptcy papers are filed. In other words the law allows you to pursue collection of an owner's delinquent assessments if they became due after his bankruptcy filing. The Board should pursue such assessments by exercising acceleration options and record liens every 90 days as provided by the Condo Act and the POA Act. This will give you a secured debt and the ability to foreclose when and if the time is right. In these financially stressful times these rights should be pursued to insure the financial health of the association if there is a reasonable chance of recovery and realization of a reasonable net amount after all costs to collection.

• Troublesome Meeting Issues;
• Common Interest Community Board update by Exec Director of the Board and Ombudsman;
• Legislative Update from 09 General Assembly; 
• Being proactive Difficult Times; and
• Current Insurance Issues.

• Preparing the case;
• Review of requirements;
• Effective hearings; and
• Adopting a resolution on due process.

RESPONSE: This issue is covered by Section 55-79.75 of the Virginia Condo Act. First, it is important to distinguish between unit owner meetings (which generally occur only once per year), and board/director meetings (which may occur regularly throughout the year). 

Subsection (A) of the aforementioned Code section states that all owners must receive prior written notice (via regular mail or hand delivery) of all unit owner meetings. That notice must state the date, time, and place of the meeting, and must also state the "purposes of such meeting," which essentially means that the unit owners must either receive a formal agenda, or at least be given some indication of what will be discussed, decided, or voted upon at the unit owner meeting.

Subsection (B) of the aforementioned Code section applies to meetings of the executive organ (Board of Directors). These requirements are slightly different than the requirements for owner meetings. For Board meetings, the Board must publish notice of the time, date and place of the upcoming meeting in a place "where it is reasonably calculated to be available to a majority of the unit owners." This does not specifically require that written notice be mailed to the owners, nor does it require that owners be provided with an advanced copy of the meeting agenda. 

Subsection (B), in its discussion of Board meetings, later states that an owner can make a written request to the Association that he/she be provided written notice of all upcoming Board meetings, and the Board must honor that request. The unit owner making that request must submit it in writing at least once per year to the Association. 

Further, the information that is being provided to the Board members in preparation of their Board meeting (commonly referred to as a "Board packet") must be "made available for inspection" to the unit owners "at the same time such documents are furnished to the members of the executive organ." This does not mean that each unit owner is entitled to have an agenda or board packet mailed to him prior to each board meeting, but instead only requires that the Association manager (or whoever handles these affairs) make the board packet available for inspection at the same time the Directors receive this information prior to the meeting. Please note, however, that any documents in the Board packet relating to matters that the Board can discuss confidentially in 'executive session' may be lawfully excluded from the packet available for inspection by all unit owners.

Thus, in summary, the Board is obligated to send prior written notice and agendas to all owners in advance of any unit owner meeting. For Board meetings, the Board is only obligated to make a reasonable good-faith effort to publish notice of the meeting to all unit owners (which may be mailing out notice to everyone, putting notices on a bulletin board or in the elevators, posting on the Association website, etc.), unless a unit owner sends the Board a written request, at least once per year, asking for written notice of all upcoming meetings. The Board is not, however, obligated to mail out copies of an agenda prior to its Board meetings, but must honor the request of any unit owner wanting to inspect the board packet prior to the upcoming board meeting.

Dear Board Members, Managers and all Association Aficionados –

Spring is in the air and so is the buzz about a big annual event that we all are waiting for – the SEVA Chapter of CAI’s Community Associations Day, popularly referred to as CA DAY. The Community Association Law Team of Inman & Strickler is pleased to be participating in the 2009 CA Day on March 14 at the Virginia Beach Convention Center.   We look forward to seeing you there. We will have a booth to provide updated information to you and give us chance to get better acquainted. All of our Team members and staff will be present and three of them are involved in presenting educational sessions. We hope to see you there. 

Last week team members Mike Inman and Jeanne Lauer appeared on NPR to talk about C A Day, discuss CA topics with the show’s host, Cathy Lewis, and answer questions from callers.  A replay of the show can be heard by clicking on the following link HearSay.03.05.09.Association.Living or can be downloaded as an iPod podcast by going to the WHRO HearSay website HearSay with Cathy Lewis and scrolling down to the ‘Thursday, March 5 - Association Living’ replay.

The Chapter has set the dates for the Annual Legislative and Legal Update – two all day sessions will be held as follows: Southside – May 15, 2009; Peninsula – June 5, 2009.

We often get inquiries from association members who wonder if the elected directors should be putting more association matters to a vote of the unit owners. They think that it doesn't seem fair that the Board of Directors can decide to eliminate a service or make other important decisions without the owners' consent. So that begs the question: what decisions is the board authorized to make without consulting the members?

We often get inquiries from association memberswho wonder if the elected directors should be putting more association matters to a vote of the unit owners. They think that it doesn't seem fair that the Board of Directors can decide to eliminate a service or make other important decisions without the owners' consent. So that begs the question: what decisions is the board authorized to make without consulting the members?

 As a rule the Board of Directors of a community association has the authority to make decisions on the use of the common area, to set the assessments and to do all things necessary for the operations of the condominium. The Board oversees and has to approve all of these items unless the governing documents specify that the owners have to approve a particular action, such as the election of Directors, amending the bylaws or declaration and selling part of the common area. Generally, the scope of the board's powers is fairly broad.

Board decisions are measured against a standard known as the “business judgment rule”. The Board must ask themselves this question: Is the decision one that a prudent businessperson, having gathered all the pertinent facts, would reasonably make under the circumstances? If the answer to that question is yes, generally the Board’s decision will withstand legal scrutiny.

Suppose that the Board had taken a poll of the unit owners and observed the use of the playground facilities over time. Suppose, further, that the Board, based on the gathered information, concluded that so few residents use the facilities that the expense of maintaining them was an unwise usage of association funds. If so, the board’s decision to remove the equipment is likely to be upheld if legally challenged.

However, suppose your condominium documents specifically require the consent of two-thirds of the unit owners to spend over $25,000 on recreational improvements. In that case, the Board’s decision may be improper if they increase the size of the pool without that consent.

If the Board wants to change a rule regarding the common area (or the common area itself) it should alert owners as early as possible. Not only will this give owners time to comment intelligently on the issue during the owner’s forum at a board meeting, but it also may help them be more accepting of the change.

However, if the Board decides to raise the annual assessment or make a change to the Association’s rules and regulations, unless there is a requirement to the contrary in the condominium documents, then the board can make the change without the owner’s specific approval. To determine the scope of your board's powers, it's important to study your association documents.  You may want to make a list of the matters which are subject to unit owner vote to keep handy for ready reference. It would be wise to have your list either prepared by or reviewed by your legal counsel.

The affairs of your Association would most likely come to a grinding halt if the Board had to consult with the unit owners for every decision that they made. Since the Board, like a town council, is charged with maintaining and protecting your community, they must have the authority to carry out their day to day duties and responsibilities without putting every issue to a community wide vote. Keep in mind that the board members are bearing the same expenses that you are. If you are not in agreement with the agenda of the board you and the other unit owners can, in turn, exercise your power by electing a new Board of Directors at your next election.

You can learn more about this and other association topics at CA DAY which will be held on Saturday, March 14, 2009 at the Virginia Beach Convention Center. This one day event covers a variety of topics and a chance to meet with both vendors and other homeowners in community associations. More information can be obtained by calling the local chapter at 757-558-8128 or checking the CAI website at www.sevacai.org.

QUESTION:

In VA must a condominium association be represented by counsel in VA General District Court or may a board member (non-attorney) represent the association at trial?

ANSWER:

There is a specific statute regarding the ability of a non-lawyer to represent anyone other than themselves in General District Court.  The statute provides:

§ 16.1-88.03. Pleadings and other papers by certain parties not represented by attorneys. —

 A. Any corporation, partnership, limited liability company, limited partnership, professional corporation, professional limited liability company, registered limited liability partnership, registered limited liability limited partnership or business trust, [...] may prepare, execute, file, and have served [...] in a general district court a warrant in debt, motion for judgment, warrant in detinue, distress warrant, summons for unlawful detainer, counterclaim, crossclaim, suggestion for summons in garnishment, garnishment summons, writ of possession, writ of fieri facias, interpleader and civil appeal notice without the intervention of an attorney[...]

 B. Nothing in this section shall allow a nonlawyer to file a bill of particulars or grounds of defense or to argue motions, issue a subpoena, rule to show cause, or capias; file or interrogate at debtor interrogatories; or to file, issue or argue any other paper, pleading or proceeding not set forth in subsection A.

Basically, this statute allows an Association, whether incorporated or not, to file their own warrant in debt or other paper specifically listed in subsection A.  However, if further pleadings have to be filed, such as a bill of particulars or grounds of defense, then legal counsel is required. Filing a response in violation of this provision of the Code can result in default judgment being entered against the Association if it is the Defendant or having their matter dismissed if it is the Plaintiff.

Further, there is no provision allowing for a non-attorney to appear on behalf of an Association to conduct a trial, which would include making an opening statement and arguments to the court and questioning witnesses.

What are the minimum requirements for insurance/fidelity bond for a 10 Unit condominium with $50,000 in reserves and annual receipts $60,000?

Answer:

Thank you for visiting our site.

Your question is a timely one, as the requirements for fidelity bonds were modified by statutory amendments that took effect in 2008.  Specifically, Virginia Code § 55-79.81(B) was changed so that it now reads:

        B. Any unit owners' association collecting assessments for common expenses shall obtain and maintain a blanket fidelity bond or employee dishonesty insurance policy insuring the unit owners' association against losses resulting from theft or dishonesty committed by the officers, directors, or persons employed by the unit owners' association, or committed by any common interest community manager or employees of the common interest community manager. Such bond or insurance policy shall provide coverage in an amount equal to the lesser of $1 million or the amount of reserve balances of the unit owners' association plus one-fourth of the aggregate annual assessment of such unit owners' association.  The minimum coverage amount shall be $10,000.  The executive organ or common interest community manager may obtain such bond or insurance on behalf of the unit owners' association.

Based on the facts provided in your email, I calculate that the blanket fidelity bond or employee dishonesty insurance policy must provide coverage of at least $50,000 (reserves) plus $15,000 (one-fourth of the aggregate annual assessment), for a total of $65,000.

Having a successful transition from developer control to owner control in a homeowners association or a condominium association is not necessarily a difficult process.

Many types of issues tend to arise during this period. Is the developer going to put in the pool that was promised? Why are some of the landscaped areas in an unkept state? Are all dues owed by the developer up to date? One of the most frequent is the issue of warranty repairs. When do they begin and when do they end? That is one question that can only be answered by the applicable state or local law and the board should seek legal counsel on this topic. But having homeowner involvement early in the association can provide those answers and ease the concerns of the owners. Many developers encourage homeowner involvement and training along the way so that the owners are well prepared to assume the responsibility of directing association operations.

Transition is usually accomplished at a special meeting held for the purpose of electing homeowners to serve on the Board of Directors. Once the owners are in control, the real work begins! The only thing that ends at that meeting is the developer's control over the association operations, not his responsibility to it and its members and not his involvement and interest in it. He may still be selling homes and may still retain a seat on the Board.

The newly elected owner board members now have several responsibilities relative to the transition. They must insure that (1) the developer provides the association with any and all pertinent information; (2) the association reviews that information and questions the developer on any vague or ambiguous issues; and (3) the Board develops a strategic plan to go forward from that point. Make sure when electing the Board that you select those individuals who are clearly committed to the entire community and not just a single issue. If you have had an advisory committee during the developer control period, then the members of that committee can bring a great deal of experience and knowledge to the new board.

One of the first steps a new Board should take is an examination of the association's financial situation. It is important for members of the Board, as well as all the owners, to satisfy themselves that while the developer was in control, all income and expenses were properly accounted for. That includes, but isn't limited to, the financial obligation of the developer himself, if any, and aggressive pursuit of delinquent accounts.

All association boards, but especially condominiums, should consider hiring a professional engineer or architect to perform a comprehensive inspection of the property and its physical plant. This will serve two purposes: (1) it will determine if there are any warranty defects that may be the responsibility of the developer; and (2) it will serve as the basis for a repair and replacement reserve analysis. Such an analysis will estimate the useful life of a component, such as a building roof, the projected cost to replace it, and how much money needs to be set aside to ensure that special assessments are not necessary to maintain the association's assets into the future.  This study is required every five years under state statutes in both the Condominium Act and the Property Owners Association Act.

Good legal advice can also be important to the community. The association should retain independent counsel who is well versed in community association law and who can ensure that the new board and the developer abide by their respective legal obligations and commitments.

The following are documents an association should obtain during the transition. This list is by no means exhaustive, but can serve as a checklist to guide you. Keep in mind that jurisdictional requirements may vary in terms of time frames for developer responsibility and specific transition documents.  If your developer had professional management during the development period, you may find that your management has most or all of the following items in its files. The following are required to be provided by statute in Virginia:

1- All association books or records, financial and otherwise, held by or controlled by the developer (or its association management company) along with a statement of receipts and disbursements during the declarant control period.

2- Any and all contracts in which the association is a contracting party.

3- Complete set of site plans and as-built drawings, including detailed measurements and dimensions for any common buildings or amenities

4- Written warranties of the contractors, subcontractors, suppliers, and manufacturers, if any, involved in the construction and/or maintenance of the association's facilities.

5- List of manufacturers of products and specifications used in the maintenance, repair or replacements in or on common areas or common elements.

Copies of any bonds or letters of credit posted with any state or local agency should also be requested.

Throughout the transition process described above, professional management can and should serve as an advisor to the Board, custodian of the association's books and records and the entity to which the Board turns to assist in the development of long-term plans and goals to make sure that a community's early due diligence translates into future continued success and financial stability for the owners. If that happens, all parties involved including the developer, transition board members, future board members, owners, and management will gain great satisfaction in a job well-done.

It does requires open lines of communication and information, common sense, perseverance, and some smart, energetic people who aren't afraid of making a commitment to their community for a couple of years.

When an association is first started, the developer is investing large amounts of time and dollars to construction of the project, its infrastructure and amenities. In order to protect the developer’s investment, the legal documents have provisions built in that allow the developer to exercise control over the direction and processes of the community until a time certain, either a firm date several years in the future or when a certain percentage of units have been sold to homeowners. This means that the developer control period can last a year or so and sometimes years depending on the rate of sale of the homes and size of the community. During that time, the developer's appointees serve as members of the Board of Directors and they have a fine line to walk, since some decisions which are right for the community may result in extra expenses for the developer.

“There’s No Place Like Home” Presented by Relay Electric LLC

Date:               March 14, 2009    

Time:               7:30 AM to 4:30 PM

Location:         Virginia Beach Convention Center

                        1000 19th Street, Virginia Beach, VA 23451

Registration:   For more information on registration please click HERE.

You cannot afford to miss the largest educational conference and trade show in Hampton Roads specifically designed for homeowners who live in community associations. Join us on Saturday, March 14, 2009 and participate in 15 Educational Classes on everything from Swimming Pools 101 to how to get your Association to go “Green.” There will be food, prizes and invaluable information from knowledgeable professionals for community association homeowners.

The Community Association team of Inman & Strickler will be presenting the segment at 8:30 a.m. which focuses on Collections of Delinquent Accounts and will contain a discussion of the unique problems facing associations in today's economy, including suggestions on how to keep your delinquency rate to a minimum. 

Also, Mike Inman, a member of the statewide Legislative Action Committee will speak in a different session on how the effects of last year's massive new law (hb516) has affected associations’ operations as well as new proposed laws in this year's General Assembly. This segment will be offered at 10:15 a.m.

Register before FEBRUARY 27th and get a discount!

Mike Inman has been selected to join an exclusive group of attorneys evaluated by other attorneys who are long time practitioners of community association law and members of the Community Association Institute (CAI). Attorneys selected for the College are those who have spent considerable time writing articles and giving presentations on community association law topics over a period of years.  Mike has been presenting in seminars on Community Association topics for over 20 years and has been a presenter for the Virginia State Bar on the topic of Creating Condominiums in Virginia. He has also written a chapter on community association law for a Virginia State Bar Continuing Legal Education publication: Real Estate Transactions in Virginia. He serves on the Virginia Legislative Action Committee for the Community Associations Institute.

Do owners have the right not to accept transfer of control of an association from the developer? If so, where is that right granted? If we are trying to get the declarant to fulfill his contractual responsibilities and use the transition as a carrot, can we do that?

ANSWER:

Transition is a frequently misunderstood concept. Assuming your association is in Virginia, by transitioning control you gain just that: control of the association. Generally you lose nothing regarding any claims you might have under Virginia law. The laws are different for condos and HOAs. Of course, I cannot speak for what might be contained in any written documents to which you have committed or is set forth in your governing documents. You really should meet with a community association lawyer on this topic - you will get a lot of good info and it really won't cost you that much. You will need an attorney to guide you at transition and afterward.