§       Give past-due accounts to the attorney earlier. Now is not the time to delay sending demand letters, filing liens and suing owners. But first try to work it out.

§       Sharpen your collection tools. Follow your collection policy and use all your tools including late fees, interest charges, suspension of privileges, acceleration of assessments, lawsuits, foreclosures and receiverships.

§       Understand the time value of money. Money in hand today is worth more than money in hand months later. Waive some or all late fees and interest to encourage owners to pay up sooner.

§       Provide all information when you transfer a delinquent account to the attorney. Include the homeowner’s bank accounts, employer’s name, phone numbers and vehicle make and model. This will allow your attorney to better evaluate each case as to collectability and tactics to be used to effect collection at the earliest time. It saves time and reduces your cost.

§       Be proactive. Do not wait for the money to come to you.

A News Release from the Department of Housing and Urban Development

WASHINGTON - The U.S. Department of Housing and Urban Development announced today that it is charging a Philadelphia condominium association with violating the Fair Housing Act for refusing to revise its “no pets” policy as a reasonable accommodation for condominium residents with disabilities who required assistance animals.  HUD's charge alleges that The Philadelphian Owners' Association (POA), which manages the 776-unit Philadelphian condominium complex, required that residents provide burdensome and invasive medical documentation before requests for accommodation would be considered, severely limited access to the complex's facilities for residents accompanied by assistance animals, and failed to address several instances of harassment of residents requiring assistance animals.

The Fair Housing Actrequires property managers, including condominium associations, to make reasonable accommodations to no-pet rules for persons with disabilities who require assistance animals.

“Assistance animals are not pets.  They play a vital role in helping people with disabilities conduct everyday activities and fully enjoy their homes," said John Trasviña, HUD Assistant Secretary for Fair Housing and Equal Opportunity. "Condominium associations have a responsibility under the Fair Housing Act to grant reasonable accommodations when they are needed."

HUD brings the charge on behalf of a resident who alleged that the POA denied her request for permission to have a medically-prescribed assistance dog, threatened her with fines and other sanctions for her failure to comply with the restrictive policy, and did not address her concerns over harassment she had experienced from her neighbors because of her assistance dog.

HUD's charge is also based on the results of a "Secretary-initiated investigation," which HUD conducted to protect the interests of other residents who used or sought to use assistance animals, because the policies suggested systemic violations of the Fair Housing Act that went beyond the allegations of the individual who filed a complaint.

According to HUD's charge, the POA implemented increasingly restrictive and onerous policies over a twenty-year period.  In a new 2011 policy, the POA issued detailed "Instructions for Physicians for Documenting Disability Under the Federal Fair Housing Act," which required exhaustive documentation to support a doctor's opinion about the necessity of an assistance animal, and stated, "it may be necessary for you to testify under oath in federal court about your opinion."  The 2011 policy banned persons using assistance animals from accessing the main lobby, shuttle bus, social rooms, fitness rooms, mail room, and laundry room, and required them to use the service elevator.  HUD's charge alleges that, as a result of the restrictive policies of The Philadelphian, residents with disabilities have been discouraged from requesting needed assistance animals.

The case that is the subject of HUD's charge will be heard by a United States Administrative Law Judge unless any party to the charge elects to have the case heard in federal district court. If an administrative law judge finds after a hearing that discrimination has occurred, he may award damages to aggrieved persons for the damages caused them by the discrimination.  The judge may also order injunctive relief and other equitable relief to deter further discrimination, as well as payment of attorney's fees. In addition, the judge may impose fines in order to vindicate the public interest. If the matter is decided in federal court, the judge may also award punitive damages to aggrieved persons.

Our research in preparation for a recent seminar revealed that out of 897 condominiums in the 7 Hampton Roads cities that once had FHA approval, 742 (82%) of the communities have expired. This is a staggering number. A certification only lasts 2 years.

Have you been asking yourself why you should be concerned about your condominium obtaining FHA and VA certification if you are not planning on refinancing or selling your unit anytime in the near future? Are you a board member wondering why your board should expend Association funds to obtain certifications? 

Everyone needs to be concerned about this issue because the inability to obtaining financing negatively affects everyone in a condominium project, not just the person who is trying to sell or refinance this unit. When an owner is unable to sell his unit because the buyer can’t obtain financing or they can’t refinance, the result is often foreclosure or bankruptcy. Owners can sometimes go many months without paying their assessments before foreclosure or bankruptcy takes place. Lenders are not responsible for the payment of delinquent assessments until they have actually foreclosed on the property. So who pays those assessments? The remaining unit owners do - either by way of increased assessments, special assessments or delayed maintenance and/or replacement of the common elements. Foreclosed units also tend to decrease the appraised value of the remainder of the units. Any one of these scenarios affects the market value of every unit in the condominium.

For further information please contact us by sending an email to joannek@inmanstrickler.com

                     CAI’S VIRGINIA  LEGISLATIVE ACTION COMMITTEE (VALAC)

REPORTS ANOTHER BIG YEAR

The VALAC monitored approximately 50 bills introduced in the General Assembly in the 2011 legislative session.  The following two are the most significant new laws which will affect every day life for those who are running community associations.

1.       General District Court judges can issue injunction orders to abate violations of the covenants and rules….very unique for the judges in those courts.  The education process for the judges has begun and will need to continue. This is a big cost saving to the associations as General District Court is far less formal in its processes than the Circuit Court and cases move much more quickly. 

2.       With respect to resale packages, there have been a couple significant changes in the statutes: Where settlement of a real estate sales contract does not occur, House Bill 2188 decreases from 90 to 45 days the time when a seller of a condominium unit or lot will be responsible for the payment of all allowable fees related to the preparation of the disclosure packet/resale certificate provided by the association. Also the new law provides that all fees, including those costs that would have otherwise been the responsibility of the purchaser or settlement agent, shall be assessed within one year after delivery of the same against the unit owner. 

The Virginia Legislative Action Committee of CAI actively supported both of  these bills. 

For more information on all new laws see the Legislative Action Committee website: www.cai-valac.org and view the latest bill tracking chart under Legislative Alerts and Updates.

            First, let’s address the Board of Directors issues. You say you have a shortage of directors in that there should be five but there are only three. We realize that there must be more to the matter than meets the eye; however, it is likely that you have elections each year. Your present shortage seems to be due to the fact that the current directors will not allow anyone they don’t find appropriate to become a member of the Board by appointment so we urge you to focus on the next election.  Surely there must be others in the community that share your concerns, including those who have volunteered to serve as directors but have been rejected. Perhaps if you organize others in the community who share your concerns, you can, at the time of the election, through persons present in person or by proxies, elect a Board which will be responsive to some of the needs of the community which you have identified. If you and those who are in agreement with you do not feel sufficiently comfortable with interpreting the Association’s documents and determining correct procedures, you may need to seek legal counsel to advise you about these matters so that you can be effective in your efforts to obtain seats on the Board of Directors.

            You state that the Board has hired a manager that has no association management experience. Perhaps you are suggesting that the person has no formal training as an association manager and an insufficient breadth of experience with finances, insurance, elections and so forth, to bring the necessary skills to the table. The Board does have a fiduciary duty to all of the owners to hire competent contractors, including management, to perform their duties in a competent manner based on the needs and size of the particular community. It is a fact that there is not an abundance of community association managers available to fill the needs of the various community associations in the area. A new community association is created almost weekly in southeastern Virginia. Many of them are managed by professional management companies who have managers with portfolios of communities. We cannot tell from your description whether you are utilizing a management company or whether your Board has hired a person who is serving only your community on a full or part-time basis. We suggest you consider interviewing one or more of the local management companies, who can offer qualified managers.   The names of these companies can be obtained from the local chapter of the Community Associations Institute by calling its executive director at 757-588-8128.

            You also suggest that the Association’s finances “are in a mess” and it sounds as if no budget has been passed for this reason. This is indeed a very serious problem and requires immediate attention. Hopefully, your Association has utilized the services of a Certified Public Accountant to prepare tax returns in the past. CPAs familiar with Associations are also aware of the reserve requirements of the Virginia law. You should attend a board meeting and urge your Board of Directors to hire an accountant to examine your financial situation immediately. If your concern persists, you can obtain the financial records of the Association by requesting them under the provisions of the Virginia Property Owners Association Act (VPOAA) and you could seek your own advice from an accountant concerning the state of the finances of the Association. 

            We will assume at this point that your current Directors have volunteered their time to be on the Board of Directors because they are genuinely interested in the welfare of the Association and, perhaps, have a different view of what is needed to accomplish their duties than you do. At the time of each Board of Directors meeting time must be allotted for an owners’ forum as it is required by the VPOAA. During that time period you should express your concerns about how matters are being handled; however, you are not entitled to a response from the Board at that time. Any legitimate questions should be responded to in due course after the Board has had a chance to consider your point or your request. If, after taking some of these steps, your concerns persist and you do you not believe you are getting an appropriate response, you would need to consult with legal counsel to consider your options at that point. 

            We hope that we have provided some suggestions that will help you achieve the results that you seek. 

1.         Establish the annual assessments’ due date and schedule of payments. These may be monthly, quarterly, semiannual or annual, depending on the size of the assessment. This section also should state where to make payments, and list a late fee if the assessment is not paid on time. The community's legal documents may dictate the late fee. In some cases, this might be a percentage of the assessment.   In others, the documents will also require the offending owner to pay for the reasonable costs of collection. When calculating such a fee, the Board of Directors should determine the time and material costs necessary to mail a delinquent letter. These costs may cover any attorney's expenses the association incurs while trying to collect the delinquent assessments.

2.         Establish the procedures to follow when an owner becomes delinquent. Assuming a monthly payment schedule, the Board might take these steps:

·        Assessment is due on the 1st of each month and is late on the 10th.

·        The late charge permitted by your association documents or established by board resolution is added on the 10th of the month.

·        A letter is mailed on the 15th reminding the owner of the delinquency.

·        A second letter is mailed on the 30th reminding the owner again. This letter will state that the association intends to accelerate all remaining payments for the year if the account is not brought current (your documents must contain an acceleration clause in order to do so).

·        A third letter is mailed on the 15th of the next month notifying the owner that the Board has accelerated the payments (to the extent permitted by your documents). This means that you are going to collect all of the assessments that are due for the remainder of the fiscal year. The Board of Directors should send this letter certified return receipt. Payment should be required within 10 days.

·        On the 30th of the second month if the delinquency is significant, the Board should ask its attorney to file a Memorandum of  Assessment Lien" in the Clerk's Office of the appropriate Circuit Court. There is some legal work required in order to file an assessment lien. This document will state the amount of the delinquency and will cause it to affect the title to the property.  An assessment lien must be filed within 90 days from the date on which the assessment became due in a condominium (One year if a Homeowners Association).  If you miss the deadline, alternative legal proceedings would be necessary as to that part of the delinquency.One would be to ask the Association’s attorney to sue the owner(s) for collection.  Legal action may also involve a personal judgment or a foreclosure of the lien for assessments. At this point, the Board should notify the mortgage holder, if any, of the delinquency. Sometimes the lender will pay the delinquency and add it to the mortgage, especially if it is a large amount which could justify the association utilizing lien foreclosure procedures.

3.         Enforcement. With these steps in place you will be prepared to uniformly enforce the assessments. Make sure all of the owners are given a copy of the policy before the Board adopts it, so there will be no misunderstandings.

These steps are not carved in stone, but they are typical. Some associations, for instance, want the first contact to be a phone call. Though telephoning is feasible for small associations, or those with an on‑site manager, it is almost impossible for large associations. Board members should tailor a policy that works for their own association, and they must make sure they follow its steps.

4.         Other methods a Board might use to encourage payment.

·        Withhold services, such as the use of recreational facilities and parking, if the association documents provide for it and set forth a due process procedure.

·        Payment plans and deferred payments. If a Board allows a payment plan it must be uniformly applied and should contain these guidelines:

(i)                The owner must request the payment plan in writing and present a legitimate hardship.

(ii)       Normally the plan should not last longer than 12 months.

(iii)     The payments must equal the current assessment plus a percentage of the delinquency.

(iv)      Any default on the payment plan will result in immediate legal action.

With such options, the Board will be able to work with owners facing financial problems because of illness or job loss.

If your association’s documents do not contain provisions which would allow the association the use of all the “legal tools” available to enforce the collection of past due assessments, you may want to consider amending them especially if you don't have the right of acceleration or recovery of legal fees.  Even though document amendments require the consent of a super majority of the membership votes, since most  majority of your owners are paying their assessments on time, the required consents would probably not be difficult to obtain.

Remember, for proper assessment collection, the Board of Directors should put its policy in writing, make sure every owner is notified of the policy, and enforce the policy persistently and uniformly.

A couple years ago a new state law was passed requiring that associations have an internal complaint procedure once the regulations for such are issued by the Department of Professional & Occupational Regulation.  The state agency responsible for prescribing an internal complaint procedure for all associations has proposed the regulations for it and those regulations are in the public hearing stage.  The regulations are expected to be final soon. It is unlikely that there will be any changes to the proposed regulations at this time so now is a good time to prepare and implement your complaint procedure. 

We have developed a procedure that will fit the needs of most associations however, every association can add features to their procedure so long as they do not contravene the regulations.  Some associations may have procedures in place that need to be reviewed for compliance with the new regulations. 

Please contact us if you wish to proceed with the drafting or review of your complaint procedures.

In an appropriate case an association can file a lien and thereafter foreclose on it.  In the case of a foreclosure, the money that is received typically goes to pay any overdue taxes, the costs of the sale, and the first deed of trust before any money is paid toward the overdue assessments owed to the Association. 

If the property is underwater, this means the Association gets nothing to apply to the overdue assessment for its trouble in conducting the foreclosure.  However, this does not necessarily mean that a foreclosure is not in the Association's best interests where the current owner simply will not or can not pay assessments.  In an extreme case, an Association may want to foreclose simply to get a new owner into the property, hopefully one who will pay assessments on an ongoing basis.

However, there is a 2003 Virginia Supreme Court case that suggests that an Association cannot foreclose unless the sale will bring enough to satisfy the first deed of trust, at least if the foreclosure is done using the "non-judicial foreclosure" provisions of the Condominium Act.  Does this mean the Association is powerless to do anything about the non-payment of assessments, other than sue and try to enforce the owner's personal liability?  Is a condominium lien useless when the unit is underwater?

This question hopefully will be answered by the Virginia Supreme Court in a case called Watergate at Landmark Condominium Owners Association v. Story.  Mr. Story's unit reportedly is worth only $185,000, but he owes more than $300,000 on his first mortgage and $40,000 to the Association in overdue assessments.  The Association wants to foreclose so that a new owner can be placed in the unit.  However, the holder of the first deed of trust has no interest in foreclosing in its own right because Mr. Story is remaining current on his mortgage.   

This case has the potential to have a huge impact on Associations, and you should check back to this space, where we will report the results as soon as they are available.

           Second, you need to reduce your quorum requirement - it is too high and much higher than is normal for your size association. In fact, here's some good news for you - several years ago the Virginia legislature, at the urging of the Community Associations Institute, passed a bill allowing a reduction of the minimum number of members required in the condominium documents for a quorum from 25% to 10%. The legislature was convinced that requiring 25% could result in no annual meeting being held due to lack of a quorum. The statute says that unless stated otherwise in the documents the quorum requirement is 33 1/3% of the members, but the documents may provide for as few as 10% or any greater percentage. You will need to amend your bylaws to reduce your quorum requirement.   This must be done in accordance with your bylaw amendment provision. In any event, by statute, you will have to have the signatures of the owners who have 66 2/3% of the common element ownership in order to amend your documents. Your bylaws may also require a meeting and a vote - this is not required by the statute, but is probably a good opportunity to explain the change to the members and collect signatures. Of course, the proposal should be mailed to all owners to explain it to them and get their consent even if the bylaws don't require such a mailing since you are trying to sell the members on this concept which is in their best interests. This is a tough goal to achieve and all legitimate methods for getting the job done should be employed. You will need the assistance of your legal counsel to guide you through this process and make sure all “i’s are dotted”.

In the meantime, if your current bylaw provision requires a meeting and a vote on amendments, you will need to do an extensive proxy campaign. A quorum for a members meeting can be achieved by having votes present in person or by proxy. Each of your board members will need to get 10 or 20 proxy documents in their personal possession and then determine, about 3 days before the meeting date, whether or not they have enough to convene the meeting and pass the amendment. If not, a last minute campaign needs to be launched to achieve the goal of having a meeting to change the quorum requirement. In any event you must have signatures of agreement from the owners of two-thirds of the common element interests.

If you do not have quorum present at any membership meeting, you may not conduct any business, and votes taken are null and void. Why is the quorum so important? It was long ago determined by experts in meetings of all types that a certain threshold of members of any organization must be present in order to give validity to decisions made by the group. Decisions made by only three or four members of a sizeable organization are highly undesirable. Board meetings are a different matter - these elected officials have a defined scope of authority and are duty bound to look after the best interests of all owners - they also must have a quorum. Typically a quorum for a seven member board is 4 members and proxies are not permitted for board meetings.

We hope this helps you deal with the quorum issue and realize its significance to proper meeting protocol.

In this time of economic struggle, associations can be victims of cash flow shortages due to delinquencies in the payment of assessments, both regular and special.  Realizing that many of our associations would have need of this service at a higher level than before, a few months ago Inman & Strickler became fully engaged in the collection of delinquent assessments, on a contingency fee basis. We have always been  involved in  general litigation and some collection work for associations, particularly special assessment issues, as we have always had trial lawyers involved with our association practice. We have obtained an excellent collections software program and Steve Lauer is heading up this area. 

Currently we are limiting our routine collection practice to the Southside cities, although we will go to court on the Peninsula on any litigation matter other than routine collections.  We invite your calls or emails to inquire about our fee structure and other aspects of our collection practice. 

We all know that these are troubling times for sales of condominium units. The slow sales market for condominiums is further compounded by the fact that available financing options for condominiums have virtually disappeared over the last several years. When owners are unable to sell their units the result is often foreclosure and/or bankruptcy; which, in turn, results in lost assessments that most likely will never be recovered by the association. Lost assessments can often result in special assessments for the remaining unit owners or routine maintenance and capital improvements being delayed. You have no doubt spent countless hours and association resources trying to collect these assessments.

This is where you can help your association insure that there are at least some financing options available to them. The Federal Housing Administration (FHA) is no longer offering the option of “spot loans” for condominiums. A spot loan would allow a lender to finance an individual unit in an existing project that did not have FHA  approval without having to approve the entire project. This option has been discontinued and both FHA and the Veterans Administration (VA) now require the entire condominium project to be approved regardless of whether it’s new construction or an existing project.

FHA and VA both require copies of all of the association’s governing documents and an attorney opinion letter stating that they meet each agency’s lending guidelines. That is where we can help. We will review the Declaration, Bylaws and Articles of Incorporation and recommend any amendments that might be required to bring them into compliance.  We will then prepare the attorney opinion letter and help you and/or your board assemble all the documents required to be submitted to FHA or VA for approval. Many documents prepared during the last decade do not comply because there was not a focus on VA and FHA financing for quite some time as there were other sources of funds which were easier to access.

You can determine if your association is already approved by FHA on the following website: https://entp.hud.gov/idapp/html/condlook.cfm; and by VA at: http://condopudbuilder.vba.va.gov/2.2/frames.html. Keep in mind that FHA approvals are only good for two (2) years so even if your association received FHA approval in the past, that approval may have expired or be about to expire.

Don’t wait until the increased number of foreclosed units makes it difficult for your association to meet its financial obligations. Don’t wait until an angry unit owner approaches your Board because of a sale or refinance that fell through because the project was not FHA or VA approved. We encourage you to discuss this important topic at your next board meeting.

The short answer is that yes, you can be held responsible for a violation of the association's rules and covenants, because you are the owner of the property, regardless of whether or not you've signed something agreeing to be subject to the association's rules. 

You are mistaken in believing that you are not bound by the association's covenants until you personally sign some “paperwork”.  On the contrary, certain governing documents of the association are recorded in your local courthouse to put any buyer on notice that taking ownership of any property within the association will make the owner of any lot bound by all rules, regulations, and covenants of the association.  Thus, any owner is bound by these covenants by virtue of owning the property, not because of any  agreement he signed. 

It is our opinion that registration with the State, or lack thereof, does not detract from the association’s ability to collect regular or special assessments.  The declaration is recorded giving the authority for the association to assess its members.  The declaration is, in essence, a contract between the association and each homeowner.  All owners are relying on the assessments being paid by all to meet the budget obligations of the association.  Administrative issues with the CIC Board should not have any impact on assessment payment or collection and the statute does not make any provision regarding the issue which you raise.

Most HOA declarations contain covenants which require upkeep of the exterior to a high standard by each owner.  Not all owners follow the requirements. Some ignore this requirement, or hire third rate contractors who do a poor job and take months to finish what they start.  The board if directors needs to find a way to get better quality work done by the homeowners and get it done quickly after starting.

It is part of the board’s responsibilities to seek ways to foster an attractive and well maintained community.  We have a couple of suggestions for successful results in dealing with these homeowners. First make personal contact with any owner who is in violation of the covenants or architectural guidelines. Try to find out the reason they have not started the work, or, if it is started but dragging on, why there is a delay in completion. You may find that the owner is not sure of a contractor to call.  You may wish to provide a few names of contractors that you have observed to be competent and reliable. We would caution that you not get in the business of requiring the use of any particular contractors so that you cannot be in a position of being blamed if the owner is not pleased with the recommended contractor.  You should urge the use of contractors who have obtained a contractors license from the State, as this will assure a certain degree of competence and experience, including knowledge of the requirements of the Building Code. This license is different from a business license issued by the City or County.  You might also urge your owners to have written agreements with their contractors which specifically provides for a completion date and a payment schedule.  This will help avoid work delays due to misunderstandings.

If the owner simply delays without any good reason you may have the ability under your declaration of covenants to hold a violation hearing and levy a fine on the homeowner of $10 per day that the work is not done, up to 90 days.  This is often very therapeutic for slow moving homeowners.  If that method is not effective, the Virginia POA Act, and probably your declaration, provides that you can obtain an injunction order from the court.   The court order will require the owner to perform the necessary maintenance in a timely manner and you are entitled to recover your reasonable attorney's fees incurred to accomplish the enforcement of the covenant.  You will find that if you consistently use your enforcement powers, the word will get out that you are doing so and you should have fewer instances of poor maintenance requiring your involvement as a board.

If you need help with covenant enforcement in your community, we will be glad to guide you through the process and take the matter to court as a last resort.