Know the moves. Chess involves a finite number of pieces, and the basic moves are easy enough to learn. As a board member, the “pieces” and moves at your disposal are much more numerous and complex. You will need to understand the moves available to you under your association’s governing documents. You’ll also consider what the association’s budget can support, the politics and dynamics of the community, options presented by vendors, and advice from attorneys, engineers, accountants and management.

Act offensively. In Searching for Bobby Fischer, the young protagonist, Josh, took lessons from a classically trained chess master who counseled his young prodigy to protect his queen. Josh also played speed chess in the urban park by his house, where the seasoned players moved the queen off her space earlier in the game – and urged Josh to do the same. The queen is a powerful piece, but she can’t work her magic sitting on her space. Associations experience a similar tension between proactively addressing matters and responding to, or defending against, issues after problems occur. Whether anticipated or not, you will inevitably have problems to address as a board member. Even so, you must undertake the association responsibilities entrusted to you by the membership, and you must get in front of problems before they overtake your community.

Maintain your game face. My six-year-old son hasn’t yet beat me in a chess match, though I expect his skills to soon surpass mine. One advantage that I currently have over him is my ability to maintain composure when he’s got me on the defensive. He melts when his plans are foiled, and his whole game is noticeably affected. Sometimes, he lays his king on its side and gives up. Board members who can maintain their composure under pressure retain the ability to make informed, rational decisions and work their communities through tough situations. Getting angry is certainly not a good game face for board members. Similarly, board members don’t put their association in the position for a “win” if they give up, walk away, or ignore issues that require attention.

Play your endgame. As with any game worth playing, someone usually wins at the end of a chess match. Community association decisions don’t necessarily result in winners or losers, but the decision itself should at least signal an ending. Too often, boards mull over issues well beyond the time that a decision could have occurred. Boards must make reasonable, informed decisions in the best interest of their associations. The key to this is that the board must decide something. Deferring decisions usually only delays the inevitable – and doesn’t offer the board important legal protections such as those available under the business judgment rule.

If you approach association business like a game of chess, you can keep your association in check - which means a "win" for your community.

• The association is guaranteed only six months of assessment fees per collection account turned over. Yes, six months! Given that many delinquent accounts are associated with a public trustee foreclosure at some time, you may receive no more than what you would already obtain through the collection of your six month super lien. Why pay a premium for something that you are certain to obtain without purchasing insurance?

• The collection of any additional debt occurs through the use of a collection agency. If they cannot collect, the files are moved to a collection attorney who forecloses. How do you feel about foreclosing against all homeowners who fail to pay their assessment fees? The fallout in your community related to utilizing this tool of last resort could be damaging. In addition, have you considered that collection attorneys utilizing foreclosures as a consistent first option could lead to legislative prohibitions or caps on an association's right to foreclose in Colorado? We have seen abuses in the use of the foreclosure remedy resulting in caps and prohibitions in other states.

• You've heard that the automatic advance of six months of assessments to the association is a great tool to deal with the difficulties associated with obtaining FHA approval. However, what will happen when judicial foreclosures are filed for all accounts turned over under this program? If you guessed that several homeowners may file counterclaims against the association, you are 100% correct! To make matters worse, it could spur additional litigation by homeowners that may potentially disqualify the association from obtaining FHA approval.

• Last but not least, if the insurance company does not recover 100% of the outstanding assessments, the insurance may only pay up to18 months of assessments. What if there is an action to collect 36 months of delinquent fees and the entire balance is collected save for a few hundred dollars? Does that mean that the association receives only 18 months of assessments? Does the association receive late fees and interest collected? Does the insurance company or collection attorney pocket the rest? Does the association have any control over the foreclosure once it is filed and does it have the ability to reasonably resolve the dispute with the homeowners? These are some important questions to ask.

Although the G.A.P. program may make financial sense for a small number of associations, an association has a fiduciary obligation to consider the potential pitfalls, real financial costs and risks before selecting this option. At a minimum, make sure to ask a lot of questions and discuss alternative collection options with your current attorney.

What about my CD or IRA?
Certificates of Deposit (CD) become inactive five years after the date of maturity if your financial institution is unable to find you. 

If my account “sits” collecting interest or dividends, isn’t it still active?
No. Even if interest or dividends are automatically deposited into your account it is not considered active unless you have contact with the financial institution or business.  To keep an account active, you must contact the financial institution, insurance company or other business by phone or mail, or just cash or deposit a check in the account.  A financial institution or business may even cross-reference an inactive account with an active one to keep it open. (Emphasis added.)

Is the State of Colorado holding any of your association’s funds? Have you previously dealt with funds turned over to the State of Colorado? Let us know what you’ve learned about how to avoid this situation, or how the situation resolved.
 

Elect board members who are qualified. Many associations request written candidate profiles from any person interested in serving on the board. Candidate questionnaires can provide helpful information to owners. Questionnaires or profile forms may ask why the member wants to serve on the board and what special qualifications he or she would bring to the position. Boards with a mix of experience can help to ensure perspective on the issues and good business decisions for the community. Members should also have an opportunity to ask candidates questions about their qualifications prior to the election.

Protect your association’s assets from board members and managers. No association should grant bank account access solely to one board member or the manager. Boards can protect their associations’ assets by implementing check signing policies that require at least two signatures for all checks. Boards may also limit who is authorized to sign checks. Proper D&O coverage provides additional security for association assets. Some boards ask whether they can conduct background checks of candidates. In these times of quick online access to background information, such an action seems appealing. However, before implementing any background check policy, a board should consider whether this approach provides relevant, meaningful information on the candidate, creates a false sense of security, or could lead to slanderous or libelous comments about candidates.

Establish a code of conduct for board members. A board member’s failure to follow a code of conduct, in itself, will not typically disqualify the director, but it could provide compelling grounds for initiating the board member’s removal. If a director knows that removal proceedings will result from a breach of the code of conduct, the director may have added incentive to act within the bounds of the code—or not seek the board position from the start.

Offer board member education resources. Board member volunteers do not always know all of the laws and requirements that control their actions. Fortunately, professionals, such as community managers and attorneys, can direct and advise board members to help them fulfill their duties. In addition, helpful resources exist to give board members an overview of their responsibilities and how to govern the associations they serve. Early attention to educating the board can go a long way to protect the association and help ensure good governance and informed decision-making.

Community association board members come from different backgrounds and professions. Each director chooses to run for election and sit on the board for his or her own reasons, which may range from a desire to give back to the community to pursuing a personal agenda. By establishing policies that give owners information about candidates up front, seek to protect association assets, and guide board action, your community can minimize – and, hopefully, avoid – the problems associated with poor leadership. If a board member falls short of his or her duties to the association, the members ultimately hold the keys to corrective action in the form of their power to remove a director.

A ledger should reflect the amount and type of payment that has been made by a homeowner.

The date associated with the payment should reflect the date the payment was received. This will ensure that if a payment is received late it is accurately reflected on the ledger as to when it was received, not just posted, thereby allowing a homeowner as well as a court to understand when and why the Association charged a late fee.

A ledger should have a beginning balance and should ideally run from the date the homeowner took title to the property through the current date.   A ledger should also have a running balance that is easy to understand based on the charges and payments made.  The running balance should be next to every entry made on the ledger, not just at the bottom as a total due.

A ledger should reflect the correct name of the record owner or owners of the property as well as the property address and any mailing address provided to the Association by a homeowner.

If possible, a ledger should have legal fees and charges that have been incurred by the Association when a homeowner’s account has been turned over to its Attorney for collections. 

Ledgers are a fundamental aspect of association governance, and good ledgers can help make for great collections!

Here are just a few of the interesting points made in the Annual Report: 

● In 2011, the Office received 8,037 HOA registrations which covered 838,211 units. 

● The Office estimates that roughly 2 million Coloradoans live in an HOA.

● During 2011, the Office received 3,053 inquiries and complaints. “The communications varied from questions regarding HOA registration to detailed questions regarding particular situations in HOAs.”

● As of December 15, 2011 – “The Division received a total of 478 Complaints and hundreds more inquiries and questions regarding HOA living and board procedure.” 

● The major inquiries to the Office were as follows:

○Inquiries regarding the rights and responsibilities of an HOA or a homeowner under CCIOA;

○General inquiries regarding HOAs and HOA living;

○Questions regarding the Office’s registration process and the new registration law;

○Requesting contact information for an HOA or manager;

○Queries regarding whether their HOA was registered with the Division of Real Estate;

○Questions regarding how to receive information pertaining to HOA financial records;

○Questions regarding how to receive HOA covenants and other governing documents.

● Manager complaints constituted 32.8% of all complaints received.

● “The most frequent complaint types filed against managers mirrored those pertaining to HOAs to include access to records; transparency and communications, not communicating with homeowners; harassment and selective enforcement of covenants. There were a few complaint types that were unique to managers which were the following: managers controlling HOA boards and making decisions that are appropriate for the HOA board to make; managers manufacturing delinquencies; aggressive collections, and allegations pertaining to the unauthorized practice of law.” 

● Failure to produce records constituted 17.11% of all complaints received.

● Section 317 of CCIOA (Association Records) was the most frequently implicated statutory provision in the complaints. 

● Transparency constituted 16.67% of all complaints received.

● “What we discovered was that the complaints that we received primarily involved the failure to follow corporate governance rules and procedures of the HOA; the transparency of the board of directors, particularly as it related to the finance of the HOA; and harassment and bullying of homeowners by the board of directors and management company by arbitrary fining, preclusion from providing input into the associations’ affairs, and verbal harassment. These complaint types were much more serious than the aforementioned three P’s because they substantially interfered with a homeowner’s ability to enjoy his property and to have avenues of democratic participation in the HOA to remedy their issues.” 

As I mentioned, these are just a sampling of the points made in the report. Whether and how this Report will be used by legislators or regulators during the 2012 legislative session is currently unclear. However, CAI’s Colorado Legislative Action Committee (“CLAC”) will remain vigilant and proactive in addressing legislative and regulatory initiatives relating to HOAs. 

Here are some facts about our cuddly friend the Western Tiger Salamander:

● The Tiger Salamander is the only native and documented amphibian to be found in all 64 counties in Colorado

● The Tiger Salamander has a prehistoric presence in Colorado – fossils have been found in the Snowmass Village Ice Excavation

● Three Tiger Salamander subspecies call Colorado home 

● Adult Tiger Salamanders hibernate during the winter

● The estimated lifespan of the Tiger Salamander in the wild is 15 to 20 years

To learn more about the Tiger Salamander and this campaign, check out Colorado For The Tiger Salamander on Facebook.

Oh and by the way – we’ll continue to focus on and keep you updated on important HOA legislation as it is introduced and proceeds through the legislative process. After all, HOAs are our priority! 

Following the meltdown of the real estate market, HUD undertook an overhaul of the requirements that condominium associations must comply with in order for their condo projects to become FHA certified. This certification makes it possible for some purchasers of units in those associations to qualify for FHA-backed loans. 

Understandably when tightening the certification requirements, HUD was attempting to shore up the FHA insurance program for mortgages on condominium units by ensuring that the condominium projects they were certifying are fiscally sound. However, HUD failed to obtain industry input prior to making sweeping changes to the certification requirements. Had HUD taken this essential step, they would have found out that they were essentially tanking a portion of the condo market in the United States at a time when the federal government was desperately trying to get the housing market back on track.

As a case in point, last summer HUD implemented a Project Certification which requires an “Authorized Homeowner’s Association Representative” to certify that:

“1. They have reviewed the project and it meets all State and local condominium laws and all FHA condominium approval requirements thereto applicable to the review of condominiums;

2.  To the best of his or her knowledge and belief, the information and statements contained in the application are true and correct; and

3.  The submitter has no knowledge of circumstances or conditions that might have an adverse effect on the project or cause a mortgage secured by a unit in the project to become delinquent (including but not limited to: defects in construction; substantial disputes or dissatisfaction among unit owners about the operation of the project or the owners association; and disputes concerning unit owners, rights, privileges, and obligations). The submitter understands and agrees that the submitter is under a continuing obligation to inform HUD if any material information compiled for the review and acceptance of this project is no longer true and correct.” 

While many board members may not have the knowledge or information necessary to execute this Project Certification, insult was added to injury when HUD imposed the following associated penalties: “Title 18 U.S.C.. 1014, provides in part that whoever knowingly or willfully makes or uses a document containing any false, fictitious, or fraudulent statement or entry, in any matter in the jurisdiction of any department or agency of the United Sates, shall be fined not more than $1,000,000 or imprisoned for not more than 30 years or both. In addition, violation or this or others may result in debarment or civil liability for damages suffered by the Department.”

Given the requirements of the Project Certification and associated penalties, HUD has created a built-in barrier to certification for many condominium associations. In addition, one has to question whether HUD is attempting to get entirely out of the mortgage insurance market for condominium units. . .

Of course, certain things are dictated by law, but more often than not, your documents spell out the detailed issues that aren't specifically addressed by statute. Your documents - your Declaration, Bylaws, Articles of Incorporation, Rules, and Policies - dictate how your association must respond to various situations. If you want to hold a special meeting - look to your Bylaws. If you want to know how many directors you need to have - look to your Articles of Incorporation and Bylaws. If you want to know whether you are responsible for maintenance - look to your Declaration.

Unfortunately, some documents can be awful.

Even if your documents do not contain obvious problems, time passes and the laws governing associations evolve, rendering documents that were once useful and compliant obsolete. Most every association will eventually need to amend and restate their governing documents, whether due to obsolescence or simple bad drafting. If your association is looking to fix bad documents, answer the following questions and discuss them with your legal counsel:

• When was the association created? If it was before July 1, 1992, does the association want to subject itself to the complete Colorado Common Interest Ownership Act?
• What in your current documents "doesn't work"?
• Have your documents caused legal problems in the past?
• Are there conflicts between the documents that require resolution?
• Are there provisions in your documents that are no longer legally enforceable?
• Are there conflicts between how your association operates and the requirements of the documents?
• How do you want your association to operate?
• Are you financially able to amend your documents?
• Are you prepared to undertake the work required to obtain approval for amended documents?

The complete amendment and restatement of your governing documents is time consuming and expensive. It can, however, help you avoid liability caused by the conflicting, confusing, and improper provisions that are commonly found in older documents. It can also help your association's daily business flow more easily, in a manner that reflects modern technology that was not contemplated thirty years ago.

In 2010, Congress created the Consumer Financial Protection Bureau (CFPB) to serve as the nation’s “cop on the beat” to protect consumers from harmful financial products. Officially opened for business on July 22, 2011, the CFPB is now responsible for enforcing most federal financial consumer protection laws.

CAI’s members have a keen interest in the development of CFPB’s rules and regulations that could affect community associations. As a new federal agency, the CFPB is still working to define its approach to protecting consumers from abusive financial products and helping to ensure consumers have the right information to choose the financial products and services that will best meet their needs. While the CFPB’s authority extends from checking accounts to credit cards to payday loans, it also has significant authority over federal housing policy, mortgage lending standards and the home buying process.

As noted, the CFPB has special authority over mortgage lending standards and real estate closings. The Dodd Frank Act gave the CFPB the responsibility of enforcing the federal Truth in Lending Act (TILA), a powerful consumer protection law. As the federal enforcer of TILA, the CFPB will establish and enforce mortgage lending standards that all lenders and housing market participants must follow.

Congress also transferred rulemaking and enforcement authority under the Real Estate Settlement Procedures Act from the Department of Housing and Urban Development to the CFPB. The bureau is in the process of updating real estate closing disclosures and real estate closing forms.

This combination of authorities means the CFPB sets the standards that govern almost every aspect of the mortgage lending and closing process.

CFPB is unique in that Congress granted the bureau the authority to expand firms under its supervision by regulation. Given the role of community associations in our nation’s housing markets and the authority of associations to foreclose as a remedy to perfect a lien, it is reasonable to expect the CFPB to examine community associations at some point in its review of the housing market.

The CFPB has three ongoing initiatives that can affect how community associations function.

Ability-to-Repay

The first initiative is the CFPB’s work on how association assessments factor into a borrower’s mortgage payment. Under the Dodd Frank Act, all lenders must verify a borrower can afford all payments associated with a mortgage loan, including association assessments. It is the CFPB’s job to write the rules to govern this process, which could include requiring associations to forecast assessment increases and the likelihood of future special assessments.

Transfer Fees

The second initiative CAI is monitoring is the CFPB’s review of transfer fees in community associations. While the bureau has not signaled that it intends to restrict mortgages in associations with a transfer fee, it is studying the use of transfer fees.

Mortgage Complaint Portal

An important new consumer protection developed by the CFPB is an easy-to-use website for homeowners to report mortgage fraud, abusive lending practices and housing discrimination. This will significantly improve consumer protection for homeowners and allow the CFPB to keep track of new mortgage products or any new market abuses. The website will also be a means for disgruntled residents to air complaints against associations. As the CFPB has announced its future rulemakings will be influenced by the nature of complaints it receives through this system, associations should be prepared to respond to CFPB inquiries and work cooperatively with the bureau in resolving legitimate consumer and homeowner complaints.

Because of its potential impact on community associations, CAI has added the CFPB to our Mortgage Matters program. CAI is working to protect homeowners in community associations and to ensure access to fair and affordable mortgage products for all current and potential community association residents. You can follow our work and share your thoughts at www.caimortgagematters.org.

HB 1057 would also require that homeowner’s insurance policies “. . . must include coverage for additional living expenses. This coverage must be available for a period of twenty-four months. . .” The bill further sets standards for covering lost contents of a home in the event of a total loss.

We’ll keep an eye on HB 1057 and will provide with you with updates of interest as it proceeds through the legislative process. 

2.  During the first year the HOA Information Office has been in existence, staff has "spoken to more than 2,000 people who have had questions pertaining to their HOA, HOA registration, or who have lodged complaints against HOAs and/or management companies."

3.  "As of December 9, 2011 the Division of Real Estate has received 477 complaints." 

4.  The major categories of complaints the HOA Information Office received were:  records and transparency issues (17% of complaints); boards and/or management companies failing to follow governing documents (14% of complaints); boards and/or management companies not addressing or listening to homeowner concerns (13% of complaints); boards and/or management companies not performing maintenance/upkeep of common areas (12% of complaints); harassment and/or discrimination of homeowners (11% of complaints).

4.  "The majority of the complaints came from the Front Range, but Colorado Springs and Aurora had the most complaints."

5.  "We also noticed a trend that most of the complaints came from low income mid-rise condominium associations and was surprised to see that large single-family home communities did not have many complaints." 

To review all of the data provided by DORA, check out the summary in the Colorado Real Estate News.

We'll provide you with highlights on the data contained in the summary soon.  Stay tuned!

SB 024 is certainly contrary to the philosophy of CCIOA that members have a right to attend and observe the work committess are carrying out on behalf of their communities. If SB 024 is passed and ultimately signed into law, it will be interesting to see if this provides a precedent for a similar revision to CCIOA.