Money in your Pocket: Monitoring Foreclosure Sales

 In an improving economy, the important of monitoring a public trustee foreclosure sales has additional benefits above and beyond making a claim for payment of the association’s super priority lien. As most of you are aware, following the filing of a public trustee foreclosure, CCIOA provides for recovery of up to six months of delinquent assessment fees. For years, the importance of monitoring a public trustee oftentimes had little significance above and beyond making a claim for the super lien and determining the new owner following the sale of the property.

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Service of Process - What is it?

For a court to have authority to make legal decisions and enter a judgment against someone, the court must have both personal and subject matter jurisdiction over that person.  Subject matter jurisdiction involves the court’s ability or power to hear certain types of cases, whereas personal jurisdiction is the court’s power over a particular party.  The court obtains personal jurisdiction over a defendant when the plaintiff obtains proper service of process of the summons and other related documents, including the complaint.  Service of process is the way by which a party receives notice of the initiation of the litigation and is thereby afforded an opportunity to respond.

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This Lawyer is Not a Plumber: Are you hiring the right professionals to serve your association?

I’m the granddaughter of Midwestern dairy farmers who grew up during the Great Depression, and my parents own a small town HVAC/plumbing business. As a child, I often heard some version of the following: “I can make that.” “We don’t need to hire someone. I can fix it.” “Why would we pay someone for that work? I can do it myself.” With this do-it-yourself attitude ingrained in my psyche, I can’t help but feel guilty when I need to call a plumber to unclog a drain or when I hire someone to clean my house. The frugality—and wherewithal—that my parents and grandparents modeled for me certainly left an impression. Yet I’ve also come to realize that my life sometimes requires different choices.

Yes, I can play plumber and unclog a sink drain. I’ve done it: I’ve gathered the equipment, removed U-traps, brushed pipes clean, disposed of clogged pipe nastiness, and put everything back together. Sometimes I’ve succeeded. But on other occasions I’ve removed the drain stopper and struggled to get it reconnected, or, as one of my college roommates will recount, my work has resulted in leaks where I could not get the old mismatched pipes to fit securely. Yes, I’ve played plumber and channeled my inner DIY-er, but I’m not a plumber. I would not offer to fix someone else’s drain, and I most definitely would not venture into my HOA’s clubhouse armed with a plunger and pipe putty.

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Where's my Money?

It is not uncommon for homeowners to wonder where all their dues are going.  Some owners might see their dues go up with no visible changes to the property and even get suspicious.  Of course, associations often bear a lot of expenses that are not directly related to property condition, such as insurance, management, and legal fees.  Nevertheless, owners have the right to know what their association is doing with their assessments.

If a homeowner wants to know where the money is, he or she should first request the association's annual financial statements.  These statements are an association record, and the owner has a right to view them.  The Colorado legislature intends that these statements be available at no cost to the owner, so it is advisable for associations to keep them readily available in an electronic format.

If the annual financials do not satisfy the owner, an audit or review may be an option.  Audits are performed at the discretion of the board, but members are empowered to demand audits in limited circumstances.  If the association has annual revenues or expenditures of at least $250,000.00 and at least one-third of the owners request the audit, the Association must obtain an audit using generally accepted auditing standards, performed by a certified public accountant.  If the Association has revenues or expenditures below $250,000.00, a third of the owners are entitled to demand a review, rather than an audit.

Audits are expensive, and if you find yourself in a situation where owners are requesting an audit or review, listen to the request.  There is a reason for the dissatisfaction, and if the association has properly conducted business, the audit or review will support the board's conduct.

Posted In Governance , Money Matters
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Servicemembers Civil Relief Act

 Sometimes during a collection of an account, we become aware that the homeowner is in the military.  When this happens, there are certain procedures and precautions we must take before proceeding with collections.  This is due to the Servicemembers Civil Relief Act, which affords a number of significant protections to servicemen and servicewomen who are on active duty.

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Compliance and Consistency in Collections

By now, your association should have a new collection policy in place that complies with the new HOA collection law that went into effect on January 1, 2014. When adopting a new policy, the association should not only ensure its compliance with the new law, it should also make sure it is consistent with its other governing documents. As I discussed in a previous blog, it is important that the association’s governing documents are consistent with one another and most importantly, with the Declaration. While the policy can add or elaborate specifics about the collection procedures, it cannot contradict the terms of the Declaration or the new law.  Should you have any questions regarding your collection policy, please feel free to contact us.

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Burden of Proof

When we hear the term “burden of proof”, many of us think of the television crime shows we all watch such as Law and Order or CSI, and how we always hear that the prosecution has to prove the defendant’s guilt “beyond a reasonable doubt”.  This “reasonable doubt” standard is the burden of proof in criminal cases.  In general, the burden of proof, or burden of persuasion, is the duty placed upon a party to prove or disprove a disputed fact.  Depending on the case and the arguments, either party can bear this burden. 

In civil cases, however, the burden of proof is a lower standard and only requires that the party who bears the burden prove or disprove a disputed fact by a preponderance of the evidence or by clear and convincing evidence.  Colorado courts define “preponderance of the evidence” as proving that it is more probably true than not, and have defined “clear and convincing evidence”  as proving that it is highly probable and there exists no serious or substantial doubt. It is up to the judge or jury hearing the case to decide whether a party has met its burden.

 

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Even 'Real Housewives' Must Pay Assessments!

 I have to admit, I’m not a fan but was intrigued when I discovered that Porscha Williams from the hit show ‘The Real Housewives’ was hit with a Judgment of nearly $18,000.00 for failing to pay association assessment fees and other charges. Apparently, a garnishment was authorized to attempt to collect the outstanding debt.  http://rollingout.com/tv/reality-tv-tv/porsha-williams-accused-owing-18000-homeowners-association/

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2014 Annual Assessments

Has your association increased, or even decreased, its annual assessment fees for 2014? If so, it is important that the association follow its governing documents when providing notice of the change to all owners.   In addition to providing owners with proper notice of any change, the association should also notify its attorney. This will help to ensure that any accounts and/or payment plans that are with the attorney for collection are properly noted, and any increase is accurately accounted for and collected.  

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Time Is Running Out!

As Stephane Dupont previously blogged, effective January 1, 2014, Associations are required to have a new collection policy in place that complies with the HOA Debt Collection Bill (HB 1276).  The new law requires collection policies to set forth certain procedures an Association must follow when collecting on a delinquent account.

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The Mailbox Rule

Homeowners often claim that they did not receive notice of their delinquency from the Association. Sometimes this assertion comes up after the Association files suit against the homeowner.   Fortunately, the “Mailbox Rule” can allow the Association to overcome this allegation.

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Can You Disclose Who In Your Community Is Delinquent In Payment Of Their Assessments?

 I’ve recently been following a blog that has been discussing how the paying members of a homeowners association can find out who is delinquent in paying their assessments. We’ve been asked many times over the years whether it is lawful, or wise, to publish the names of owners who are not current in the payment of their assessments. It is interesting, at least to me, the scope of opinions about this topic.

I take the position that any member in the association who is not paying his or her assessments is being subsidized by those who do pay. I believed that the member who is paying is entitled to know who they were subsidizing.

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Have you Revised your Collection Policy Yet?

I previously blogged about the necessity of updating association collection policies and procedures as a result of recent legislative changes effective on January 1, 2014.  

In addition to preparing a revised collection policy, associations are also required to send new collection notices which provide specific information to delinquent owners. The notices must provide the owner(s) thirty days to cure the delinquency and provide additional information about the debt before an account can be turned over to an attorney for collections. An association will also be required to offer and approve a ‘one-time’ payment plan of not less than six months to delinquent homeowners.   

To ensure that there is no disruption in the collections process, it is critical that associations obtain and approve the revised collection policies and notices NOW! Failure to have a revised collections policy in place prior to January 1, 2014 will unnecessarily delay the collections process by several weeks or more and jeopardize the association’s ability to collect delinquent assessment fees. Associations should also seriously consider immediately implementing the revised collection policy to ensure that any ‘kinks’ are worked out before January 1, 2014.

 

Posted In From Capitol Hill/Legislation , Governance , Money Matters
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Understanding Short Sales in Your Community

 With the influx of new foreclosures the past few years, you may have heard of homes in your community that are being sold through a ‘short sale’. While short sales are fairly common, few people understand what they are or how they should be handled by an association.  

 A short sale occurs when a lender agrees to accept less than is owed on a mortgage/Deed of Trust to permit an owner to sell their property. For example, an individual owning a home with a market value of $200,000 but with a $225,000 mortgage would not ordinarily be able to sell their home since a necessary condition of sale is to payoff the outstanding mortgage and any liens. In this example, the homeowner would need to come to closing with $25,000 in cash to allow the sale to close. Since most individuals are financially unable to sell their home under these circumstances, a solution is to convince a lender to accept a payment of $200,000 on their loan to permit the sale to go through. 

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Sold!

It’s no secret that Colorado’s housing market continues to improve and according to the Denver Post, some buyers have even been forced into bidding wars over the low inventory in certain areas.   While the increase in home sales is great news for the local economy, this is also an important reminder to associations to ensure that they protect their interests by having a perfected lien in place.  The perfected lien ensures that an association is paid any assessments owed in connection with a sale. 

As discussed previously, homeowner association liens in Colorado are statutory liens that attach to the real property and can include assessments, fees, charges, fines, interest, late fees, and attorneys’ fees and costs permitted by the association’s governing documents. While recording the association’s declaration constitutes record notice and perfection of the association’s lien, recording a separate lien provides extra protection for the association.  

 

An association should also maintain separate account ledgers for homeowners who file for bankruptcy, so that it has an accurate account of the personal obligation and the lien.  While the association cannot collect the pre-petition debt from the homeowner personally, it retains its right to collect the lien balance in the event the property is sold, refinanced, or transferred, and could also foreclose the lien.

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Time to Start Revising Your Collection Policies!

 As you may have heard by reading our blog, on May 28, 2013 the HOA Debt Collection bill (HB 1276) was signed into law by Governor Hickenlooper. Although the requirements of the Bill do not go into effect until January 1, 2014, it is not too soon to commence preparing revisions to your Association's Collection Policy to ensure timely compliance.

Effective January 1, 2014, an Association must have a Collection Policy which, at a minimum, includes the following information: 

(1) The date on which assessments must be paid to the association and when an assessment is considered past due;

(2) Any late fees and interest the association is entitled to charge on a delinquent account;

(3) Any returned-check charges the association is entitled to charge;

(4) The circumstances under which a delinquent owner is entitled to enter into a  payment plan and the minimum terms of the payment plan;

(5) Before the association turns over a delinquent account to an attorney or collections agency, the association must send the delinquent owner a written notice specifying:

(a) The total amount of the arrearage, with an accounting of how the total arrearage was determined;

(b) Whether the opportunity to enter into a payment plan exists and instructions for contacting the association to enter into the payment plan;

(c) The name and contact information for the individual the owner may contact to request a copy of the owner’s ledger to verify the amount of the debt; and

(d)  That action is required to cure the delinquency and failure to do so within 30 days may  result in the account being turned over to a collection agency, a lawsuit being filed against the owner, the filing and foreclosure of a lien against the owner’s property and other remedies available under Colorado law. 

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Won't you be my neighbor - Justin Bieber?

I remember growing up and hearing the delightful words of Mr. Rogers, “It’s a beautiful day in this neighborhood, A beautiful day for a neighbor, Would you be mine? Could you be mine? Won’t you be my neighbor?” 

It doesn’t look like Justin Bieber will be singing this song anytime soon about his neighbors – or vice versa.  

According to Beiber’s neighbors, they are fed up with his reckless driving, partying all night behavior and claim that his actions have violated several of the association’s rules. It looks like the neighbors are also planning to refrain from paying the monthly assessments in an effort to pressure the association to enforce the rules against Bieber. While this may seem like a good short-term idea, unfortunately, this attempt at vigilantism may end up causing more of a headache for everyone involved and the disgruntled owners may be responsible for additional fees based on the nonpayment of the assessments. A better approach may be to call a special meeting to address the concerns the owners are having with their unruly neighbor and the lack of enforcement of the rules by the association. As Suzanne Leff points out in a previous blog, Board members must have the tools to communicate effectively with their owners and should consider these options for increasing transparency, educating owners, and fostering community within an association.

While we can’t all live in the “Neighborhood of Make-Believe”, with good governance and effective communication, we can all live in a neighborhood of Beliebers.

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Commonly Asked Questions and Answers

Below you will find a list of some commonly asked questions and answers regarding the collection of assessments. Please clink the link below each question to continue reading the previously posted article that discusses each answer in depth.

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Foreclosure 'Reform' or Headache for Associations?

Recently introduced House Bill 13-1249 has been promoted as an attempt to ‘reform’ the public trustee foreclosure process by requiring lenders to prove that they hold the Deeds of Trust being foreclosed and further requiring them to negotiate and work with borrowers requesting a loan modification or other foreclosure prevention alternatives. If the Bill is passed into law, it will undoubtedly provide greater protections to homeowners which may enable them to retain their home and stimulate them to payoff their association delinquencies. A closer reading of the Bill, however, suggests that an association may be negatively impacted from the additional requirements imposed on lenders. 

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Simple Tips to Avoid a Huge Mess!

An interesting story in the news caught my eye today as I was sipping my morning coffee. An Aurora woman, allegedly frustrated with her non-responsive mortgage company, spray painted the following message on her garage door: “"Jamie Dimon & JPMorgan Chase JP Morgan Chase is stealing this home. Ignores homeowner for 21 months!! I will not violate federal law on your behalf as a condition of communication from you! Call me. Chase Me!! (heart) you."  Apparently, she has been attempting to work something out with her lender for twenty-one months to no avail. The entire story can be read here:  www.thedenverchannel.com/news/local-news/woman-tags-home-with-message-to-her-bank-jpmorgan-chase-is-stealing-this-home 

As someone who actively litigates collections and lien foreclosures on behalf of community associations, most who know me would not expect an empathetic response by me to her situation. Besides, every story has two sides right? However, some important lessons can be gathered from this interesting story for the benefit of community associations. 
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Even Celebrities Have to Follow the Rules

If you’ve ever flipped through a pop magazine, I’m sure you’ve seen the articles that show pictures of celebrities and how they are “just like us”. While those stories usually depict celebrities going to the grocery store or taking public transportation, I recently read an article in which a former Playboy model allegedly violated her association’s rules by constructing a pink doghouse for her three dogs. For some reason, the pink doghouse did not comply with her Association’s rules and regulations. 

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Making a List and Checking it Twice

It’s that time of year again when Boards are planning for the New Year. One of the tasks on their list should be to make sure the Association has enacted the mandatory governance policies and that each policy is being consistently implemented.

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'Redemption' from Uncollected Debt

Last week Gina Botti blogged about the importance of properly recording an association assessment lien. Although CCIOA states that a lien is ‘perfected’ or in place upon the recording of the association’s Declaration, it is still important to prepare and record a Notice of Lien to ensure that the lien is not overlooked upon the sale of a unit. 

It is also particularly useful to have a recorded assessment lien against a property that is in public trustee foreclosure. Although most people are aware of the statutory six month super priority lien that arises once a property is foreclosed, few are aware that a foreclosure may present an opportunity to fully recover the assessments and fees that it is owed. Once a property is sold at foreclosure sale, an association typically has eight business days following the sale to also exercise its redemption rights. What are these redemption rights? Simply put, they allow the association because of its lien to take title to the foreclosed property (away from the successful bidder at the sale) for the amount of the sales price at the foreclosure auction plus interest and other expenses.

 
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Liens - Protect your association's interests!

A lien is a security interest, or encumbrance, over some type of property to secure the payment of a debt or some other obligation. Liens also have different priorities over one another and only when a lien is “perfected” will it be legally entitled to priority over subsequent liens. A creditor must normally “perfect” its lien by taking steps required by law to give other parties notice of the lien. As Lindsay Smith points out in her blog, Colorado requires that any party claiming an interest in real property record evidence of that interest in the real property records of the county in which the property is located. 

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Before You Start Pointing Fingers....

I recently read an article where a homeowner was upset about her condominium association initiating foreclosure proceedings against her for her failure to pay her assessments. While people may read this article and feel sorry for the homeowner, one should keep in mind that the homeowner failed to appear at court to protect her interests and, more likely than not, failed to respond to the Association and its attorneys attempts to contact the homeowner prior to the foreclosure proceedings even being initiated. It does not appear that the homeowner is the helpless victim of the actions of a condominium association, but instead, that the homeowner apparently avoided her obligation to pay assessments and did not take any action to prevent the events that followed.   

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What is Mediation?

Mediation is a type of alternative dispute resolution with the goal of finding a solution and reaching an agreement that is acceptable to all parties involved. In some counties, mediation is mandatory and if a case becomes contested, the parties are ordered to attend mediation prior to scheduling a trial. In some instances, however, even if not court ordered, it may be beneficial for the parties to attend mediation depending on the facts of the case.

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What to Expect Following an Association Foreclosure Sale

 Last month I explained the basics of an association judicial foreclosure through the time of the sheriff’s sale.  In an ideal world, all foreclosures would result in a complete monetary recovery for an association and a new owner would timely pay all future assessment charges.

 However, it is not uncommon for an association to take title to a property through its foreclosure sale. This is especially likely to occur if the property has a first Deed of Trust (mortgage) and/or tax liens which exceed the market value of the foreclosed property.  So what should an association do once it takes title to a foreclosed property?

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What is "Reasonable"?

Reasonable is a term that is used a lot in the world of homeowner associations. It is a term that can have different meanings depending on who is interpreting the term and in what context the term is being used. According to Meriam-Webster’s Dictionary, the term reasonable means, “1a : being in accordance with reason; b : not extreme or excessive; c : moderate, fair; d : inexpensive; 2a : having the faculty of reason b : possessing sound judgment. As you can imagine, it can be difficult to interpret what one person thinks is reasonable in comparison to another and can present problems when attempting to resolve issues. 

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Demystifying Judicial Foreclosure Sales

So your association has filed a foreclosure lawsuit against a delinquent homeowner and obtained authorization from the court to conduct a foreclosure sale. Now, what happens next? Rather than explaining the relatively complicated procedure and statutes associated with the process, let’s talk about the basics.

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Consistency is Key in Governing Documents

We always advise Associations to look to their governing documents for operational guidance. However, it is extremely important that the Association’s governing documents are consistent with one another and most importantly, with the Declaration.  

The Declaration is the controlling document, so Associations should first make sure their Policies and Rules and Regulations are consistent with the Declaration. This can be important in the day to day activities of the Association as well as in litigation. A court will look first to the Association’s Declaration for authority, and if anything in the Policies or Rules and Regulations conflicts with the Declaration, the Declaration’s terms will control.  That is not to say that Policies or Rules and Regulations cannot add to or elaborate specifics about the Association’s Policies and Rules; they simply cannot contradict the terms of the Declaration. Below are some examples.

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Protecting the Association's Right to Collect the Super Lien

Colorado law provides that an association is entitled to a super-priority lien “super lien” for assessments which would have come due during the six months immediately preceding the filing of a foreclosure action by an association, or a party holding the first Deed of Trust.

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Learning an Expensive Lesson

I previously posted a blog regarding the importance of the Notice of Bankruptcy. Here is a story of just how important this Notice can be and the consequences of not paying close attention to receiving this Notice. 

As you can see after reading this article, the Bankruptcy Court takes very seriously the protections afforded to a debtor that has filed for bankruptcy. Here, after the debtor filed for bankruptcy protection, Bank of America allegedly proceeded to call the debtor an additional 38 times to ask about the outstanding payments. The judge ordered Bank of America to pay $12,500 in attorney's fees and damages for emotional distress.

It is unclear whether Bank of America was contacting the debtor during the bankruptcy proceedings to collect a debt, or if the bankruptcy case had already been closed and the bank was attempting to collect a debt that had been discharged. In either case, it looks like Bank of America learned an expensive lesson.

Posted In Money Matters
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Accelerate your Way through Collections

What can an association do to prevent or minimize future delinquencies by homeowners who are habitually late or delinquent in the payment of their assessments? This is a question that managers and board members ask me all the time. If I can figure out a magical solution to preventing delinquencies entirely, I’ll be glad to share but not until after I retire in a remote fishing village in Alaska! One way, though, that an association may be able to reduce future delinquencies is by accelerating assessment fees.

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Lien and Personal Obligation - What's the Difference?

There is often confusion as to the difference between liens against property and the personal obligation of a homeowner. Typically, this issue arises when a homeowner files for bankruptcy. The Association needs to distinguish between the personal obligation the Association can collect from the homeowner, and the lien that attaches to the property and can be collected upon the sale of the property or by foreclosing against the homeowner.  

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Misallocations of Assessments: What's the Board To Do?

So you’ve been elected to the Board; you’ve reviewed all of the governing documents (at least, those that you’ve been provided); you faithfully review your board packets in preparation for your regular meetings, you’re well on your way to helping your association conduct its business in a businesslike manner. At your board meeting, a curious owner inquires why her monthly assessments are different than her neighbor’s.

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Will Foreclosure Relief Funds Ultimately Benefit HOAs?

The Denver Post recently reported that Colorado will “receive $204.6 million as part of a $25 billion deal that states have reached with the nation’s biggest mortgage lenders over foreclosure abuses that occurred after the housing bubble burst.” 

In addition to the financial settlement, banks will be required to “stop the use of robo-signing, end the process of dual tracking of loans, provide a single point of contact for customers as they move through the loan-modification process and abide by deadlines for loan modifications.” 

 

The Post reports that “Colorado will get: 

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HOA Foreclosures: Case-by-Case is Key

Last Friday, I attended a legislative briefing by the Director of the Division of Real Estate and the HOA Information Officer on the findings outlined in the 2011 Annual Report of the HOA Information and Resource Center (“Annual Report”). Having repeatedly reviewed and written about the Annual Report, I wasn’t surprised to hear the comments relating to things like transparency and the failure of some HOAs to produce records. What did catch my attention was the contention that some HOA law firms are inappropriately utilizing foreclosure as a remedy for past due assessments or to push folks out of their homes.

I have to say that I found it interesting that “HOA law firms” were classified as a potential decision maker on whether an HOA will foreclose on a delinquent owner.  The decision to proceed with a foreclosure should never be delegated to a law firm or an insurance company for that matter. Instead, the boards of HOAs should always make this decision on a case-by-case basis after carefully considering their options and the potential ramifications of proceeding with foreclosure. 

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G.A.P. Insurance: Exercise your Due Diligence before Signing Up

As many of you have heard, there is a new collection option called G.A.P. ("Guaranteed Assessment Program") being marketed to associations throughout Colorado. It's presented as insurance that pays the association a portion of assessment fees in exchange for a yearly premium based on a percentage of the association's annual budget and associated risk. At first glance, this may seem like a cost effective and innovative way to collect delinquent assessment fees. However, when exercising your due diligence, here are some things that your board of directors should consider:

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Where, oh, where has my HOA's CD gone?

A manager recently told me about an association that lost some money. Specifically, one of the association’s long-term Certificates of Deposit was turned over to the State of Colorado. In this situation, the bank had apparently sent correspondence to the association’s former management company and then turned over the account to the State when no response was received within 30 days. The property manager was totally baffled and not sure how to get the money.

The Great Colorado Payback website shows that the State is holding funds for this particular association, and the manager will need to go through a claims process to get the money. Unfortunately, the association won’t get interest that accrued during the time the State has held the funds. I don’t have all the details – and haven’t heard yet if there’s a “happy ending” – but other associations may benefit from knowing that their accounts can get transferred to the State.

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Ledgers of the Fall

While a ledger may seem like a simple accounting device, it is actually an extremely helpful tool in assessment collection. A ledger is not just a document full of numbers. Ledgers - well, good ledgers - allow an Association, homeowner, Association’s attorney and even a court to see the timeline of events that have happened since the homeowner took title to the property - you could even say it tells a story. They pinpoint the date the account became delinquent and how it has progressed since that time. They can also be a key piece of evidence at trial. A good ledger can be the difference between being able to collect a delinquent balance and having to make the difficult decision to write off amounts that would otherwise be considered due and owing.

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Dial It Back Before You Get Tased!

As you have probably figured out by now, I follow HOA headlines from across the country. Yesterday, a story reported by WFAA.com really caught my eye and not because there is a dispute in a Dallas area HOA about how funds are being expended by the association. Unfortunately, disputes of this ilk aren’t all that uncommon. What caught my eye is the level to which the anger has escalated. Residents have allegely been receiving threatening letters, have been physically threatened in the community and one resident evidently got so out of control that he was tased by local law enforcement. 

Based upon what I can piece together from the story, there are some real questions about how funds are being expended and accounted for by the association. There are also allegations of impropriety by directors. I have no idea whether there is any truth to these allegations. However, at least in Colorado, there are constructive ways to deal with this scenario. 

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Tough Budgeting Decisions: Are You Ready to Make Them or Hear Them?

Summer is officially behind us which means HOA budget season is in full swing. Given the tough economic times, some HOA boards have understandably been reluctant to increase assessments over the past few years. Others have relied upon unrealistic budget projections to rationalize keeping assessment levels steady or even decreasing them. Some associations have deferred critical maintenance or relied upon “borrowing” from reserves to cover normal operating expenses.

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HOAs Forcing Banks to Pursue Foreclosures

Bloomberg.com has just reported on a story where some homeowners’ associations (“HOAs”) in Florida have taken action to force banks to proceed with foreclosing on seriously delinquent mortgages or risk losing their interest in the property. In one case, JPMorgan lost its claim to a mortgage when a court found the mortgage was more than four years delinquent.

Unfortunately, it is not uncommon for some banks to proceed slowly with foreclosures in Colorado. Interestingly, major national banks seem to be particularly adept at putting off foreclosure sales and even withdrawing the foreclosure action only to re-file at a later date.   

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Critical Items for HOA Budgeting: Some Sage Advice

As I was reading Mark Benson’s Community Association Ink newsletter this morning, I ran across an article written by Candy Cunard – a CPA with Carr Riggs & Ingram. While Ms. Cunard does not work in Colorado, her sage advice on HOA budgeting is universal. The article, 3 Critical Items for Condominium Association and Homeowner Association (HOA) Budgets, focuses on the following budgeting items:  

  1. Obtaining signed contracts with vendors
  2. Professional reserve studies with periodic updates
  3. Inclusion of non-cash and non-expense items

Since many Colorado homeowners’ associations are just beginning budget preparation for 2012, taking a couple minutes to read this insightful article will be time well spent. 

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Another Victory for Receiverships

A receivership can be a useful tool for associations to collect delinquent assessments and fees against homeowners whose property is tenant-occupied or vacant. Assuming there are paying tenants, the process is typically smooth and the association recovers its delinquents assessments together with the costs of the receivership. In some cases, however, the tenants refuse to pay their rent or pay reduced rent to their landlords if they are Section 8 qualified. The former situation allows the receiver to evict them for non-payment, but the later presents a problem.

An article in the SunSentinel reported that the Willoughby Estates Homeowners Association in Lake Worth, Florida was presented with such a dilemna when it filed a receivership lawsuit and was faced with collecting rental income from a Section 8 tenant. The tenant was only paying $275.00 of the $1,784.00 in rent owed each month with the remainder subsidized by the county Housing Authority. Not a bad deal if you ask me! The association, however, had other plans and demanded that the Housing Authority forward the rent that it sent to the landlord each month. Interestingly, the Court agreed and required the Housing Authority to forward all future payments to the association until it was paid in full.

Continue Reading Posted In Covenant Enforcement , Governance , Money Matters
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Protecting Your HOA from Theft of Funds

Ultimate Katy has reported on a homeowners’ association (“HOA”) in Katy, Texas that has been hard hit by the association’s treasurer who allegedly misappropriated over $78,000 of association funds. Making matters worse, it is alleged that Anthony Geffert used the funds to pay Advantage Lifeguard Services (a company Geffert owns) for services that were never rendered to the Association. 

Other than the obvious conflict of interest that Geffert had relative to Advantage Lifeguard Services, which was hopefully disclosed and handled appropriately, this theft of funds could have been prevented by the Association taking the following steps:

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Place An End To Bank Owed Debt!

As a result of increasing numbers of foreclosures, associations now have to deal with collecting delinquent balances against not only its individual homeowners but also against the foreclosing lenders/banks. With the sheer number of foreclosures that any given bank must deal with, a depressed economy and a saturated and slow moving real estate market, it is currently not uncommon for banks to retain ownership of a property following a foreclosure sale for up to a year or more. I am not aware of many associations that can carry that kind of debt for such an extended period of time.

Continue Reading Posted In Community Association News , Governance , Money Matters
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Collections: Are you following the rules?

It’s important that associations follow their governing documents and understand the procedures they should follow when dealing with collection of assessments, fines and other fees. The easiest way to do this is to review the association’s governing documents and the relevant provisions having to do with collections of delinquent accounts. This is especially important should the file proceed to court as a judge will review the case to determine whether the association followed its own rules before finding against a homeowner who did not. 

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Failure to Budget Appropriately and Collect Delinquencies Has Major Consequences for HOA

The Courthouse News Service reported on a story that really caught my attention. Evidently, the City of Atlanta Watershed (“Atlanta Watershed”) has threatened to shut off water to the 125-unit Villages of Cascade Homeowners Association (“Association”) as early as today if the Association does not pay 25% of an outstanding balance due for water supplied by the Atlanta Watershed. 

 

The Association utilizes income from assessments to pay water fees for all of the units which are linked to a single water meter. Obviously, assessment income is also used to pay for all of the common expenses of the community. But get this – the Association reportedly has an assessment delinquency rate of 63%! While this economy has certainly taken a toll on the ability of some homeowners to pay their assessments in a timely manner, a 63% delinquency rate is astounding even for this economy. 

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Contemplating Budget Preparation Season . . .

I know you are all enjoying summer and thinking about taking time off to spend with family and friends. As board members, I also know the last thing on your mind is thinking about the 2012 budget for your association. However, if your fiscal year begins on January 1, 2012, toward the end of the summer and through the fall you will be working with your manager on preparation of the budget for your association. If your association is self-managed, that task can be even more daunting.

Please do not misunderstand me; I’m not suggesting that you begin preparing your budgets now. Frankly, you don’t have all of the data you need to make good decisions and you shouldn’t be spending your summer crunching numbers. Instead, as the policy makers of your communities, I would like to suggest that you begin thinking about whether the current assessment levels are meeting your association’s fiscal needs.

 

Here are a couple of areas to contemplate and related questions to ask yourselves:

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Tenant Garnishment Without a Judgment? Really?

The Wall Street Journal is reporting on a new Florida law that allows condominium associations to essentially garnish the rent paid by tenants of a delinquent owner, without going through the process of obtaining a judgment against the owner and a writ of garnishment for the tenant.  The Florida law only permits the association to demand money from the tenant - it does not allow the association to evict a delinquent owner and find tenants of its own.

When an owner fails to pay assessments, the burden falls on his neighbors who often have to pay higher assessments to make up the difference.  Unlike Florida, Colorado associations are not permitted to demand money from a tenant, absent a court order and a writ of garnishment. 

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Is your HOA prepared to handle the maintenance, repair and replacement of common elements?

CTV News in Ontario, Canada – reported on a story entitled Faulty towers: The hidden dangers of low condo maintenance fees. This story could have been written anywhere in the United States and even Colorado. While the circumstances facing the condominium association in the article are extreme, the story outlines the inevitable results of artificially low assessments, deferring maintenance and failing to fund reserves.

In these tough economic times, no board or resident of a homeowners’ association (“HOA”) wants an assessment increase. Heck – even in good times nobody wants an increase! However, the responsibility of an association to maintain, repair and replace common elements does not magically go away. You need only look at the declaration of covenants, conditions and restrictions for your HOA to determine the responsibilities of your association. For condominium associations – this is particularly important since your association likely has significant and potentially costly responsibilities. 

 

Continue Reading Posted In Governance , Money Matters
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Revenge Foreclosures: Are you kidding me?

Late last week, StockMarketsReview.com posted a story entitled “Revenge Foreclosure Is a Tool in the Hands of HOAs.” The story begins by asserting that a new term “revenge foreclosures” has been coined in the HOA world. “It refers to the increasing number of foreclosures being initiated by homeowners associations against house owners for unpaid association fees. It is easier for the associations to foreclose than the banks because here the question of proof of ownership does not arise.” 

The story goes on to describe the following scenario: “The associations engage debt collectors to do their work. LM Funding grants loans to the associations and then brings their books up to date. The firm shares a proportion of the collected fees. Frank Silcox, CEO of the firm said about the associations foreclosing on the unit owners, “They are angry, and they make a short-term decision. They’re thinking they just want to get back at them.”

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Super Lien Clarification and Suggestions

There has been much debate surrounding the super lien in light of House Bill 11-1197 which was derailed this past legislative session.

CR.S. 38-33.3-316(2)(b) provides that the association is entitled to a super lien for assessments which would have come due during the six months immediately preceding the filing of a foreclosure action by an association or a party holding the first Deed of Trust.

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Recovery of Treble Damages for "Bad Checks"

Bad checks, also known as bounced checks, non sufficient funds, insufficient checks, and dishonored checks, can be a big problem for an Association.  In Colorado, the law allows the recovery of damages for those who receive checks that are subsequently returned for non sufficient funds. Under Colorado Revised Statute 13-21-109, the “maker” of a check (i.e., the person who wrote the check) can be liable to the “holder” (i.e., the Association) of the check if that check is not paid upon its presentment to the bank or other depository.

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The Importance of the "Notice of Bankruptcy"

When an Association receives a Notice of Bankruptcy from the Bankruptcy Court, the Association should pay close attention to this document. This Notice is very important to the Association's ability to collect pre-petition debt. 

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The Association's Response to the Halt on Foreclosures

Bank of America, JP Morgan Chase and other lenders have recently called for a halt on foreclosures amidst allegations that they submitted improper and, in some cases, fraudulent paperwork to push through their foreclosures.

 

It is a well known fact that homeowners delinquent in the payment of their mortgage are more likely than not also delinquent in the payment of their assessment fees. Therefore, the delay in the filing and conclusion of public trustee foreclosures in Colorado will inevitably result in greater delinquencies for associations.

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Commonly Asked Questions and Answers

Commonly Asked Questions and Answers:

Below you will find a list of some commonly asked questions and answers regarding an Association's rights in the collection of unpaid assessments.  Please clink the link below each question to continue reading the previously posted article that discusses each answer in depth.

 What are some of the options an Association has to enforce its covenants to collect unpaid assessments?

When considering the various options available to an Association, the first thing a Board should do is consult their governing documents. Typically the Association’s Declaration will specifically state

Continue Reading Posted In Community Association News , Money Matters
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New Lending Rules Continued - HUD Requirements

You will remember from a recent posting that we discussed the new Fannie Mae guidelines, and the anticipated HUD regulations. As noted,  HUD did in fact adopt new temporary regulations that went into effect on December 7, 2009, and remain effective until December 31, 2010, at which time the new permanent HUD regulations will become effective. The new HUD temporary regulations are found in HUD Mortgagee Letter 2009-46 A, and can be found  here. The new HUD permanent regulations are found in HUD Mortgagee Letter 2009-46 B, and can be found here. It is important to note that condominium projects under developer control and under construction or being converted have different standards. This posting does not address those standards.

Continue Reading Posted In Governance , Money Matters , Off the Top , Your Governing Documents
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New Lending Rules - Fannie Mae and HUD

The fallout from our current economic crisis is hitting all of us, sometimes in ways we least expect. While many homeowners are struggling to hold onto their homes, many are faced with the prospect of having to sell. In the present economy, that is difficult enough. However, for those whose homes are condominiums, Fannie Mae has implemented new guidelines that can make it more difficult than previously to complete a sale. HUD has adopted similar new temporary regulations which went into effect on December 7, 2009 and remain effective until December 31. 2010, at which time more restrictive permanent regulations become effective.

Continue Reading Posted In Governance , Money Matters , Off the Top , Your Governing Documents
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Receiverships: An Effective Collection Option

Sometimes, when circumstances prevent collecting delinquent assessments from owners by more traditional methods, a receivership may assist the association in getting paid. Further, even if other collection options are available, a receivership may help you receive your assessments more quickly.

A receivership is started by filing a lawsuit in County or District court. Unlike other lawsuits, the court will normally grant our request for a receivership and appoint a receiver without first scheduling and conducting a trial or court hearing.

A receiver is an independent third party, unrelated to the Association or the homeowner, appointed by a court to take over possession and control of the property. In legal parlance, the receiver is an officer of the court, and answers to the court. However, being an officer of the court does not mean that the receiver is part of the court system. Typically, a receiver is a person who has experience in managing and operating real property, oftentimes a real estate broker.

The receiver, once appointed, will make reasonable efforts to rent the property. It is possible that the property can only be made habitable following the completion of repairs. Oftentimes, it is not possible to determine whether repairs are necessary until after a receiver has been appointed and has accessed the inside of the property to determine its condition.

Once the property is made habitable, a receiver is normally able to locate a tenant quickly by setting rent slightly below the average market value in the area. If the property is already rented when the receiver takes possession, the receiver is typically able to collect rent from the existing tenant in the property that would otherwise have been paid to the owner.

Once rented, the monies collected are applied as follows: first to pay or reimburse the receiver for his fees; second to reimburse the receiver for any costs in getting the property in habitable condition; third to reimburse the association for attorneys fees and costs in having the receiver appointed; finally, to the association to pay delinquent assessments, late charges, interest and other fees.

The association is still responsible for payment of the receiver’s fees, attorneys fees and costs and other expenses incurred in the event that: (a) the receiver is unable to rent the property; (b) a homeowner occupies the property prior to the receiver finding a suitable tenant; or (c) the association does not want to pay for repairs to make a property habitable.

Factors to consider before having a receiver appointed include the following:

  • whether the property is vacant or occupied by a non-homeowner
  • the condition of the property
  • the amount owed to the association
  • whether one or more of the homeowners have filed for bankruptcy
  • the cost of appointing the receiver, including the receiver’s fees, attorneys fees and costs;
  • whether the court will require service of process on the owner before appointing the receiver, and how difficult it will be to obtain service of process;
  • whether the receiver will need to incur any expenses to make the property habitable;
  • the amount of rent that the receiver thinks the property can be leased for, usually on a short term basis; and
  • whether the property is currently in foreclosure by the first mortgage holder - many times, if the property is in foreclosure, the amount of rent that a receiver can collect over the short period of time that the receiver can rent the property will not be enough to offset the cost of having the receiver appointed.

If your association would like to commence a receivership lawsuit or you have any additional questions related to the receivership process, please contact one of our attorneys.

Posted In Money Matters
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Rain, Rain, Go Away -- All this damage ... who will pay?

With record rainfalls this season, Colorado community associations and managers have stayed busy responding to reports of water intrusion and hail damage. After the immediate excitement subsides, our phones start ringing. Managers and board members typically ask us some variation of the following questions about insurance:

Is the association or the owner responsible for insurance coverage? This question often arises in the context of condominium and townhome communities, and the answer depends on what the governing documents and controlling statutory provisions say. Often, the documents do not give clear guidance on which party bears the burden for insuring specific components, hence the call to the attorneys. The answers sometimes come as a surprise to uneducated owners and even association boards.

We recommend that associations evaluate insurance obligations with legal counsel and their insurance professionals to ensure proper coverage and to enable clear communication with owners about what coverage applies. Through the preparation of insurance and maintenance charts that summarize association and owner obligations, and the adoption of insurance guidelines that state insurance coverage responsibilities and provide step-by-step procedures for reporting and handling claims, associations can proactively educate owners and reduce confusion when losses occur.

Continue Reading Posted In Covenant Enforcement , Governance , Money Matters , Your Governing Documents
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Collecting a judgment: Persistence pays off

The association’s attorney has worked diligently to obtain a judgment against a delinquent homeowner. What can be done to ensure that the association gets paid? Is all hope lost if the judgment is initially not collectible?

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Fiscal Irresponsibility In Your Association? Embezzlement and What You Can Do to Help Prevent It

We have all heard from time to time about an association manager or officer who gets caught with his hand (or more) in the association’s cookie jar. The most recent account making headlines has to do with a manager in Virginia who has been convicted of stealing $3 million from over 350 different homeowners associations. We shake our heads and are thankful that our association isn’t the victim of such a potentially disastrous crime. But sometimes, it is just a matter of luck that our association hasn’t suffered such a loss, or we are lucky that everybody providing services to the association is trustworthy.

Continue Reading Posted In Governance , Money Matters
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Owner Responsibility During Foreclosure Proceedings

This is the second part of a three part series discussing when an owner’s liability for assessments terminates when going through a divorce, foreclosure and/or bankruptcy proceeding. The first part of the series dealt with divorce proceedings. This part addresses public trustee foreclosure of a lender’s lien created by a recorded deed of trust (for purposes of this discussion, a deed of trust is the same as a mortgage).

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Bankruptcies: Accounting Suggestions and the Importance of Maintaining Liens

You just received a notice from a homeowner that they have filed for bankruptcy. The matter is quickly turned over to the association’s attorney together with an updated account ledger to ensure that the requisite paperwork is timely filed to protect the association’s interest. How does a manager or board properly account for assessments and fees which come due after the filing of the bankruptcy? Unfortunately, this is an issue faced by managers and boards on a regular basis.  

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Who is Responsible for Assessments

We have received many questions regarding when a homeowner’s obligation to pay assessments terminates as a result of being in or having completed a divorce, bankruptcy or foreclosure proceeding. The quick answer is that an owner is responsible for all assessments for as long as he or she is an owner as evidenced by a recorded document, a deed. For purposes of discussion it does not matter what type of deed is recorded to prove ownership or how the party came into ownership. Also, this article will only deal with collection cases, not lawsuits for foreclosure or receiverships. 

Continue Reading Posted In Money Matters , Off the Top
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The Paperless Association - Myth or Reality?

The migration away from paper products is a hot trend these days. The benefits of such a move for a homeowners association are clear - not only does it save trees, it also saves money (less paper, postage, and storage costs). In short, being green saves green. But can an Association truly become paperless? Not yet, but as computer technology and the use of the internet become more and more advanced, the answer is closer to becoming yes. Below are some steps your Association can take to start freeing itself from the paper weight:

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Community Association Legal Audit (Part 1 of 2)

Community association board members fill tough roles that require a great deal of attention to association business. We understand that, as board member volunteers, you need guidance from professionals to facilitate informed decision-making, allowing you to uphold your fiduciary duties to the association that you serve. To assist you in evaluating the legal priorities for your community, we have created this Legal Audit checklist. 

Place a check mark in the box beside each statement that applies to your community association.

My community association has . . .

adopted the seven mandatory Senate Bill 05-100 policies

Senate Bill 05-100 requires all associations to adopt seven different responsible governance policies concerning (1) the adoption and amendment of policies, (2) board member conflicting interest transactions, (3) covenant enforcement and fines, (4) collection of delinquent assessments, (5) conduct of meetings, (6) inspection and copying of records and (7) reserve fund investments.

adopted the Senate Bill 06-89 dispute resolution policy

Senate Bill 06-89 requires all associations to adopt a policy concerning disputes between owners and the association.

updated Senate Bill 05-100 policies to conform to Senate Bill 06-89 requirements

Senate Bill 06-89 modified some of the terms of Senate Bill 05-100, creating recommended changes to the responsible governance policies.

Continue Reading Posted In Governance , Money Matters , Your Governing Documents
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Five Delinquent Homeowners You Will Meet in Court (and One You Won't)

When homeowners become delinquent in their assessment payments, their accounts are usually turned over to the association’s law firm for collection. Generally, these delinquent owners fall into one of six categories.

Continue Reading Posted In Money Matters , Off the Top
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CONSTRUCTION PROJECTS: IT MAKES SENSE TO HIRE AN EXPERT

Summer time is the season of vacations, fun and, for many Community Associations, construction.  Most Managers are very thorough and knowledgeable, and have assisted Associations with construction projects. Some Board members have worked in the construction industry and have valuable insights. So why is it wise to involve an independent engineer, architect, or construction expert (here called "engineer") in your Association's repair projects (such as painting, roofing, siding or asphalt projects)? Here are a few reasons for an engineer to be involved on repair or restoration projects in your community:

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The New Foreclosure Laws and the Right to Cure and Redeem

 After posting the attached entry, the legislature has extended the date the remaining provisions become effective.  They now become effective on January 1, 2008.

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Assessments According to the Declaration - Who Cares?

One thing about this business – it is full of surprises. One surprise that occasionally comes to light during our course of representing an association has to do with how common expenses are shared. The declaration of restrictive covenants (which imposes the obligation to pay assessments) should describe how expenses of the association are allocated. In fact, CCIOA mandates that the declaration must allocate the various types of allocated interests: the allocation of voting rights; the allocation of burden of common expenses; and in condominiums, the ownership of the undivided interests in the common elements. In a couple of cases recently we’ve discovered that an association is allocating common expenses in a manner that is different from how the declaration specifies.

Continue Reading Posted In Governance , Money Matters
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Financing Repairs to the Common Elements

Issue: A large homeowners association is looking to make repairs to the common area fences within the community. What options are available to them to finance this project?

Background: Recently, the Board of Directors of a large homeowners association called our office to discuss a problem. It seems that they had common area fences that were fairly old and in desperate need of some TLC. Unfortunately they did not have any funds available to make the necessary repairs.    Pursuant to the Association's covenants, the Board was severely restricted in the amount it could set for the annual assessments each year (without approval of at least 2/3 of the members, the covenants limited the annual assessment to a 10% increase from the previous year). As a consequence, the Association's reserve fund was nearly empty. The Board had tried on several occasions to get the members to approve a special assessment, but it was turned down each time. The Board was now wondering what options it had available to pursue.

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Contracting with Association Contractors: An Ounce of Prevention

As legal counsel for community associations, we assist our clients with the various types of conflict that arise in the course of association business activities.  We understand that conflict can sometimes escalate to a level that requires court intervention.  We also know that certain preventative steps can help to alleviate the time, expense, and emotional drain that come with litigation.  In particular, good contract drafting can help to minimize the impact of disputes between associations and their contractors.  We encourage our clients to seek legal advice when entering into contracts for management services, landscape maintenance, capital improvements, and any other project or service that involves a relationship with an independent contractor.  The following reminders come directly from our experience advising community associations:

 

A bid or proposal form, while legally binding, is not a good contract.  While signing a bid or proposal form may bind the association to pay for services performed by the contractor, the association does not receive any protections as part of the bargain.  We recommend contracts that contain specific provisions which, at the very least, address the scope of work, insurance coverage, payment terms, remedies for default or breach, and attorney fees for the prevailing party in any dispute that may arise under the contract terms.  Bid forms do not typically include these recommended contract terms.

 

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No Relief from Foreclosures in Sight

We already know that Colorado has been a consistent national leader when it comes to foreclosures. Not exactly a title we're clamoring for.

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Chapter 7 Bankruptcy and your Association

A homeowner files bankruptcy, now what? First and foremost, all collection activity must stop in accordance with the Automatic Stay until the case is dismissed, an Order for Relief from Stay is granted, or the debtor receives a discharge. Second, the association must determine what type of bankruptcy has been filed. Individuals commonly file for bankruptcy protection under Chapter 7 or Chapter 13, and the type of bankruptcy will determine what steps an association must take to protect its interests. In this article, we will look at Chapter 7 bankruptcy.

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The Pool Key: to Withhold or Not to Withhold

The weather is warm, your Association's pool is prepped for summer, and Memorial Day is just around the corner. Everything is fine until the owners currently contesting their Association debt (the same owners whose case is currently set for trial in one month) call to request the pool key. Their son's birthday falls over the weekend and the whole family will be in town to celebrate at the pool. Your Association documents say the key can be withheld if the account of the owner is not in good standing. Do you give them the key?

Continue Reading Posted In Covenant Enforcement , Governance , Money Matters , Your Governing Documents
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More on Colorado Foreclosures...

This article, which looks at several metro-area counties, may help to explain why Colorado is one of several states leading the nation in foreclosures. Jefferson, Adams, Arapahoe, Denver, Boulder, and Broomfield show a 15.4% jump in foreclosures from second quarter numbers last year. In particular, Jefferson County foreclosures are up 32% from last year and Adams County has seen a 34.6% increase.

Posted In Money Matters
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Feeling the Crunch? Colorado Among Foreclosure Leaders

If your association has been feeling like too many of its delinquent properties have been undergoing foreclosure by lenders, it is not alone. The country is facing increasing foreclosures overall and Colorado, in particular, has been singled out as a problem state.

We all know the havoc a lender foreclosure can wreak on the association's collection attempts: if the association decides not to exercise its right to redeem, and thereby take ownership of the property, it loses the right to its lien�perhaps the most potent remedy an association has to collect its assessments�and is entitled only to a super lien worth six months of assessments. Is there anything we can do to limit loss in these situations?

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