Many clients are facing difficult decisions related to COVID-19. Should we open the pool? Should we waive late fees? Should we tell that owner she needs to repaint her house? Service as a director on a community association Board is never easy, but the pandemic has created stark and binary decisions that are not easy for anyone to make. These decisions are complicated by today’s political and social climate.

Community associations are nonprofit corporations, funded by their member assessments. They generally do not have large slush funds for lean times, and the decision to relax in collection efforts can have negative, real world impacts when the community can’t pay for its insurance. Association Board members have a fiduciary duty to enforce the covenants. Sensitive enforcement, recognizing that literally millions of people are out of work right now, can result in unkempt homes that will anger other owners. Opening the pool (or not opening the pool) are both defensible decisions, and regardless of the decision, some owners will be furious with the Board. You are between a rock and a hard place.

When a Board is faced with a difficult decision, its job is to make that decision. Sitting on your hands and worrying about how people will react is an abdication of a Board member’s duty to act on behalf of the corporation. Board members have access to the information and advice necessary to make an informed and prudent decision; this information is often not available to the membership at large. The business judgment rule offers protections for individual Board members who make decisions in the exercise of their reasonable business judgment, but they must actually make a decision! If you are not willing to make a hard decision while serving your community on your association Board, consider whether your talents and time are better spent in other service. You do your community a disservice when you fail to fulfill your duty to act on the association’s behalf.

Board service is hard. Your time and talents are appreciated and valued. Now put them to work, or let someone else step in!

In response to the economic destruction wrought by COVID-19, Senators Faith Winter and Julie Gonzales, and Representative Leslie Herod introduced Senate Bill 211 on June 1, 2020. SB 20-211 quickly made its way through the chamber and was referred to the Committee of the Whole today. It has not yet made its way to the House, but the speed with which it flew through the Senate indicates this is a bill with a lot of support. It is also a bill that can significantly harm nonprofit community associations and prevent them from collecting the assessments necessary to pay their regular bills, such as insurance, mainteannce expenses, and management fees.

The bill, as amended, will establish the right to a moratorium on “extraordinary collection actions” through November 1, 2020, with potential extension through February 1, 2021. Extraordinary collection actions are garnishments, attachments, levies, and executions to collect or enforce a judgment on a debt. “Debt” does not include child support obligations, but does include past-due community association assessments. The bill mandates certain disclosures from a judgment creditor before attempting to undertake these extraordinary collection actions. This disclosure will inform the judgment debtor that they have the right to temporarily suspend the collection action if they have experienced hardship (directly or indirectly) due to the COVID-19 emergency, and the steps to take to achieve this suspension.

The bill narrowly establishes a time frame to suspend garnishments and other frequently used collection activities, and a debtor must reach out to the creditor to take advantage of this suspension. If all debtor homeowners take advantage of the right of suspension, however, communities may find themselves with delinquencies that exceed the thresholds for FHA certification, unable to qualify for bank loans, and forced to defer maintenance and incur the liability of that deferral. While COVID-19 is certainly a crisis in this country, we urge legislators to carve community association collection efforts out of the restrictions of SB 20-211, as community associations are typically nonprofit corporations funded solely by assessments, the debts that are being collected generally existed long before the pandemic, the owners who are being collected from have already had the opportunity to enter into payment plans under C.R.S. 38-33.3-316.3, and the unintended consequences of a collection moratorium will negatively impact all members of our communities and force paying owners to subsidize those who do not pay.

Some insurance companies have indicated that claims related to COVID-19 will be denied (depending on the nature of the claim and the specifics of the individual policy).  In light of this risk, what protections exist for the individual board members in the event of a claim where insurance coverage does not apply?  The good news is that board members are generally personally protected from such claims so long as the board member was exercising his or her reasonable business judgment in reliance on the advice of professionals.  However, this protection does not prevent a claim from being filed, necessitating a defense.  In most instances, the costs of this defense will become an association expense where insurance denies coverage.

The first place to look for the details specific to your association is in your governing documents.  Depending on the age of the documents, an indemnification clause or other board member protection may be found in your declaration, your bylaws, or your articles of incorporation.  These documents often require the association to indemnify a board member for any claims against them individually that arise out of the board member’s actions and duties as a board member.

If the governing documents do not address the issue, state law contains provisions that provide board member protections as well.  In general, CCIOA provides that board members who are elected by the membership are generally not liable for actions taken in the performance of their duties, except when the board member’s actions are wanton and willful.

Colorado’s Revised Nonprofit Corporation Act provides additional guidance.  This Act limits the liability of directors for acts performed in good faith.  The Act further permits indemnification for directors (current or former) so long as the conduct was performed in good faith and was in the nonprofit corporation’s best interests.  The Act allows the Association to either advance or reimburse a director’s expenses incurred in defending an action against such director.

Therefore, even when there is no insurance coverage, it is clear that there are protections for individual board members who are performing their duties to the association in good faith.  However, the association ultimately remains responsible for the expense of defending an action brought against a board member.  In the event of claims against a board member or the association itself, such defense expenses will be considered common expenses that ultimately all members of the community will be obligated to pay.

Remember, as always, to discuss this sort of matter with your attorney as they can provide you with advice specific to your association’s governing documents, and your situation.

Federal, state, and local responses to COVID-19 are changing quickly.  Our COVID-19 related communications are based on the facts and guidance available today.  Always look for the most up-to-date information when making decisions for your communities.

Social distancing restrictions and recommendations are likely to continue for some time.  In light of this new reality, what happens to Association meetings?  The good news is that, in general, board and member meetings may be conducted using telephonic or video conferencing services under the Colorado Revised Nonprofit Corporation Act, so long as all attendees can hear one another and be heard.  There are many available options, such as Zoom, Google Meet, Gotomeeting.com, Skype, Microsoft Teams, Webex, and FreeConferenceCall.com that you can explore to determine what works best for your community’s needs and budget.

After selecting a service and setting a date and time for the Board or Member meeting, send notice to the community as required by your Bylaws.  Board meetings are open to attendance by all members, so consider the best means of communicating dial-in numbers and passwords.  All community associations should have a policy governing the conduct of meetings.  Consider how the reality of a virtual meeting intersects with your current policy.  You may want to explore more specific details and protocols for muting and selecting attendees to ensure that owners are able to speak at designated times, without turning the meeting into a chorus of “sorry, that was my dog” and microphone feedback.  Many conferencing services allow the meeting host to mute individuals so that the meeting proceeds in an orderly fashion, while permitting homeowners to speak at designated times.  If you amend your policy governing the conduct of meetings, or adopt a new policy for these specific types of meetings, adopt the changes in compliance with your policy governing the adoption and amendment of policies.

Member meetings are another issue altogether.  Generally speaking, under Colorado’s Nonprofit Corporation Act, voting may be conducted by written ballot.  Some matters, like budget ratification, can be handled almost the same as an in-person meeting.  Other matters, such as a contested election for the Board, will take more consideration.  Secret balloting will undoubtedly take a longer time than an in-person vote by acclamation.  You may be able to take action by written ballot, but the nature of the action will dictate the process, as will your individual Bylaws.  It may be that an election only becomes contested when an individual self-nominates from the floor at the meeting.  Be prepared to be flexible, and have a plan for contingencies.  Consider having counsel attend the meetings to help you avoid confusion and errors.

Thoughtful planning will help you lead your communities through this crisis.  Life and community governance are certainly going to change as a result of the pandemic, and your leadership will help keep your community safe and functioning.  As always, please contact your attorney for advice specific to your community’s needs and legal requirements.

This morning, the Colorado Senate on a 32 to 1 vote, passed Senate Bill 20-126 (“SB 126”) on third reading.  Senators Tammy Story (D-Boulder, Denver, Gilpin and Jefferson Counties) and Jim Smallwood (R-Douglas County) are the primary sponsors of the bill and introduced this bipartisan piece of legislation to require HOAs in Colorado to permit the existence of licensed family child care homes in their communities.

These sponsors claim that SB 126 is necessary because many HOAs across Colorado prohibit residents from having day care businesses in their homes and since so many folks live in HOAs in Colorado, this has created a day care desert.  In particular, SB 126 provides that regardless of whether there are prohibitions on day care businesses in the declaration, bylaws or rules and regulations of an HOA, as a matter of public policy, HOAs cannot prohibit the operation of licensed day care homes in their communities.

It is true that it is not uncommon for HOAs in Colorado to prohibit day care businesses in their communities.  This is largely because of the potential liability to the HOAs associated with these businesses, the noise related nuisances that day cares can create and the fact that the common elements and amenities of HOAs are intended for the use of the residents of the HOAs.  The parks, tot lots, swimming pools and other amenities of HOAs, were never intended to become overcrowded by children in day care who do not live in these communities.  In addition, kids will be kids, and it is not uncommon for them to be hurt while using slides, swings, swimming pools or just tripping over a curb.

Luckily for HOAs in Colorado, Senator Angela Williams recognized the risk of kids in day care being hurt on the common elements and while using the amenities and was adamant that this liability should rest with the owners and operators of these day care businesses and should not be passed onto the HOAs.  As a result, Senator Williams passed an amendment on the floor of the Senate which permits HOAs to require the owners and operators of day care businesses to carry liability insurance coverage and that the coverage shall name the HOA as an additional insured and be primary over the liability coverage which the HOA carries.

SB 126 will now move over to the Colorado House of Representatives for consideration.  We expect the bill to pass the House and ultimately be signed into law.  Keep an eye out on this blog for updates on SB 126 and for recommendations on how to address the requirements of this legislative, if it is signed into law.

We all know that the primary function of a community association’s Board of Directors is to do the business of the association, right? In fact, significant parts of most declarations and bylaws are devoted to setting out the powers and authority of the Board. If a community was formed on or after July 1, 1992, the Colorado Common Interest Ownership Act (CCIOA) says that, except as expressly stated in a declaration or bylaws or in CCIOA, the Board may act in all instances on behalf of the association.

In the absence of specific provisions of an association’s governing documents, the Board has the authority to determine when, and how often, it will meet to carry out the association’s business. But sometimes, the regular meeting schedule is not frequent enough to get everything done, or matters come up that cannot wait until the next regularly scheduled Board meeting. What’s the Board to do?

Well, it could change its regular meeting schedule, or it could call a special meeting of the board following the requirements for notice set out in the bylaws or the Colorado Revised Nonprofit Corporation Act. It could also arrange a phone conference by which each director can hear and participate in the meeting. In addition, some Boards elect to take action outside of a meeting as a convenience to the Board, and as a way of not having to meet. CCIOA contemplates that the Board may take action outside of a meeting, either under the authority of the association’s bylaws, or under the authority of the Colorado Revised Nonprofit Corporation Act. The Nonprofit Act sets out a very specific procedure for taking action outside of a meeting if the procedure is not spelled out in the bylaws.

But, here’s the catch – CCIOA also says that, at an appropriate time determined by the Board, but before the Board votes on an issue under discussion, owners or their designated representatives must be permitted to speak regarding that issue. If the Board is taking action outside of a meeting (for example, by email), how are owners being allowed to speak to the issue before the Board votes? There may be several options, but here are a couple: (a) send a broadcast email to all owners inviting their input before the board votes; or (b) discuss the matter at an open board meeting (with the item to be considered being included on the agenda) and allow owners to provide input, then the Board can take action afterwards through email.

Whatever direction the Board decides to take, it should be mindful of CCIOA’s intention to allow owners the right to participate, and provide for transparency, in the decision-making process.

In Shakespeare’s Henry VI, Dick the Butcher suggests killing the lawyers in the context of a revolution. “Killing the lawyers” has been interpreted to either contemplate a nirvana in which annoying attorneys with their endless red tape are no longer around to stop normal people from living happy lives, or to lay the groundwork to prevent the rule of law from stopping a coup before it is too late.

I tend to interpret this line as the latter. I truly believe that attorneys – and especially, attorneys in our field of practice – are necessary to ensure that the law is upheld, respected, and understood by owners, Boards, and managers alike. We are often a “necessary evil.”

Viewing attorneys as something evil, many communities seek to avoid the need for legal counsel. After all, attorneys are expensive, and they often tell Boards and homeowners to stop a particular course of action contrary to the desires of the counseled party. It is incumbent upon Boards and their professional advisers to recognize circumstances where an attorney is necessary or appropriate. When those circumstances occur – CALL THE LAWYER FIRST!

If you know you are going to have a difficult meeting, whether it is a hotly contested election, a controversial special assessment, or a difficult homeowner who won’t take “no” for an answer, call the association’s attorney to check his or her availability before scheduling the meeting if at all possible. Many community association attorneys attend multiple evening meetings every week – particularly during annual meeting, budgeting, and election season – and if you make sure your attorney is available before you schedule a meeting, you will be better able to address the hurdles before you at that meeting. We recognize you can’t always plan for a difficult meeting – sometimes, the difficulty rears its head the day before the meeting occurs – but get your attorney involved early to protect the Association and the rule of law, and make your life easier.

Is your association increasing, or even decreasing, its annual assessment fees for 2020? 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.

In addition to payment plans that may be affected by the increase of assessment fees, there are also notification requirements and deadlines the association must comply with for certain owners who have filed for bankruptcy.  Advising the association’s attorney of any change will allow the attorney to take the proper measures to ensure that the association retains the right to collect the new assessment fee.

If you haven’t already notified your attorney that your assessment fees have changed, or will change, for the New Year, pick up the phone or send an email to your attorney – I’m sure he or she would love to hear from you!

For those of us who work in the HOA industry, the one constant theme we have heard over the last couple of years is that many people have become just plain mean.  While this nastiness is certainly not across the board and folks in the vast majority of HOAs we work with strive to do the right thing and treat each other with respect, those HOAs that are dysfunctional seem to have an escalation in the lack of civility in their communities.  We all have our theories on on why this is the case, but we will let you contemplate that on your own.

It’s probably safe to say that we have all been taught that we need to set an example with our own behavior.  As a result, we need to be willing to engage in a self-evaluation to determine if we are contributing to the dysfunction and lack of civility in our own communities.   In this blog entry, we will provide a self-evaluation for folks serving on the board of directors of their HOA.  Next week, we will provide a self-evaluation for homeowners. Finally, we will conclude this series on civility with tips for dealing with difficult people in HOAs.

Self-Evaluation for Directors:

  1.  Interaction with fellow directors.  How do you treat your fellow directors?  Do you listen to their perspective?  Do you point fingers at them?  Do you cut them off while they are speaking?  Do you yell or scream at them?  Are you disrespectful to them?  Do you ignore them?  Do you speak to others while another director has the floor?
  2. Interaction with management.  How do you treat your manager and management company?  Do you listen to their reports?  Do you ask their opinion on issues?  Do you yell or scream at them?  Do you treat them with disrespect?  Do you make assumptions about their performance, without first gathering credible information?  Do you have a conversation with your management to set reasonable and obtainable expectations?  How do you handle legitimate conflict with your management?
  3.  Interaction with homeowners.  Do you make stereotypical assumptions about some of the homeowners in your community?  Do you treat all homeowners equally?  Do you treat them respectfully?  Do you yell or scream at them during meetings?  Do you inappropriately cut them off?  Do you ignore them when they are speaking?  Do you make disparaging comments about them?  How do you handle chronic complainers in your community?
  4. Interaction with your ego.  How does your ego impact your conduct in the community?  Are you a know it all?  Are you always thinking about what you are going to say, rather than listening to the individual who has the floor?  Are you belligerent or hostile to others? Is your ego getting in the way of admitting when you are wrong?  Are you disrespectful to others who don’t share you opinion?

Let’s face it, nobody is perfect and we all have moments that we are not proud of.  However, by honestly and privately engaging in this self-evaluation, you can answer for yourself whether as a director you are conducting yourself appropriately in your community.  If you are not acting with civility and basic decency as a director, how are you going to change your behavior?  If you are serving with a director who routinely and destructively engages in incivility, are you willing to professionally and constructively call out their behavior?

Remember, as a leader in your community, the example you set can make a huge difference!

 

 

On Wednesday, the Federal Housing Administration issued new guidelines for condominium project approval. Before the recession, condominium projects could obtain FHA certification, in whole or in part, and that certification did not expire. In 2011, the guidelines were changed to require re-certification every two years, and limited certification to the entire project. Gone were the days of “spot approval.” At the time, it appeared that HUD was no longer interested in backing condominium loans.

The new guidelines bring back spot approval, and now projects only need obtain re-certification every three years. Re-certification has been simplified. In addition, owner occupancy can be as low as 35%. These changes can make it easier for a buyer to obtain an FHA loan, potentially expanding the pool of available buyers for condominiums throughout the country.

The new guidelines go into effect on October 15.