Category Archives: CAI

A community’s last resort: Foreclosing on a home

Nobody wants to foreclose on a home—not a mortgage banker and certainly not a community association. Countless Americans lose their homes when lending institutions are unable to collect mortgage payments. In a perfect world, no one would ever face foreclosure—for any reason.

That’s why foreclosure should always be used as a last resort, applied only when a community association has exhausted all other collection options and only when a homeowner refuses to remedy a significant debt to the association.

CAI does not support people losing their homes to foreclosure for insignificant sums of money. Even when the debt is significant, foreclosure should be considered only after other approaches have failed. In all cases, homeowners facing foreclosure deserve reasonable opportunity to appeal the issue to the leadership of the association.

There is no universal threshold that should trigger a foreclosure. The decision should be based on many factors, including the amount of the debt, the financial health of the association, the reason for the debt, and the homeowner’s willingness and ability to bring the account up to date. The magnitude of this decision requires an approach that is fair, reasonable, and consistent with practices and procedures established by the association’s governing documents.

While there are isolated instances of inappropriate foreclosure, this action is viewed as a last and unavoidable step by the overwhelming majority of community associations. Knowing that people occasionally face financial hardship—a lost job, for instance—many community associations do work with homeowners to develop deferred or special payment plans.

Elected by their neighbors, volunteer community leaders are responsible for ensuring financial stability and the continued delivery of services to residents in the community. An association’s budgetary obligations do not change when assessments aren’t paid. Common areas must still be maintained. Garbage must be collected. Insurance coverage must continue. The pool remains open in the summer. Snow is plowed in the winter.

Homeowners who simply refuse to pay their assessments—as they contractually agreed to do when they purchased their homes in an association—are cheating their neighbors, their community, and themselves. When homeowners are delinquent on their assessments, either their neighbors must make up the difference or services and amenities must be curtailed. That affects everyone in the community, perhaps even leading to a decline in property values.

Used as a last resort, the lien and foreclosure process gives community associations a mechanism to ensure the resources necessary to provide services, protect property values, and meet the expectations of the community as a whole. Placing a lien on property, with the ability to foreclose, is typically enough impetus to get delinquent residents to meet their financial obligations to the community.

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Condominium assessments and bankruptcy: What can associations collect?

Courts across the nation are split on whether post-petition community association assessments constitute dischargeable debts under Chapter 13 of the U.S. Bankruptcy Code. To make matters worse, in November, the Supreme Court denied a petition to review the issue, leaving the community association industry wondering if the existing dispute among the courts will ever have a concise national remedy.

This past July, the Ninth Circuit Court of Appeals, which comprise several Western states, had held in Goudelock v. Sixty-01 Ass’n of Apartment Owners, No. 16-35385 (9th Cir. July 10, 2018), that an individual’s pre-petition debt or claim for assessments—created when a property owner takes title to property and which contractually obligates the owner/debtor to pay assessments—is dischargeable when the owner/debtor successfully completes a confirmed Chapter 13 plan. In November, CAI attorneys drafted and submitted an amicus brief in tandem with the (now denied) petition to the U.S. Supreme Court appealing the Ninth Circuit case.

CAI’s amicus brief made it clear to the Supreme Court that the rationale employed by the Ninth Circuit in Goudelock has far-reaching implications for community associations throughout the U.S., as it threatens the lifeblood of community associations—the continued ability to levy and collect assessments and dues for the maintenance and preservation of community property. Due to the Supreme Court denying the association’s petition, the Goudelock decision stands. This decision is already negatively impacting community associations in the Ninth Circuit, as courts have cited the Goudelock decision in their reasoning for denying community associations the ability to collect debts in Chapter 13 bankruptcies.

Yet not all courts across the country agree with this decision. In February, the U.S. District Court in New Jersey handed down a decision that positively impacts the amount of money a condominium association with a properly recorded lien is entitled to receive when a unit owner files for Chapter 13 bankruptcy.

In an appeal filed by the Oaks at North Brunswick Condominium Association, the New Jersey court reinforced that a condominium association lien that is recorded in accordance with the New Jersey Condominium Act is given elevated priority over other claims and that said lien is partially secured and no amount of the lien can be stripped because of the Anti-Modification Clause. This means that condominium associations should receive the full amount of their lien claim when a unit owner files a Chapter 13 bankruptcy.

For now, these conflicting rulings leave our community association attorneys confused and frustrated. Outcomes such as the Oaks at North Brunswick case provide hope for dischargeable debts in our industry. However, Goudelock provides that pre-petition condominium assessments are dischargeable in Chapter 13 proceedings but leaves some critical questions unanswered. This being the first circuit court case on the issue, chances are the other circuits may weigh in. At the end of the day, attorneys need to be aware of Goudelock and its possible application to every Chapter 13 case where the debtor owes community association assessments.

This post also is running on CAI’s Advocacy blog, where you can read about the latest court cases, state and federal advocacy efforts, public policies, and more.

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Pothole Patrol: What community associations can do to maintain pavement

It’s that time of year again, when rain, snow, and changing temperatures cause potholes to form, wreaking havoc on roadways, parking lots, and driveways. According to the American Automobile Association (AAA), pothole damages cost U.S. motorists roughly $3 billion per year. On a per-pothole-incident basis that comes out to about $300 per driver. Additionally, AAA reports two-thirds of U.S. drivers are concerned about potholes on local roadways.

No asphalt or concrete surface will last forever, but it is easy to prolong the life of your association’s pavement. Community association managers and boards of directors have several pavement maintenance and repair options from which to choose.

Crack Filling
Cracks in the asphalt should be cleaned of dirt and vegetation and allowed to dry completely before filling. Cracks should be filled with emulsified asphalt slurry or a light grade of liquid asphalt mixed with fine sand.

Asphalt Patching
Patching is done in areas with severe alligator cracks and/or potholes. When the patch is cut out, the sub-base material should be examined and compacted thoroughly before patching. The patch should be tack coated, to ensure firm bonding between the old and new surfaces. Base course material is laid and compacted first, and new surface asphalt is laid and compacted on top of that. The patch should be rolled to a smooth finish, and all edges should be coated to minimize water penetration.

Overlays
Overlays are placed over existing asphalt to create a new surface. In recent years paving fabric, placed on the existing asphalt prior to the overlay, has gained popularity as an effective agent to bond the new asphalt to the existing asphalt surface. Once the existing asphalt has been prepared, the paving fabric is laid down and a new surface quality asphalt is laid over it. It is then rolled to a smooth finish to match existing grades of asphalt.

Sealcoating
Sealcoating is a controversial aspect of asphalt maintenance. Generally, sealcoating provides an additional 2-3 years of protection against the elements and use by providing an additional layer of protection. It is also cosmetic, in that it covers old and new asphalt to create a uniform look in the community and increases curb appeal. Sealcoating is best done approximately one year after a new surface has been laid. It should be applied by the squeegee method if possible to ensure the sealing of cracks too small to fill by the traditional method.

For more information on repair road and paving, check out The Road Repair Handbook, available for purchase at CAI Press.

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Hanging the stockings with care: Developing a holiday decoration policy that doesn’t turn into a lump of coal

With their celebrations, gifts, and good wishes, the holidays are a time to be thankful and festive. Often that means decorating your home, office, and even car. But in some community associations, a resident’s seemingly innocent act of holiday cheer can be interpreted as a malicious disregard for association rules.

How can your association avoid a dispute over holiday decorating? By considering both your residents’ rights to celebrate and your association’s ability to institute architectural guidelines that protect and enhance its aesthetic characteristics. Developing a policy doesn’t have to be a complicated or controversial process.

“Rather than adopt a rule under pressure, why not take the time to think it through before the need arises?” attorney Lucia Anna “Pia” Trigiani writes in her book, Reinventing the Rules: A Step-by-Step Guide for Being Reasonable. “Anticipating your association’s future needs and establishing rules for them now puts you in a proactive rather than reactive position.”

The rulemaking process should involve the entire community:

Committees. The responsibility of researching and drafting the initial policy may fall on the architectural or rules committee, which should poll the board as well as residents to discover their preferences.

Professionals. Consult with your community manager and attorney. These experts might know of other associations that have dealt with the same problem, and they also can help make sure your policy is consistent with your association’s governing documents as well as state and local laws.

Residents. After the committee has drafted the initial policy and the board has reviewed it, it’s time to go back to your residents for feedback. Distribute copies of the proposed language for everyone to review. If applicable, incorporate resident concerns and suggestions into the final policy.

As for how your association handles decorations on common areas, amenities, or community buildings, you might consider the following:

  • If your decorations include religious symbols, make sure that every religion is represented, so as not to alienate or upset anyone.
  • You don’t need to overdo the tinsel and plastic figurines. Sometimes less is more. It’s hard to pull off loads of decorations tastefully.
  • If your decorating plan includes draping outdoor trees with lights, be sure the lights don’t shine in anyone’s windows. Consult with your residents before you start stringing.

Whatever your community decides, don’t lose sight of what’s really important: celebrating the holiday season. This time of year offers great opportunities for your residents to get to know one another and become involved in association operations. It may seem like a lot of work for a bunch of lights and some tinsel, but developing and communicating a reasonable decorations policy can help avoid disputes and keep everyone in the holiday spirit.

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What to know before you buy in a community association

People choose to live in community associations for numerous reasons. Many owners value the inherent benefits of community associations, which are designed to manage common areas of the property, manage the property interests of owners, provide services for owners, and develop a sense of community through social activities and amenities. Yet community association living isn’t for everyone.

Do your due diligence by learning all you can about a community before you buy or rent a home in it.

First, ask your real estate agent to see copies of the governing documents, including the bylaws or Covenants, Conditions and Restrictions (sometimes referred to as CC&Rs).

Next, take the time to talk to people who live in the community. Find out how they feel not only about the neighborhood, but also about how the community is governed and managed. Ask to talk to the president of the association, members of the elected board, or the professional who manages the community.

Don’t forget to check out the common areas. Are the amenities—pools, tennis courts, and playgrounds—well-maintained? Is there ample parking?

You should be able to answer the following questions before you buy or rent:

  • How much are the assessments? When are payments due? How much are they likely to increase? What do they cover? What don’t they cover?
  • Does the community have a viable reserve fund for major projects in the future?
  • Are there renting restrictions?
  • Do the architectural guidelines suit your preferences?
  • What are the rules with respect to pets, flags, outside antennas, satellite dishes, clotheslines, fences, patios, and home-based businesses?

While assessments, rules, and regulations are important, don’t overlook other fundamental questions: Is it the right kind of community for you and your family? Does it fit your lifestyle and sense of community? Does it provide the amenities you want? Is it a good investment? The more you know in advance, the more likely you’ll enjoy your new home and community association.

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An unbiased, unfiltered guide to 2018 midterm election signs

Getty Images/Alexeys

The 2018 midterm elections are less than two weeks away, which means, of course, campaign signs are popping up like dandelions in yards and along roads.

These signs become a particular pain point for community associations every election season. Without fail, some communities end up on the evening news or in the local newspaper for attempting to enforce their covenants on signs.

We asked James A. Gustino, a community association attorney in Winter Garden, Fla., to provide some guidance on the subject. What should associations do about the signs? This is what he had to say:

Strict enforcement of association sign prohibitions, particularly as they relate to political signs on an owner’s property during the election season, is almost always unwise.

Check your state’s highest court rulings and the specific “freedom of speech” verbiage in your state’s constitution. Most federal and state courts currently don’t protect political signs from association enforcement. However, the New Jersey Supreme Court issued a pair of decisions in 2012 and 2014 protecting political speech. These opinions could influence other state courts considering similar legal issues in the future.

Covenants restricting signs often incorporate exceptions for security, developer, “for sale” and other board-approved signs. Under such circumstances, an association actively enforcing bans against political signs is unnecessarily exposing itself to charges of selective or arbitrary enforcement. When a ban on signs is universal but an association permits residents’ holiday decorations—another kind of speech—it also exposes itself to claims of selective or arbitrary enforcement. This nuance is often overlooked.

Practically speaking, political signs usually are posted for just a few weeks. By the time the typical association cycles through its standard three noncompliance notifications, the signs will likely have been removed.

Lastly, political beliefs and affiliations—like religious beliefs—tend to produce strong feelings that lead to costly and time-consuming litigation. Even if litigation isn’t the end result, is it sensible to pursue actions that invite unnecessary friction?

I recommend that my clients permit political signs but enact reasonable time, place, and manner restrictions. For example:

  • They can only be placed on the property for 45 days prior to an election
  • They must be removed within three days after the election
  • They cannot contain any profanity
  • They must be limited in number
  • They cannot create a sight obstruction or other safety concern.

I also advocate involving community members to help craft the association’s specific restrictions and then prominently posting (via email blasts, special notices on your website and at entry signs) the rules to encourage compliance.

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HOAs, BOTs, CC&Rs, and more: Defining community association terms

Today, 70 million Americans live in 344,500 common-interest communities. Even if you haven’t lived in a condo, co-op, or HOA, chances are you’ve at least heard of these communities. Admittedly, those who live in, volunteer in, and work for common-interest communities tend to throw around terms like “ARC,” “CC&Rs,” “D&O” or “CMCA” that make things sound more complicated than they really are. So let’s pull back the curtain on some important terms related to living in and working in community associations.

Types of communities

CA: Community Association

CID: Common-Interest Development

Co-op: Cooperative

Condo: Condominium

HOA: Homeowners Association

PD: Planned Development

POA: Property Owners Association

PUD: Planned Unit Development

TOA: Townhouse Owners Association

Community leadership, governance and operations

ARC: Architectural Review Committee

BOD: Board of Directors

BOT: Board of Trustees

CC&Rs: Covenants, Conditions and Restrictions

D&O: Directors & Officers liability insurance

E&O: Errors & Omissions insurance

RFP: Request for Proposal

SOP: Standard Operating Procedures

General CAI terms

CAI: Community Associations Institute

CAMICB: Community Association Manager International Certification Board, a sister organization to CAI.

FCAR: Foundation for Community Association Research, also a CAI affiliate

CCAL: College of Community Association Lawyers

LAC: Legislative Action Committee

PMDP: Professional Management Development Program

Designations, Certifications, and Accreditations
AAMC: Accredited Association Management Company

AMS: Association Management Specialist

CIRMS: Community Insurance & Risk Management Specialist

CMCA: Certified Manager of Community Associations

LSM: Large-Scale Manager

PCAM: Professional Community Association Manager

RS: Reserve Specialist

Whatever the acronym, all community associations—CA, condo, HOA, POA, TOA, etc.—share a few essential goals: preserving the nature and character of the community, providing services and amenities to residents, protecting property values and meeting the established expectations of owners.

Stumped by other acronyms or industry terms? Ask a question in the comments below.

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What do community associations look like in China?

Shanghai urban skyline, China

Picture this: A place where community associations aren’t legally able to have their own bank accounts, property management companies can retain ownership of common areas and rent them out without homeowners’ consent, and developers interfere with board elections because they are opposed to the formation of community associations. While this might seem improbable, situations like these occur frequently in China.

In the U.S., the community association housing model has become commonplace. According to the latest figures from the Foundation for Community Association Research, there are roughly 344,500 common-interest communities across the country. CAI has chapters throughout the world, including Canada, the Middle East, and South Africa, and relationships with housing officials in Australia, Spain, Saudi Arabia, and the United Kingdom. But how prevalent are community associations elsewhere in the world?

They’re a recent development in China, emerging shortly after housing reforms in the 1990s. Previously, urban housing was mainly provided by danwei, or place of employment. Danwei were organized by occupation and were both a physical space where people lived and a system whereby the government could regulate residents’ decisions and actions. With economic and political reform, this system largely became obsolete, leading to significant housing changes.

In response to property rights violations by developers and property management companies, community associations began to emerge. Developers have been faulted for failing to give homeowners their deeds and using them as collateral for loans, understating the area of the home, or not providing promised amenities. Unlike in the U.S., where community associations are usually formed by developers and membership occurs upon purchase of a home, associations in China are a grassroots effort spearheaded by residents to preserve their rights.

From a cultural and political perspective, community associations are novel in the single-party authoritarian regime that is the People’s Republic of China. In a 2008 dissertation by Feng Wang, at the time a Doctorate of Philosophy candidate at the University of Southern California, local governments often looked down upon associations as “an unstable social force that interrupts the establishment of a harmonious society.”

In China, a community association needs to form a preparatory group before it can officially establish—a difficult process. Residents need a representative from their developer and management company. Without their participation, local governments easily strike down the burgeoning association. The group also must meet a voting threshold for approval, and appeal to the management company or developer for a list of residents’ names and contact information to generate participation. Causing further complications, the initial vote is determined by property percentage. This gives developers an opportunity to vote to block its formation if they still own unsold units.

Despite the difficulty in forming and managing community associations, some have achieved commendable success in the country. In 1998 (before some important reforms), residents in one housing complex in China staged a coup and successfully disbanded their HOA after discovering that their management company had falsified a neighborhood mandate giving them permission to form the group. New leadership was voted in, and an HOA with community approved leadership was formed. The group was even able to successfully negotiate lower fees with the management company.

The residential conflict commonly reported in the media in community associations across the U.S. seems trivial compared to the conflict between developers, property managers, and homeowners in China. One might even wonder at the seeming lack of internal disputes among Chinese residents. In fact, according to a survey conducted by Wang, 92 percent of homeowners rate conflict among themselves as a serious issue, but only 25 percent of community associations focus efforts on addressing these issues. It is precisely because of the focus on exterior challenges, rather than internal conflict, that many community associations in China have flourished despite an unfavorable environment.

Through transparency, inclusion, and mobilization of homeowners in China, associations have made huge gains for the rights of residents. Whether in China or the U.S., community associations cannot lose sight of their goals: to elevate residents’ standard of living and protect property values.

Read more about homeowners association in China in the following:

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27 million reasons why a condo would ‘deconvert’

 Lake Michigan from the North Shore, Chicago

In a deal worth $27 million, Edgewater Beach condominium owners in Chicago plan to sell their lakefront building to Greenstone Property Group, a New York- based real estate investor that will convert its 188 units to apartments.

Almost 80 percent of unit owners accepted the offer in a vote over the summer. Under Illinois law, bulk con- dominium sales must be approved by 75 percent of unit owners. The sale is expected to close this year.

“I think owners were beginning to realize that if we don’t sell, we will be required to raise several special assessments to fund crucial deferred maintenance issues, many of which are not prepared for,” says Shawn Swift, president of the Surfside Condominiums board. “We felt it was important that all owners have the choice to decide the building’s fate collectively, rather than a board of directors’ decision to move forward with $3–$4 million in special assessments over the next two years.”

Owners will receive approximately 40–50 percent more on average for their units than if they were to sell on their own, explains Swift, and without the worry of paying hefty assessments in the future.

“We have also negotiated favorable leaseback terms for any owners who wish to stay in their units post-closing,” Swift adds. “The buyer will honor any cur- rent leases in place between an owner and their tenant. About half the building is currently being rented.”

The sale will be one of the largest condominium-to- apartment conversions—also known as deconversions—in the city’s history, according to the Chicago Tribune.

“Condominium deconversions became popular a few years ago because of the increased rental rates in Chicago,” says Patrick T. Costello, a shareholder at Keay & Costello law firm and a legislative liaison to CAI’s Illinois Chapter Legislative Action Committee.

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Why are common-interest communities so uncommon in the U.K.?

Big Ben, London

Community association living is widely popular in many areas of the world. In the U.S., for example, there are 70 million people living in 344,500 common-interest communities, one in eight live in a condominium in Canada, and three million Australians live in strata communities. Condominiums have taken off in Europe too, especially in France and Germany. However, one country remains a laggard in this trend: The United Kingdom. Despite legislation introduced in 2004 to jump-start condominiums— or commonholds as they are referred in the U.K—less than 20 have been developed.

The commonhold system was introduced to phase out the most popular form of housing in the UK: leasehold. In a leasehold arrangement, the buyer rents a flat from the freeholder, or landlord, for a specified number of years. The freeholder is responsible for managing and maintaining the common areas of the building, such as hallways, roofs, and facades. The lease is typically long-term—often as many as 120 years—but begins to decrease in value as the lease nears its end. Many individuals have taken issue with the leasehold system. Complaints range from burdensome fees imposed by landlords to the costliness of extending a lease and the fundamental nature of a leasehold as a wasting asset.

With all the complaints surrounding leaseholds, one might wonder why there’s a lack of enthusiasm for commonholds? In theory, self-management of commonholds removes conflict with the landlord, and ownership alleviates the ticking time bomb worry of a lease. The Law Commission, an entity responsible for reforming laws in the U.K., has a few ideas as to why commonholds remain so sparse.

Some potential issues affect homeowners. When changing from a leasehold to a commonhold, the law requires unanimous consent from every inhabitant 21 years or older, the freeholder, and every lender with a mortgage. Naturally, getting this many people informed, let alone on board with such a big change, is difficult. In addition, the commonhold association, the U.K. equivalent of a community association board, is a company under the current law. As such, leaseholders could face criminal penalties for violating the law. This standard is much too risky for any homeowner. Regulations also might be too stringent in some areas and overly flexible in others. For example, maintenance obligations are unchangeable regardless of age and price of the building, but on the other hand, fire insurance is the only type of insurance buildings are required to have, whereas other types of buildings require flooding and theft insurance.

Overall, commonhold’s failure to launch might simply be due to lack of a financial incentive for developers and a gap in public awareness over this type of housing. These types of large-scale transitions can be difficult and require public backing. However, the U.K.’s housing reform endeavors are an admirable effort to jump-start conversation between potential homebuyers, legislators, commonhold owners, and developers.

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