Five-Year Proxies Overcome Owner Apathy

In early November an attorney from our office attended an annual meeting of an association consisting of 44 homes.  In spite of the attendance of our attorney,  the property manager, the association’s accountant, 5 board members, and 13 homeowners, no business could be conducted in that the association failed to achieve a quorum.  At this particular association, the required quorum is one half of the owners attending either in person or by proxy.  The meeting had to be rescheduled and was held this past week. However, this time the property manager wisely submitted to the owners a five-year proxy.  In Ohio, a proxy is valid for longer than one year so long as it explicitly states the term of validity.  The property manager wisely drafted the proxy  following  the form available on our firm’s educational portal for property managers and board members called ATLAS.  (See Sample Forms:  Proxy (5 year) with voting power to Board President)  The association received 30 of these five-year proxies.  As a result this association should not have trouble obtaining a quorum for their annual election meeting for the next five years.  All boards should consider the use of a five-year proxy.  It is an effective and legal tool to overcome owner apathy.

Federal Government Releases Qualified Mortgage (Ability to Repay) Guidelines

In January, the Consumer Financial Protection Bureau (CFPB) released its long-awaited federal Qualified Mortgage (QM) standards. The new federal guidelines, which are required by the Wall Street Reform and Consumer Protection Act (commonly known as the Dodd Frank Act), establish minimum requirements for all mortgage loans.

Under the QM standards, lenders are required to prove borrowers have the financial resources to pay mortgage principal and interest, insurance premiums, property taxes and association fees. Lenders that extend mortgage credit without fully documenting a borrower’s income and assets and ensuring the borrower has the ability to make all monthly payments will face stiff penalties and fines.

Fortunately, the QM standards consider community association fees as a key factor when determining if a borrower is qualified for a mortgage. Ensuring borrowers can afford to pay association fees will lead to stronger communities and prevent foreclosures.

Hopefully, these guidelines will create a greater degree of financial stability for community associations. However, lenders will have one year to implement the safeguards, with compliance being mandatory in January of 2014.

Lender documentation of association fees and special assessments required to meet the new ability to repay standard will be a key issue for our clients. It is very important for community associations to provide lenders assessment information in a timely manner.

MOST OWNERS ARE HAPPY WITH THEIR COMMUNITY ASSOCIATION

Nationwide, independent research has confirmed once again that most owners are satisfied overall with their community association.  Pollsters IBOPE Zogby conducted their annual community association poll and the results strongly corroborated with those from years past.

 

1.       On a scale of 1–5 (1=very bad; 5=very good), how would you rate your overall experience living in a community association?  About 70% of owners are satisfied with their communities, scoring either a 4 or 5 when asked.  Less than 10% said they were dissatisfied with their communities (a score of 1 or 2).

 

2.       Do you think the members of your elected governing board strive to serve the best interests of the community as a whole?  This year’s survey indicated an even higher rate of satisfaction with respect to Board members.  About 90% of respondents said they felt the Board members were absolutely or mostly serving the best interests of the association.

 

3.       Do the rules in your community protect and enhance property values, harm them, or make no difference?  Considering your overall assessments and the services provided by your community association, how would you describe the return for what you pay in assessments?  In recent years, finances have gotten tighter for many people, and it’s no secret that home values continue to remain flat or decrease.  But owners within community associations have less to complain about than the average homeowner.  About 76% of owners who were polled said that association rules actually enhanced their property values, and 81% said they got a “good” or “great” return on their assessments.

 
4.       The governance of community association is subject to differing state laws and regulations.  Would you like to see more government control of associations?  A whopping 80%-90% of respondents said that they would not approve of more government regulation of their associations.  One may assume that this means the associations are doing a satisfactory job of self-regulating, and that owners are content with the way associations are managed.
 
Of course, like anything, community living can have its ups and downs.  Pollsters asked what owners liked best about living in a community association.  Among the things liked best were neighborhood attractiveness, property values, less maintenance, and safety.
 

Community associations and their owners can feel a little bit better by knowing, at least for them, it’s all good in the neighborhood.

Communication Not Litigation

Our firm has built a reputation in Community Association Law on attempting to “communicate and not litigate. ”   We have a history of trying to keep the unity in community. Attached in as article from a national publication referencing our methods:

 

http://www.hoaleader.com/public/Pursuing-Fines-Part-II-Could-This-Board-Have-Won-Without-Litigation.cfm

Electronic Communication (Emails) Are Discoverable in Litigation

Our firm philosophy has long been "Communication not Litigation." This philosophy is based on the belief that disputes are best resolved in a voluntary and reasonable manner rather than through the time, expense and aggravation of a lawsuit. Recent developments in the law, however, may require Association boards to pay much more attention to how they "communicate" in the event they are compelled to "litigate."

Historically, when a lawsuit is filed, each party is entitled to "discover" evidence held by the other side. This "discovery" process typically involves producing copies of records and other documents possessed by each side to the dispute. In the case of an association, this would include among other things, correspondence to and from the board and its owners as well as between board members, financial records, board and owner meeting minutes, enforcement records, reserve studies and collections information. In today's world, much of this correspondence and records are in the form of emails, texts, databases and other electronically stored information, commonly called “ESI.”

Not surprisingly, lawyers have been very quick to seize upon the existence of ESI and have begun to diligently seek it out both prior to and after the filing of a lawsuit. Once an association's board becomes aware that the Association has been or is likely to become involved in litigation, it has a legal obligation to preserve all evidence, including ESI. We have received a number of letters from lawyers specifically requiring our association clients that may become involved in litigation to preserve any and all ESI under the threat of being sanctioned by the courts.

While none of this may seem to be problematic at first, it can become a great concern for boards who routinely conduct business by email from their home computers, work computers or personal email accounts, as each of these computers and email accounts are subject to discovery motions and subpoenas. This will invariably provide access to information, either personal or otherwise, that a board member assumed was private or confidential but is now being subject to the scrutiny of lawyers and courts. Computer technicians are now able to completely "clone" or duplicate all information on individual computers and computer systems, including attempts to delete or change information.  As a result, board members should avoid using personal email accounts to conduct Association business and limit the content and subject matter of email communications. (Ask yourself if you would feel comfortable having a particular email read in front of a jury.)

The most important thing to remember is that no matter how many times you press the "delete" button on your computer, nothing ever really goes away and may be able to be retrieved by some fairly sophisticated software and some fairly persistent lawyer.

Bad Legislation with an Adverse Impact Introduced as House Bill 574

While infrequent, every now and then a State Representative introduces proposed legislation that makes no sense and is totally adverse to the best interests of Ohio community associations.  Unfortunately, Representative Ted Celeste has just introduced such legislation as Ohio House Bill 574.  This proposed law would:

-Require all property managers to have a real estate broker’s license

-Require owners to approve of the association’s annual budget

-Require board members to register their names with the State

-Require every association to register with the State and pay an application fee that may be raised by the Division of Real Estate

-Create a Statewide dispute resolution board and give this board significant power to override the association’s board decision

-Create a State agency to hear and resolve owner complaints

Fortunately, this legislation was introduced during the summer recess and the current legislative session ends at the end of 2012.  We encourage Board members and property managers to contact Representative Ted Celeste along with Minority Leader Armond Budish at 77 South High Street, 14th Floor, Columbus, Ohio 43215 and indicate your opposition to this proposed law.

A copy of the proposed legislation can be found here:  http://www.legislature.state.oh.us/bills.cfm?ID=129_HB_574

 

HEALTH DEPARTMENT NO LONGER OVERSEEING OHIO’S MARINAS

Either a blessing or a curse, owners and operators of marinas in Ohio no longer have to worry about State or local health departments looking over their shoulders. With the repeal of Section 3733.22 of the Ohio Revised Code, health departments no longer have the authority to provide oversight or assistance to Ohio’s marina operations.

 

 

Since the law’s enactment in 1975, anyone who wanted to construct or expand a marina had to apply for a license and pass an inspection. Any existing marina had to have its license renewed each March. Health department officials made sure the facilities were safe and sanitary so as not to create a health hazard or a nuisance. The principal goal was to protect Ohioans using recreational vehicles or those in the surrounding areas from unsafe drinking water and pollution hazards caused by improperly disposed wastes and other unsanitary conditions. 

 

 

But in September of this past year, the State’s authority to oversee operations and issue licenses was repealed. Some local boards of health have sent out advisory notices to nearby marina owners, suggesting that they use the former regulations as guidelines for continued operation. Time will tell how effective the honor system is at keeping marinas safe and sanitary.

 

 

If your association includes a marina, the board should adopt operating rules and requirements to maintain a safe and inviting facility that serves to protect owners and guests as well as property values.  And, if your association does not contain a marina but one is nearby, it still may be worth your while to keep an eye on the surrounding water—you might be the only one.