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.  

The Growing Trend of Community Associations' Digital Record Keeping

Like any corporation, community associations generate a tremendous amount of paper records and documents.  Some larger and/or older associations must dedicate entire rooms to storing nothing but filing cabinets packed full of paperwork.  Because inflow of paperwork knows no ends, as long as the association continues to operate, the records will continue to accumulate.  Organization of records is an enormous task that normally falls on the board members or the management company.  Fortunately, as technology continues to evolve, the prospect of keeping digital records becomes easier and more affordable.  Aside from elimination of the amount of space required to store digital records, digital records are also more time efficient.

The process of “going digital” is two-fold.  First, the board must approve a plan to convert all of its existing, paper records to a digital format.  Second, the board must purchase technology or contract an outside firm to incorporate new paperwork into the digital records moving forward.  Conversion of existing records may present more challenges due to high volume of paper records.  As a result, the board may choose to hire a third party company that specializes in scanning and organizing records.

Experts recommend that an association first devise a plan as to what it wants to store digitally. Does the association intend to convert all of its files, including dormant files, or only the active files?  Typically, third party conversion companies recommend converting everything to a digital format, ensuring everything is stored in the same place.  The board must then budget for the costs and time needed to complete the project, including the cost to hire the third party, if needed.  Although hiring an outside company may eliminate a large amount of time the board is investing in the project, either a board member or the property manager must work oversee the process to ensure accuracy.

Finally, if an association chooses to make all records digital, a simple desktop scanner can be purchased for the association’s office or the property manager to continue the paperless process.  Each time a new document is received it can be scanned and added to the digital records and the paper copy thrown away.

Choosing to become a paperless association is something many boards are now debating, as the digital process will likely, in the long run, save space and money and will help to ensure easy, long term access to all association records.

Ohio Supreme Court Rules in Favor of Homeowners

In a unanimous decision, the Supreme Court of Ohio recently issued a favorable ruling for homeowners across the state.  The decision also benefits community associations facing unnecessary repairs as a result of poor construction practices by their developer. 

In Jones v. Centex Homes, the Ohio Supreme Court reversed a decision by the Tenth District Court of Appeals finding that homeowners may waive the builder’s obligation to construct the house properly in their purchase agreement.  The Court concluded that a homebuilder’s obligation to build in a workmanlike manner is a duty imposed by law that cannot be signed away by a homeowner in the fine print of a home purchase contract.  The Supreme Court went on to state that homebuilders do not have to be perfect, but they do have to construct houses “in a workmanlike manner using ordinary care.”

Prior to the Supreme Court’s decision, developers often argued that community associations were barred from commencing a lawsuit for construction defects because each owner within the association had waived his or her right to sue in a purchase agreement.  Developers will no longer be able rely on this argument, as the Supreme Court clearly concludes that builders cannot insulate themselves from claims for poor workmanship by inserting a waiver provision in a homeowner’s purchase contract.  By eliminating a potential defense for developers engaged in shoddy construction practices, Ohio community associations stand to benefit from the Supreme Court’s recent decision.

Requesting Your Association’s Federal Tax ID Number

Condominium and homeowner association board members and property managers are often asked for their association’s Federal Tax Identification Number.  Community associations in Ohio are not-for-profit corporations that are registered with the Ohio Secretary of State.  Just because an association is not-for-profit, however, does not mean that an association’s income is non-taxable; therefore, the association still may have to pay income taxes.  As a result, every association is assigned a Federal Tax ID Number, also known as an Employee Identification Number (EIN).  Similar to an individual's social security number, a corporation's Federal Tax ID Number is a unique number that government agencies and other institutions, such as banks, use to identify individual corporations.

When paying taxes, filling out mortgagee questionnaires, receiving payment from a bank on a delinquent account, or opening a bank account and/or certificate of deposit, associations are often asked to provide their Federal Tax ID Number, but many board members are unaware of the assigned number.  To obtain your  association’s Federal Tax ID Number, board members may either call the Internal Revenue Service’s Business & Specialty Tax Line at (800) 829-4933 or visit http://www.irs-ein-application.com.

Association Thief Released From Prison

After serving 44 months of a 51 month sentence in federal prison for stealing more than $3.4 Million Dollars from over 40 of Ohio’s community associations, former MultiVest Management owner Kathleen DeSalvo is being released today. By her production of fraudulent bank statements and online fund transfers, the losses related to Ms. DeSalvo range from a few thousand dollars to almost $300,000 per association, with at least four associations losing $250,000 or more. While Ms. DeSalvo may have “paid her debt to society,” the losses sustained to many communities will likely never be repaid.

Despite this alarming wake-up call for associations, many Ohio community association still remain vulnerable to financial threats. To guide association board members in making sound financial decisions, partner Darcy Mehling Good, authored a Kaman Report Article entitled “Safeguarding Association Funds.” This article provides 10 suggestions that boards should seriously consider to reasonably protect the community’s money including lock box systems, segregated accounts, proper insurance, and regular audits. Kaman & Cusimano, LLC service option clients can view the entire article in the Client Articles section of ATLAS. Please click here to log into ATLAS.

Aurora Management Theft Leads to Prison Sentence

As a result of her theft of over $1 Million Dollars, Tracy Reed was sentenced to seven (7) years in prison yesterday by Judge Judith Hunter in the Summit County Common Pleas Court.

Bob Kmiecik attended the hearing and reports that Judge Hunter appeared fully informed about the economic, emotional and other harm that Tracy’s theft caused for hundreds, if not over a thousand homeowners. The Judge had read all of the letters submitted by Board members and had reviewed the matter at length with the prosecutor and Tracy’s defense counsel.

In addition, she listened to statements presented in Court by two board members and allowed Bob to speak as well. Bob informed the Judge that not only had Tracy’s criminal acts caused harm to the associations and their owners, but that a “secondary loss” occurred when Tracy gave a “black eye” to her colleagues in the Professional Property Management industry. Bob noted that Tracy was well aware of the great harm caused by the Multivest loss, but that apparently she was not deterred by the 5 year Federal Prison sentence handed down to Kathleen DiSalvo.

Tracy spoke briefly and softly in her own defense and said “I have no legitimate excuse; I betrayed my “customers’” trust; It is a difficult business; It got out of control; I have no way to repay it; I have no way to make it right.”

In sentencing Tracy to 7 years out of a maximum of 8 years, the Judge specifically noted Tracy’s apparent lack of genuine remorse and rejected Tracy’s request for a couple of weeks to arrange for the custody of her children. Noting “we will take care of your children” the judge ordered Tracy to be “immediately” taken to jail as she was led out of Court in handcuffs.
Although the Court will issue a restitution order, it was generally agreed by the prosecutor, the Judge, and Tracy’s lawyer, that she does not have any substantial assets to satisfy the order.

Condo Associations Get Tough on Fees

The increasingly large, grassroots push for community association rights to delinquent fees is beginning to receive national attention. The May 25, 2011 edition of the Wall Street Journal features a story entitled “Condo Associations Get Tough on Fees.” The story features communities in Nevada and Florida that have taken proactive steps to collect delinquent fees as a result of new legislation in both states. According to the Wall Street Journal:

Condo associations, which have been struggling as troubled homeowners stop paying their condo assessments, are becoming increasingly aggressive about finding ways to recoup unpaid fees. And they have lawmakers on their side.

Closer to home, we are optimistic that Ohio lawmakers will similarly respond as a result of increased national attention and greater pressure from community association constituents. Legislators are still being sought to reintroduce the updated Ohio Community Association Preservation Act (formerly called the “Super Lien”).

In the meantime, Ohio community association continue to be aggressive in pursuing delinquencies by filing liens, foreclosing on properties, and requesting that a Court appoint a receiver to collect rent from a delinquent owner’s tenant. By following this strategy, Kaman & Cusimano clients have recovered over $3,972,802 over the last twelve months for Ohio condominium and homeowner associations.

To view the complete Wall Street Journal report, please visit:http://online.wsj.com/article_email/SB10001424052748704281504576327693591415736-lMyQjAxMTAxMDIwNTEyNDUyWj.html#articleTabs%3Darticle

Ohio Introduces Legislation Protecting Service Flags

Recently, the Ohio General Assembly introduced House Bill 189 that would affect all condominium and homeowner associations within Ohio. If passed, this legislation would prohibit all community associations, through their rules or recorded declaration provisions from restricting the display of blue star banners, gold star banners, and other service flags.

This prohibition would be in addition to the restriction on associations prohibiting the American flag already found in Ohio law. The intent of passing this bill follows the common sense approach to patriotic flags that Kaman & Cusimano has advised its clients to follow in the past.  In these times of great national pride, associations should consider permitting such displays of patriotism to honor those serving in the armed forces and their families here at home, whether or not required by law. While the board for a community association may implement reasonable restrictions how such flags may be displayed, just as they do now with the American flag, an outright ban would be unreasonable and may lead to angry, upset owners and even negative media attention.

HB 189 enjoys broad, bi-partisan support with two sponsors and 25 co-sponsors. As a result, there is a significant chance that it will be approved in both the House and Senate and signed by the Governor this year. If, for some reason, it does not become law, we still recommend that all Ohio condominium and homeowner associations create reasonable rules for permitting service members and their families to display these patriotic flags.

To view a full copy of the bill, please click here.

New ADA Pool Regulations Generally Don’t Apply to Associations

Recently, the US Department of Justice revised its Americans with Disabilities Act (“ADA”) regulations regarding pools. These new regulations require that public pools have sufficient access for the disabled, including ramps or lifts. Some pool companies have sent notices to community associations informing them of the new requirement, but neglecting to inform the association that the ADA regulations do not apply to them.

These new pools regulations are found in Title III of the ADA. Title III of the ADA applies to private entities that operate places of public accommodation, such as a hotel or local health club. As neither the association nor any individual owner is operating a place of public accommodation, Title III does not apply. As a result, community associations, generally, do not have to comply with this new requirement.

On the other hand, if your association opens your pool up to persons outside the community, then the pool must comply with ADA regulations. For example, the hosting of swim meets, selling of memberships to people outside the association, or providing swim lessons to people outside the community are all “public” activities that trigger the ADA requirements. If your association is conducting these types of activities, then the association must comply with all ADA regulations, including pool, parking space, and restroom requirements.

Again, these new ADA regulations do not generally apply to Ohio community associations because the association’s pool is reserved for the exclusive use of the owners and their guests. If you believe that your association is conducting activities that may subject the association to the ADA’s requirements, contact your association’s attorney for further analysis and information.

Impact of “Robo-Signing” on Association Foreclosures

Recently, there has been significant media attention regarding banks’ “robo-signing” procedures and the impact on pending foreclosure cases. In response, many Ohio judges have imposed strict new guidelines for banks and their attorneys to follow in an effort to ensure accuracy of loan documents. On Monday, the Columbus Dispatch reported that multiple Franklin County Court of Common Pleas judges have joined with other judges from across Ohio to require banks and/or their attorneys to file certifications that their documents are accurate, or the case will be dismissed.

In response to this news, many association board members and property managers have contacted our office questioning the impact on their associations’ pending foreclosure cases. To be clear, these requirements and the banks’ errors will not affect association foreclosures, provided the board followed Kaman & Cusimano’s recommendation to either file a foreclosure complaint or an answer and cross-claim.
Kaman & Cusimano has strongly encouraged its service option clients to be aggressive in pursuing delinquencies. To do so, the firm strongly recommends that an association file a lien and then either 1) file a complaint to initiate foreclosure proceedings when a balance become high, or 2) join take action through the bank’s foreclosure by filing and answer and a cross-claim. Using this approach is a proven method for protecting the associations’ interest and enabling the association to proceed, if necessary, to a sheriff’s sale. In fact, by following this procedure, Kaman & Cusimano collected over $3.97 million, including the costs of collection and attorney fees, for its clients in 2010.

Again, when an owner fails to pay, filing a lien, then a complaint or an answer/cross-claim enables the association to push the foreclosure, continue the court proceedings, and order a sheriff’s sale regardless of the status of the bank’s claim. The owner has no choice but to pay the association to save his/her home. If your association has aggressively pursued its delinquent accounts and followed Kaman & Cusimano’s recommendations, the banks’ foreclosure problems will not affect your association’s ability to obtain a judgment on its claim and ultimately order a sheriff’s sale.

NPR Columbus - Condo/HOA Special Report Part II

For those of you who were unable to listen live to Kaman & Cusimano, LLC Attorney Marie Rutkowski's appearance on WOSU Columbus, the show's archives are now available online.  To listen and watch the round table discussion, please visit:

http://www.ohiochannel.org/MediaLibrary/Media.aspx?fileId=128655&returnTo=Collection

On Wednesday, January 12, Marie appeared with host Ann Fisher on “All Sides with Ann Fisher.” The topic discussed: “Condominium and homeowner association finances. Are condominiums still a good investment?”

NPR Columbus – Condominium/HOA Special Report

We are pleased and honored to announce that attorney Marie Rutkowski will be appearing this week on WOSU Columbus. On Wednesday, January 12, from 10 – 11 AM, Marie will appear with host Ann Fisher on “All Sides with Ann Fisher.” The topic to be discussed: “Condominium and homeowner association finances. Are condominiums still a good investment?” The show will address how condominium owners and condominium and homeowner associations can deal with the challenges of the foreclosure crisis.


This is a great opportunity to highlight ways that central Ohio association board members and property managers have worked tirelessly to protect our communities. To listen, please either tune your radio to WOSU 89.7FM or listen on the internet at www.wosu.org. If you are unable to listen live, please stay tuned to Kaman & Cusimano, LLC’s Ohio Condo & HOA Law Blog at http://www.ohiocondolaw.com/ or http://www.ohiohoalaw.com/ after the show for information on how to listen to an archived version.

2011 Community Association Outlook is Bright!

In 2010, condominiums and homeowner associations faced a number of significant economic challenges outside their control. Yet, in representing hundreds of condominiums and homeowner associations throughout Ohio, we worked with board members who overcame these challenges, proving that one aspect rings more true than ever: “Community association board members are not paid, not because they are worthless… but because they are priceless!”


Two of the biggest challenges boards tackled were collecting from delinquent owners and safeguarding association funds. In some parts of the country, unpaid assessments have resulted in deferred maintenance and cuts in services. Here, most boards have diligently enacted aggressive collection policies, proposed amendments to fortify provisions in the governing documents, and joined together to introduce “Superlien” legislation, which would protect condominiums from unrecovered losses in a foreclosure. Additionally, board members have taken steps to safeguard the associations’ money and ensure that they and their property managers are covered by the Association’s fidelity insurance.

The next time you see your volunteer condominium board member or property manager, say “Thank You!” Because of their hard work finding creative solutions, your community not only survived 2010, but will thrive in 2011.

Kaman & Cusimano, LLC: we do one thing and do it well: Ohio condominium and homeowner association law.

Super Lien Lives to Fight Another Day

Ohio’s legislative session ends at the end of 2010, and any legislation that is not enacted must be re-introduced in the new legislative session, beginning in 2011. While progress was made, Ohio’s Super Lien legislation was not enacted this year. A community association Super Lien would, in the event of a foreclosure sale, mandate that the association be paid six months of fees prior to all other liens, including the bank’s first mortgages. Due to the importance of this legislation to thousands of Ohio communities, we are seeking to have this legislation re-introduced in 2011. It is our desire to ensure that the 2011 legislation will apply not only to condominiums, but homeowner associations as well. To accomplish this, wide spread support is certainly needed.


With the recent elections over and the new Republican controlled legislature, this effort needs board members who are friends with, or have influence with, Republican State Representatives or State Senators. If you know such a legislator, please contact us at superlien@kamancus.com for more information on how to volunteer and solicit sponsorship and/or support for this much needed legislation.

For the most up to date news and information, please continue watch this blog on our websites: http://www.ohiocondolaw.com/ or http://www.ohiohoalaw.com/