Can Enforcing the CC&Rs Equally and Consistently Ever be Illegal?

January 30, 2013

By Curtis G. Kimble.

Has your board ever faced a demand for a “reasonable accommodation” by a disabled resident?  Have you ever heard of a “reasonable accommodation”?  What about a request for a modification to a unit or common area to accommodate a disability?  As explained by the following excerpt from our Utah HOA Law app, if certain requirements are met, granting the request for accommodation or modification is not optional, and enforcing a covenant or rule in such a case can actually be illegal.

Excerpt from RKW’s Utah HOA Law app:

The federal Fair Housing Act prohibits discrimination by landlords and HOAs, as well as others associated with providing housing whose discriminatory practices make housing unavailable (or restrict the use of housing) to persons because of:

•   race or color
•   religion
•   sex
•   national origin
•   familial status, or
•   disability

. . .

Discrimination Based Upon Disability

The Fair Housing Act prohibits discrimination on the basis of disability in all types of housing transactions.  It’s important to realize that discrimination against disabled persons is unlike any other type of discrimination.  At the core of the policy against discrimination is the concept that everyone should be treated equally.  The Act, however, requires that housing providers give special treatment to the disabled when it is necessary to allow them to have an equal opportunity to enjoy their dwellings.

Reasonable Accommodations.

Specifically, a disabled person is entitled to “reasonable accommodations” (exceptions) in the rules, practices, or services of a housing provider (including an HOA) that are necessary for a disabled individual to use or enjoy a dwelling.  So, while uniform enforcement of the governing documents and rules is crucial as a general principle in an HOA, such uniform enforcement is actually against the law when a rule interferes with a disabled person’s use and enjoyment of their dwelling.  For instance, an HOA has a “no pets” policy.  A resident who is deaf requests that the HOA allow him to keep a dog in his unit as a reasonable accommodation.  The resident explains that the dog is an assistance animal that will alert him to several sounds, including knocks at the door, sounding of the smoke detector, the telephone ringing, and cars coming into the driveway.  The HOA must make an exception to its “no pets” policy to accommodate this resident.

When considering a request for a “reasonable accommodation,” an HOA must normally evaluate whether: (1) the individual is disabled, (2) the requested accommodation is reasonable, and (3) the requested accommodation is necessary for the individual to use or enjoy a dwelling.

1.  Disabled.  An individual can be disabled in one of three ways. A disability is: (a) a mental or physical impairment which substantially limits one or more major life activities, (b) a record of having such an impairment, or (c) being regarded as having such an impairment.

The term mental or physical impairment may include conditions such as blindness, hearing impairment, mobility impairment, mental retardation, alcoholism, drug addiction (but current drug users are not considered disabled), chronic fatigue, learning disability, head injury, and mental illness.  The term major life activity may include seeing, hearing, walking, breathing, performing manual tasks, caring for one’s self, learning, speaking, or working.

2.  Reasonable.  To be reasonable, an accommodation cannot impose an undue financial or administrative burden on the HOA and the benefit of the accommodation to the disabled person is weighed against the burden on the housing provider.  Those things are determined on a case-by-case basis taking various factors into account, such as the cost, the resources of the provider, the benefit of the accommodation, and whether alternatives would meet the disability-related needs.

3.  Necessary.  For a requested accommodation to be necessary for the individual to use or enjoy a dwelling, the requested accommodation must affirmatively enhance a disabled plaintiff’s quality of life by ameliorating the effects of the disability.  In other words, there must be a nexus between the disability and the requested accommodation.

Modifications.

The Act also requires an HOA to permit a disabled person to make reasonable modifications to the common area or to a unit in order to afford that person full enjoyment of the premises.  The modification is made at the disabled person’s expense (unless it is to be used by anyone other than that person, or if the HOA requires more expensive materials or options than those proposed by the owner, the HOA pays the difference).  This is in contrast to an accommodation. Accommodations are made by the housing provider (HOA) and can result in an expense to the HOA (unless it creates a financial burden on the HOA).

The same three criteria applicable to reasonable accommodations (disability, reasonableness, necessity) must be met or the HOA is not required to allow the modification.

HUD has given examples of modifications that are typically considered reasonable, which include:

1. widening doorways to make rooms more accessible for persons in wheelchairs;
2. installing grab bars in bathrooms;
3. adding a ramp to make a primary entrance accessible for persons in wheelchairs; or
4. altering a walkway to provide access to a public or common use area.

. . .

This is a tricky area that can be counter-intuitive for boards.  A board should be familiar with and understand the above concepts, but this is definitely one area where a qualified attorney should be consulted prior to a board making any final decision to grant or deny a request for reasonable accommodation.

1 Comment | Enforcement, Fair Housing / Discrimination, Governance | Tagged: , , | Permalink
Posted by Curtis G. Kimble

5 Ways to Reduce Assessment Delinquencies

January 7, 2013

By Curtis G. Kimble.

Our law firm helps many HOA boards and managers collect past-due assessments (dues) from members.  Collecting on delinquencies is not easy work in any event, but it can inadvertently be made even more difficult than necessary by a manager or board.  Here are 5 ways to help ensure delinquencies can be collected in a timely manner.

1.  Have a collection policy in place and let your owners know about it.  A collection policy should explain due dates, when late charges are incurred, the interest rate on late amounts, returned check charges, and what actions will be taken on delinquent accounts and when.  At the same time, a collection policy should be somewhat flexible, rather than taking a hardline approach requiring a series of actions taken at set-in-stone dates.  Seek the advice of the association’s attorney because many laws and the association’s governing documents must be taken into consideration.  Finally, follow all the steps in the policy.

2.  Ensure the names and addresses of owners are accurate and up to date.  Sure, it’s generally the job of the owner to ensure the association has an accurate mailing address.  But, a board can avoid some headache by doing what they can to ensure accurate contact information.  Try to ensure actual contact with an owner is made before sending their account to collection.  Be aware of returned mail and vacant properties.  The primary complaints we see from owners are, “I’ve never heard anything from the association” and “if they had just knocked on my door and talked to me about it.”

It’s not a volunteer board member’s job to go knocking on doors to collect money, rather, it’s the individual owner’s duty to make sure their debts are paid.  Additionally, casual collection procedures that embarrass owners should be avoided.  But, communication is key, and communication can’t occur without accurate owner information.

3.  Implement effective procedures that will identify accounting errors.  Every HOA must use good, basic accounting practices.  I’m not saying every small association must strictly use GAAP (Generally Accepted Accounting Principles), which is a codification of how CPA firms and large corporations prepare and present their business income and expense, assets and liabilities on their financial statements.  But using a homemade accounting system on a spreadsheet or hand-written ledger can be a recipe for a mess and can significantly delay proper collection remedies.

Ideally, use bookkeeping software that will give you reasonable reports of every individual property account with a history of charges, payments, and a running balance.  Make notes that identify payments by check numbers and sender’s identity.  Identify charges to the individual’s account by item or purpose.  Be able to provide an accounting that will clarify the what and why of an individual’s balance at any given time.  When switching accounting systems or switching property managers, make sure to have a means or require a means of providing the history for any balance forward carried into the new system.

4.  Take action when assessments remain unpaid.  The association has rights that should be preserved early on with a delinquent account.  Follow the association’s collection policy.  Ensure letters are sent to the owner, a lien is filed against the property, and additional remedies are being pursued, as appropriate.  The more time passes, the harder it will be to collect.

5.  Take collection action uniformly and consistently with all owners who are delinquent.  Do not let personality conflicts or personal relationships factor into the actions taken on a delinquent account.  Treat all owners equally and fairly.

Associations that consistently follow good and effective practices, such as the ones listed above, have more success obtaining the cooperation of the owners and collecting delinquent assessments without having to resort to extreme legal measures.  Contact us if you’d like assistance implementing any of these practices or to help your association collect on delinquencies.

1 Comment | Governance, HOA Finances | Tagged: , , | Permalink
Posted by Curtis G. Kimble

Let it Snow? Who Should Remove Snow and Ice?

December 11, 2012

By:  John Richards

Most Property Managers dread the “snow days.”  It takes a lot of effort to coordinate your snow removal vendors, especially if there is a continual downpour of the white stuff and it keeps accumulating.  Questions arise such as “how often during a storm should the snow plow go out?”  If a lot of snow is expected, is it reasonable to wait between “pushes” before they are sent back out, and what liability is there is someone slips on snow or ice that was the Association’s obligation to remove?  What about Associations that provide ice melt to their members and asks them to put it on the common area walkways that lead to their door?  Does this create any legal concerns? 

These exact same questions apply to self-managed Associations with the additional circumstance that many smaller, self-managed Associations use “volunteer” homeowners to remove the snow.  The article will address these questions.

When considering the HOA’s obligation to remove snow, first and foremost make sure that you are absolutely certain which portions of the property are either:  (1) general common area; (2) limited common area; and/or (3) part of the owner’s lot.

Next, be clear as to whether the owner or the Association is assigned to remove snow from each of these three (3) different types of areas (Note:  not all Associations will have all three (3) types of property).  Remember, this “assignment” will be set forth in your CC&Rs.  If there is any uncertainty whatsoever in your governing documents, have your attorney draft a snow removal obligation chart that shows clearly “who clears which areas” based upon the CC&Rs.  This chart is then distributed to the owners.

If an Association member (or their guests) slips and falls and is injured due to snow or ice on the common areas, the Association may be liable, but not in all cases.  An Association’s liability is governed by the following concepts:  (1) If the owner had the obligation to remove the snow or ice under the CC&Rs, then the Association will not be liable for an injury that occurred in such an area; (2) If an injury occurs in an area over which the Association has maintenance obligations (i.e., snow and ice removal) then the injured owner/guest may have a good case if (a) the Association had actual or constructive notice of the snowy/icy condition (that is, they should have known); and (b) the Association failed within a reasonable time to reasonably remove the ice or snow. 

Of course, the term “reasonable” is subject to a lot of interpretations and varies with each situation.  However, at a minimum, it is likely to be deemed “reasonable” by a court that an Association has a legal obligation to inspect and remove snow and ice (whether from a single snow fall event or during a continuous snow fall during a storm) on a regular basis for so long as the threat of dangerous snow and/or ice is present.  This could create an extreme burden on those Associations that remove snow “up to the door” of a member but this obligation simply cannot be ignored.  I believe the legal standard in Utah for an Association to remove snow and ice will be the same as found in the Restatement of Torts which implies that the Association will be liable for an injury if it “fails to exercise reasonable care to protect the members or guests against danger….”

As for giving your members ‘ice melt’ and a shovel to take care of the common area in front of their own doors, I do not believe that this a bad idea at all, however, be cautious of the unintended consequence of the Board believing that members are taking care of potentially slippery and hazardous areas when, in fact, this will remain an Association obligation.  One tip, besides those mentioned above, is to hire a reputable and insured snow removal company who will take care of the snow and ice in the parking lot and walkways in a timely manner.  As I typed this entry, snow is lightly falling which is something that I presonally thoroughly enjoy. Consequently, let’s not diminish the beauty of the winter season by unnecessarily exposing our Associations to legal liability for failing to keep the common areas reasonably safe and clear from snow and ice.

 

6 Comments | Maintenance | Tagged: , , | Permalink
Posted by John Richards, Esq

Our New Utah HOA Law App Helps Associations Follow the Law

December 6, 2012

Up until a few years ago, it seems that a board could get away with not referencing the Utah statutes that apply to HOAs.  Especially in non-condo HOAs, there just weren’t a lot of issues addressed by Utah law, except the procedural and corporate issues set out in the Nonprofit Corporation Act.

But today, the landscape is different.  Many day to day issues, such as adoption and enforcement of rules, spending reserve money, records, providing payoffs, insurance, budgets, and so forth are now addressed in the law and their requirements are not optional.  They must be followed or an association risks expensive litigation and other disputes, especially in today’s  increasingly litigious climate for HOAs, where a technicality or trivial failure of association procedure can lead to a major and costly headache.

As part of Kimble Law’s commitment to provide real value to its clients and to help all community associations operate effectively and properly, we brings you a free app for your smartphone and tablet that provides quick reference to the laws that apply to your association.

Now the laws are available right in your pocket, no Internet connection required!  The statutes are formatted and indented for easier reading than the state’s own website, plus search and bookmark functions make it much easier and quicker to use.  Certain federal regulations applicable to HOAs, such as Fair Housing Act and satellite dish regulations are also included, together with summaries and explanations of those requirements.

Utah HOA Law App Now Available.  Access the Web App online, or download the app to your mobile device today for free!

Click below or search Utah HOA Law in the Apple App Store or on Google Play.

Utah HOA Law for iPhone, iPod:

Utah HOA Law for Android:
Android app on Google Play

file-dec-16-6-51-54-pm

1 Comment | Governance, New Condo Laws, New HOA Laws, New Non-Condo HOA Laws | Tagged: , , | Permalink
Posted by Curtis G. Kimble

Who Pays the Association’s Insurance Deductible in This Hypothetical?

November 16, 2012

By Curtis G. Kimble.

I attended the fourth annual Utah Community Association Insurance Forum Wednesday which is put on by leading experts in community association insurance.  We discussed the new 2011 insurance laws that apply to HOAs, and which are especially applicable to condominiums and attached housing communities, such as townhomes.

We discussed some hypothetical situations and how the new 2011 insurance laws come into play to determine the outcome.  In one situation, an association with attached townhomes, where each owner owns their own lot and the home on the lot, has CC&Rs recorded in 2003 that do not require each owner to insure their dwelling and lot.  A windstorm damages roofs and siding on three contiguous, attached homes.  The total damage is $9,000.  The association deductible is $10,000.  Who pays the $9,000?  How is it figured out?

The first question is whether the new insurance laws apply to this association.  The new laws don’t apply to an attached dwelling project with CC&Rs recorded before January 1, 2012 if the CC&Rs require each lot owner to insure the lot owner’s dwelling (unless the association specifically amends their CC&Rs to subject the association to the new laws).  So, the new laws apply to our association.

Because the new laws apply, the association is required, regardless of what the CC&Rs say, to insure the individually-owned homes under a master policy, and if a home is damaged, the owner of the home (or the owner’s insurance) is responsible for paying the deductible and the association is responsible for repairing the damage within a reasonable amount of time.  If the damage isn’t likely to exceed the deductible amount, as determined by the board exercising their business judgment, the association doesn’t have to tender the claim to their insurer.

So, who pays what where three homes (and no common area) were damaged?

Assuming the association had already given notice to all owners of the amount of the association policy deductible, the law requires that if a lot (including the home) is damaged as part of a covered loss, the owner of the lot is responsible for “an amount calculated by applying the lot damage percentage for that lot to the amount of the deductible under the association’s property insurance policy.”  In other words, the deductible is divided between the affected owners according to the cost of repairing the damage to the respective lots.  So, if homeowner A’s lot received 20% of the damage, homeowner B received 30%, and C received 50%, then A is responsible for $1,800, B for $2,700 and C for $4,500.

Another hypothetical.

A board receives a letter from an attorney representing a homeowner who claims the board has improperly levied a special assessment against the homeowners.  The attorney asks the board to contact him to discuss the matter further.

Should the board provide notice of this to their insurance carrier?

Most boards are afraid that doing so will adversely affect their premiums, causing them to go up.  However, D&O insurance is very different from property insurance.  Claims on the property insurance coverage very well could increase your premiums, even if no money is paid out and they turn out to be a non-issue.  But that won’t happen with D&O coverage.  If the claim doesn’t go anywhere, it will not affect your premiums.  Underwriters do not use that information when they underwrite D&O coverage.

Additionally, D&O is “claims made” insurance, which means that as soon as you have notice of something that could be a claim, you should notify your carrier as soon as possible or you risk losing coverage for part or all of the claim.

4 Comments | Insurance | Tagged: , | Permalink
Posted by Curtis G. Kimble

Exposing Common Myths in HOA Operations

October 25, 2012

By Curtis G. Kimble.

We frequently hear about and see associations acting on myths that seem to persist despite being clearly incorrect. Here are some of those myths and misunderstandings and the truth behind them:

1. An association can deny a request of a members to view the records of the association.

False.  An association member is generally entitled to view and inspect the records of the association upon making a proper request (with limited exceptions, such as for confidential or privileged records).  An association must either maintain its records in written form or in another form capable of conversion into written form within a reasonable time.  Every association should have a records retention policy to ensure the association keeps records for the proper period of time, to provide for the proper disposal of records, and to assist in making and complying with records requests.

2.  An association can require pre-approval for, or prohibit, small satellite dishes installed on owners’ porches, balconies and patios.

False, except  an owner (or installer) cannot drill through an exterior wall to install the dish.

The FCC has adopted a rule applicable to “Over-the-Air-Reception Devices” (“OTARD”).  OTARD prohibits HOA restrictions that impair the installation, maintenance or use of small satellite dishes in areas that are within the exclusive use or control of the dish user (such as limited common area).

The rule prohibits restrictions as to such areas that:  (1) unreasonably delay or prevent installation, maintenance or use;  (2) unreasonably increase the cost of installation, maintenance or use; or (3) preclude reception of an acceptable quality signal.

The rule does not apply to common areas (such as the roofs and exterior walls of a condominium building).  It only applies to areas within the exclusive use or control of the dish user.  So, an association can certainly restrict or prohibit satellite dishes from being installed on common area roofs and walls.  Additionally, the association can regulate dishes on limited common area to some degree.

Contact us for assistance adopting a satellite dish and antenna installation policy if you don’t already have one in place.

3. A director must abstain from voting on matters that the director has a conflict of interest in.

False.  As long as the underlying transaction being voted on is fair to the association, a director can have a conflict and still vote.  (Utah Code Sec. 16-6a-825).  However, it is highly discouraged that the director vote for several reasons, not the least of which is the difficulty in establishing that a transaction is fair and defining exactly what fair is.  If the conflicted director simply abstains from voting after fully disclosing to the board the material facts as to the conflicting interest transaction, then most conflict of interest problems will be cured.

4.  The association president has authority to make decisions and take actions on behalf of the association.

False, except to the extent the president is authorized by the board or by the bylaws to make decisions and take actions.  All powers of an association must be exercised by or under the authority of the the board and the business and affairs of the association must be managed under the direction of the board.  (Utah Code Sec. 16-6a-801).  The president has no independent authority to exercise the powers of the association or manage the business and affairs of the association.

The bylaws may authorize a person to exercise some or all of the powers that would otherwise be exercised by the board.  (Utah Code Sec. 16-6a-801).  And, the board can delegate certain authority of the board to a person (including the president).  (Utah Code Sec. 16-6a-819).  But, otherwise, the president and any other officer have no more authority than any member of the association.  It’s very important a board clearly authorize a president to perform the actions and make the decisions they expect him or her to carry out.  This authorization should be in a board resolution or reflected in the minutes of a board meeting.

5.  A board can adopt a rule about any issue they deem necessary.

False.  The board must have authority to restrict or regulate the specific subject of the rule.  This authority usually comes from the law or from the CC&Rs.  A general provision in the CC&Rs granting the right to adopt rules does not give a board the unfettered authority to restrict rights of individual owners, especially as to units or lots.  On the other hand, a board will usually have authority to adopt reasonable rules to govern use of the common property, to govern the use of individually owned property to protect the common property, and to protect the members’ use and enjoyment of their own property and the common property from interference caused by use of other individually owned lots or units.

An association should have a qualified attorney review a proposed rule before it is adopted, and have the attorney review existing rules periodically to ensure the rules are authorized under the governing documents and the law and that they don’t open the association to discrimination claims or present other problems.

6. The law regarding rental restrictions in the Condo Act applies to all condo projects, or the  law regarding rental restrictions in the Community Association Act applies to all community associations.

False.   Those laws don’t apply to the vast majority of associations out there.  Each of those laws only apply to associations where the original declaration is recorded after May 12, 2009.  So, if the community is older than 2009 (if the original CC&Rs were recorded before May 12, 2009), the rental restriction requirements in those two statutes do not apply to that association.

UPDATE 2015:  The two referenced laws (Utah Code 57-8-10.1 for condos, and 57-8a-209 for non-condos) apply to all HOAs who, on or after May 12, 2015, (1) adopt a rental restriction or prohibition, or (2) amend an existing rental restriction or prohibition.

7. The Utah reserve analysis law requires an association to have reserves.

False.  There is no state or federal law requiring a Utah homeowners association to have a reserve fund.  In fact, the law specifically requires an association to provide an opportunity for homeowners to vote on whether to fund a reserve fund.  Of course, many lenders, as well as FHA, require reserves.

1 Comment | Governance, Reserves | Tagged: , , , , | Permalink
Posted by Curtis G. Kimble

Your Single Family Definition Could Land You in Hot Water

October 3, 2012

By Curtis G. Kimble.

The U.S. Department of Housing and Urban Development (HUD) announced recently that it is charging a Florida homeowners association (HOA) and its management company with violating the Fair Housing Act by telling a family of eight that they had too many people living in their townhouse and threatening to evict them if they didn’t reduce the number of occupants based on an occupancy policy that permitted only six people to live in a four-bedroom home.

The federal Fair Housing Act makes it unlawful to deny housing or impose different rental terms and conditions based on disability, race, national origin, color, religion, sex, or familial status. Overly restrictive occupancy policies may unlawfully discriminate against families with children by preventing them from living in a home.

“Homeowners associations and management companies have an obligation to ensure that their occupancy standards do not violate the Fair Housing Act,” said John Trasviña, HUD Assistant Secretary for Fair Housing and Equal Opportunity. “HUD is committed to taking action against anyone who unlawfully denies housing to families because of the number of children in the family.”

If a federal judge finds discrimination did occur, the homeowners association and the management company could face up to $16,000 in fines plus damages.

This issue frequently arises as a result of the enforcement by an association of a requirement in the CC&Rs that a unit or lot be occupied by a “single family.”  If the definition of “single family” is too restrictive or narrow, the association could be faced with a discrimination claim and hefty fines from HUD or from the Utah Anti-discrimination and Labor Division.

HUD will look at and often defer to a local ordinance for permissible restriction on occupancy.  In the case above, the county permits up to eleven occupants in the townhome.  So, the Association was not able to point to that ordinance as a defense.  HUD also looks at the size of the unit and number of bedrooms to determine if an occupancy restriction is discriminatory.  In this case, the Association only allowed one and a half people per bedroom.  At least two people per bedroom should be allowed generally (although other factors are relevant, as well).

Pay to Play, Literally?

In a separate matter, HUD charged a Massachusetts condominium association and property management company with discriminating against families with children.  HUD accused them of unlawfully charging fees to parents for allowing their children to play in the common area.

The families were informed by the Association that they were being fined $10 a day for two days for children playing in the common area, $10 a day for two days for allegedly causing damage, $25 to reimburse for the damage and $437.50 for attorney fees. Prior to this, the families had not received any fines or warning, and when an adult resident was having a party on the common grounds, no fine was issued.

It’s illegal to impose different rules and restrictions on families with children, unless they are directly related to issues of safety or health, but even then, caution must be exercised.  Always consult a qualified attorney when adopting or enforcing restrictions that may trigger a discrimination issue.

Leave a Comment » | Enforcement, Fair Housing / Discrimination, Governance | Tagged: , , | Permalink
Posted by Curtis G. Kimble

FHA Has Revised its Requirements for Project Certification

September 13, 2012

By Curtis G. Kimble.

The Federal Housing Administration (FHA) today released a revision to its condominium project certification requirements.  There are a few changes to certain requirements that have been preventing or hindering associations that I’ve helped from obtaining FHA certification.

One change will certainly help regarding delinquencies.  Now, no more than 15 percent of all units may be more than 60 days delinquent.  Previously, the requirements prohibited 15 percent of the units from being 30 days delinquent, which was far too strict.  The change to 60 days is much more realistic and logical.

The fidelity insurance requirements have been adjusted slightly for professionally managed associations and may make it a little easier to comply with these requirements.

Finally, the requirement that no more than 10% of the units could be owned by one person or entity has caused difficulty for many associations.  That requirement has been changed for established projects.  A single person or entity may now own up to 50% of the total units as long as 50% of the units in the project are owner-occupied, principal residence units.

So, the changes provide some limited and welcome relief, but not much, and they definitely don’t provide the broader changes or relief many associations were hoping for.

Remember, certification expires every two years and you’ll want to plan ahead a couple of months at least to arrange for applying for re-certification.  Contact us to help your condominium association obtain certification or re-certification of your project.  While it can be challenging to obtain certification, it’s certainly possible for just about every association, and the benefits are well worth it.

1 Comment | Governance | Tagged: , | Permalink
Posted by Curtis G. Kimble

Fidelity Insurance – Is Yours Adequate?

September 6, 2012

By Curtis G. Kimble.

What would your association do if you discovered tomorrow that the association’s bank/investment accounts had been completely emptied by a board member and it was obvious that the association would not be getting the money back?

Levying an immediate and large special assessment wouldn’t solve all the problems this situation would create and is an incredibly hard pill to swallow for homeowners in this circumstance.  The association’s fidelity insurance is the key source of hope here.  Fidelity coverage is often called “employee dishonesty” coverage, and that phrase sums up its purpose quite well.  It protects against theft or embezzlement by employees or officers of a company.

However, one important issue could prevent the insurance company from paying out under your policy – volunteers.

Utah law now has detailed insurance requirements that apply to policies issued to Utah homeowners associations (HOAs).  These laws specify the property and liability coverage required for an HOA’s master policy.  But they do not require or mention fidelity coverage.

So, very often, the coverage of an association’s fidelity insurance policy or bond will simply mirror the fidelity coverage required by the association’s CC&Rs.  This is because insurance companies often make coverage determinations based on what coverage the CC&Rs require.  However, many CC&Rs were not written with an adequate understanding of fidelity coverage in an HOA context, so they simply require fidelity coverage in the same form as any company or corporation would carry.

The problem with that is that typical fidelity coverage for a company only covers paid employees, not volunteers.  This is a square hole and round peg situation.  HOAs are not typical companies or corporations.  HOAs are generally served primarily by volunteer officers and directors, and their fidelity coverage needs to reflect that.

So, CC&Rs have to be carefully written to require coverage of volunteer board members and officers and any other volunteers handling the association’s money.  Additionally, a board should be careful to ensure that their policy for fidelity coverage includes an endorsement modifying the coverage to include volunteers.

If your association is professionally managed, it is important to understand that a property management company’s own fidelity coverage does not necessarily protect a client homeowners association, it protects the management company itself from loss of its own funds.  So, the association’s fidelity coverage should also include coverage for the property manager handling association funds.  This is also typically done through an endorsement (which is like an addition or addendum) to the original policy.

Condominiums maintaining or applying for FHA certification (so the units can be purchased with FHA-backed loans, which account for a majority of purchases today) should be aware that FHA requires an association to carry fidelity coverage in an amount no less than three months aggregate assessments plus reserves.  That amount of coverage is good practice for any association.  Fannie Mae and Freddie Mac also have requirements for fidelity coverage.

Finally, it’s also important not to confuse fidelity coverage with director’s and officer’s (D&O) insurance, which protects the association when it is sued for the “wrongful acts” and decisions of its board of directors or officers, and which is also crucial for every association.

Leave a Comment » | Insurance | Tagged: , , , | Permalink
Posted by Curtis G. Kimble

Pop Quiz on New Utah HOA Laws

August 16, 2012

By Curtis G. Kimble.

Many changes were enacted to the laws that govern HOAs in Utah in 2011. We tested your knowledge a year ago soon after the changes went into effect.  How is your knowledge of these changes over a year later?  Take this short quiz and find out (answers at very bottom).

1. (First, a warm up question unrelated to the new laws) All homeowners associations in Utah are bound by the Utah Condominium Ownership Act.
 True

 False

2. In a condominium association, the management committee is required by law to keep detailed, accurate records in chronological order, of the receipts and expenditures affecting the common areas and facilities, specifying and itemizing the maintenance and repair expenses and any other expenses incurred, and is required to make those records available for examination by any unit owner at convenient hours of weekdays no later than _____ days after the unit owner makes a written request to examine the records:
 0, they must be available upon request

 5

 14

 30

3. In a community association (non-condo HOA), a rule ______ regulate the content of political signs and a rule ________ regulate the time, place, and manner of posting a political sign.
 may not . . . may not

 may not . . . may

 may . . . may not

 may . . . may

4. A rule may not be inconsistent with:
 the declaration (CC&Rs)

 the bylaws

 the articles of incorporation

 all of the above

 none of the above, a rule supersedes each of the above

5. In a community association (non-condo HOA), before adopting, modifying, or creating exceptions to the rules and design criteria of the association, the board must:
 A. at least 15 days before the board will meet to consider a change to a rule or design criterion, deliver notice to lot owners that the board is considering a change to a rule or design criterion

 B. provide an open forum at the board meeting giving lot owners an opportunity to be heard at a board meeting

 C. deliver a copy of the change in the rules or design criteria approved by the board to the lot owners within 15 days of adoption.

 D. all of the above

 E. A and C but not B

6. If provided in the declaration, articles, bylaws, or rules, an association may provide notice to its members by electronic means, including text message, email, or the association’s website.
 True

 False

 True, except as to a member who has made written demand to the association to provide notice to the member by mail.

 False, except as to members who have consented in writing beforehand.

 

Don’t look below until you’ve finished!  Warning – answers below!

Now grade yourself.  Here are the answers:

1.  False, only condominiums are governed by the Utah Condominium Ownership Act.

2.  14 days

3.  may not . . . may.

4.  D.  all of the above

5.  all of the above

6.  True, except as to a member who has made written demand to the association to provide notice to the member by mail

Thanks for playing!

Leave a Comment » | New HOA Laws | Tagged: , , , | Permalink
Posted by Curtis G. Kimble

A Tip for Free Association Governance Resources

July 13, 2012

By Curtis G. Kimble.

For those that might not be aware, Community Associations Institute (CAI) is a national organization that provides information and education to community associations and the professionals who support them.  Their mission is “to inspire professionalism, effective leadership and responsible citizenship.”  CAI offers a variety of resources to HOAs, including boards, property managers, and people who own, rent or are considering a home in a community association.

CAI has recently published a document called From Good to Great.  It includes the full text from three CAI initiatives—Rights and Responsibilities for Better Communities, Community Association Governance Guidelines and the Model Code of Ethics for Community Association Board Members.   Those who want to see industry standards on homeowner rights and responsibilities, community association governance principles and ethics for association board members can now find it all in this free brochure called From Good to Great.  Click here to see it.

Also, visit this link  for information that can help you better understand the nature, benefits and obligations of living in an association and for additional links to free information and resources from government agencies and nonprofit organizations.  There’s a particularly helpful tip sheet on “Preventing Fraud and Embezzlement” in an association available at that site, as well.

Leave a Comment » | Governance | Tagged: , , | Permalink
Posted by Curtis G. Kimble

« Previous Entries
Next Entries »