In this Issue: Summer is Here. . . . . . 3 Financials for Dummies. . . . . . . . . . . . . . . . . . . . . .8 Reserve Plan — What and Why . . . . . . . . . . . . 11 July/August 2016
Volume 34 • Issue 4
A Primer on Collection . . . . . . . . . . . . . . . . . . . . 14 Criminal Records and Fair Housing . . . . . . . .20 Saints Outing Recap. 26 Ask the Attorney. . . . 30 And More!
Budgeting & Finances
Online Magazine Available!
www.cai-mn.com/ magazine
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Summer Is Here
Put Me in Coach, I’m Ready to Play! By Joel Starks, CMCA, Sperlonga Data & Analytics
W
ith the hustle and bustle of the summer come vacations, picnics, events, family, food and fun. The smell of popcorn at the ballpark. The sizzle of brats on the grill and the crack of the bat when the Twins hitters go deep. That is the summer I loved when I was growing up: focused on heading out to the local ball field to meet up with my friends and play. After a long morning of baseball we would scurry over to the local pool for a swim and cool down. Later we’d congregate at the ball field again for batting practice and some infield before leaving for that evening’s game in some city nearby. What is it about watching America’s game that brings back so many memories? I enjoy watching my son play the game that I love and even umpiring for younger kids, just like I did growing up. I love to teach kids about umpiring. It is a way to stay involved in a game that has stayed so true to me through the years.
Speaking of baseball, we had a rain-out for the Saints game, but all those who attended or registered are able to get vouchers for a game of your choice. We may even throw together another baseball gathering late summer. Stay tuned. There are plenty of other ways to enjoy summer, and here is a list of upcoming “AWESOME CAI Events” you should register to attend. Network with others in the industry and enjoy the company of some of the best people out there. July 26: CAI-MN Boat Cruise – 5-8pm, Minneapolis Aug. 8: 10th Annual CAI-MN Golf Tournament, Midland Hills – Roseville Sept. 22: 2016 Vision Awards Have a great summer. Build some memories and eat some Cracker Jack. Sounds and smells of summer in Minnesota are what it’s all about.
July | August 2016
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Partners 2016 Annual Partners
Platinum
Capital Construction Columbus Exteriors, Inc. Parsons Construction, Inc. PCS Residential Sela Roofing & Remodeling Xtreme Exteriors N.A., Inc.
Gold
Benson, Kerrane, Storz & Nelson CertaPro Painters Community Advantage FirstService Residential Gassen Company, Inc. Hellmuth & Johnson, PLLC
Silver
All Ways Drains American Family Insurance – Jeffrey Mayhew Agency, Inc. Asphalt Associates, Inc. Carlson & Associates, Ltd. Gaughan Companies Mutual of Omaha/CA Banc New Concepts Management Group, Inc. Omega Management Reserve Advisors TruSeal America, LLC
Bronze
Volunteers
Leadership
Committee Chairs
Board of Directors
Charitable Outreach Carla Gruenhagen cgruenhagen@gassen.com
President Joel R Starks, CMCA Phone: 952.500.1068 j.starks@sperlongadata.com
Community Association Volunteer Leaders (CAVL) Gene Sullivan gene@ncmgi.com Editorial Carin Garaghty crosengren@kellerpm.com Education Nigel Mendez nmendez@carlsonassoc.com Golf Tournament Kris Birch krisbirch@birchlawn.net
Vice-President JoAnn Borden, CMCA, AMS, PCAM Phone 763.746.1196 joann.borden@associa.us Treasurer Halo Stafford, CMCA, AMS, PCAM Phone 952.944.2237 hstafford@pinnacleliving.com Secretary Nancy Polomis, Esq. Phone 952.941.4005 npolomis@hjlawfirm.com
Legislative Action (LAC) Randy Christensen randy@actmanagementinc.com
Directors Kris Birch Phone 651.481.9180 kris@wearebirch.com
Membership Paul Lawson paul.lawson@fsresidential.com
Matthew Drewes Phone 952.835.7000 mdrewes@tn-law.com
Social Ben Brueshoff bbrueshoff@pcsrenew.com
Crystal Pingel, CMCA, AMS, PCAM Phone 952.277.2700 crystal.pingel@fsresidential.com
Trade Show Michele Ramler mramler@cedarmanagement.com
Michelle Stephans, RS Phone 763.226.7118 michstephans@gmail.com
Tom Engblom tengblom@cabanc.com
Larry Teien Phone 952.888.8093 lteien@aol.com
Vision Awards Shaun Zavadsky, CMCA shaun.zavadsky@fsresidential.com
24 Restore Allied Blacktop Company Allstar Construction & Maintenance, LLC American Building Contractors, Inc. Clean Response, Inc. Gates General Contractors, Inc. Michael P. Mullen, CPA, PLLC Stinson Services, Inc.
Published by Community Associations Institute — Minnesota Chapter, copyright 2016. All articles and paid advertising represent the opinions of authors and advertisers and not necessarily the opinion of either Minnesota Community Living or CAI–Minnesota Chapter. The information contained within should not be construed as a recommendation for any course of action regarding financial, legal, accounting, or other professional services by the CAI–Minnesota Chapter, or by Minnesota Community Living, or its authors. Articles, letters to the editor, and advertising may be sent to Bryan Mowry at bryanm@cai-mn.com, or at CAI–MN Chapter, 1000 Westgate Dr., Suite 252, St. Paul, MN 55114.
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Minnesota Communit y Living
Calendar Upcoming Events July 26 CAI-MN Social Event – Boat Cruise August 8 Golf Tournament September 22 Vision Awards and Annual Meeting
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11
Financials for Dummies By Chuck Krumrie, Broker/Owner, Urbanwood, Inc.
RESERVE CONSULTANTS, INC.
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A Primer on Collection for Common Interest Communities
October 15 CAI-MN Social Event – Oktoberfest
18
Vision Awards 2016
November 3 - 4 CAI National Course: M-203
20
Criminal Records and Fair Housing
December TBD CAI-MN Social Event – Holiday Party!
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President’s Message — Summer is Here By Joel Starks, CMCA, Sperlonga Data & Analytics
Reserve Plan — What and Why By John Russo, Ph.D.; CAI Reserve Specialist, RSTM,
October 11 Manager Seminar
November 8 Manager Seminar
Series
Index
By Nancy T. Polomis, Esq., Hellmuth & Johnson PLLC
7 Carin’s Corner
By Carin Garaghty, CMCA, Keller Property Management
12 Member Pulse
By Christopher R. Jones, Esq., Hellmuth & Johnson, PLLC
30 Ask the Attorney
By Nigel H. Mendez, Esq., Carlson & Associates, ltd.
By Micahel D. Klemm, Esq., Hellmuth & Johnson, PLLC
22
Have Comments? Your Vote Counts!
By CAI National
January 12 Manager Seminar
23
April 20 Trade Show
By Nick de Julio, Ewald Consulting
26
Residential Property Rights Defined — Use of Political Lawn Signs
Saints Outing Recap!
By Bryan Mowry, CAI-MN Chapter Executive Director
34
Thunderstorm Safety — Avoiding a Lightning Strike
Email your feedback on articles to bryanm@cai-mn.com for a chance to be featured in Minnesota Community Living!
Register for events online at www.cai-mn.com For more information regarding an event, call the office at 651.203.7250 or visit www.CAI-MN.com.
By CAI National
Index of Advertisers All Ways Drains . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Allstar Construction . . . . . . . . . . . . . . . . . . . . . . . . 17 American Family Insurance – Jeffery Mayhew Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Association Property Management Company. 25 BEI Exterior Maintenance . . . . . . . . . . . . . . . . . . 28 Benson, Kerrane, Storz & Nelson, P.C. . . . . . . . 29 Birch Tree Care. . . . . . . . . . . . . . . . . . . . . . . . . . 9, 33 Capital Construction. . . . . . . . . . . . . . . . . . . . . . . . 6 Carlson & Associates, Ltd . . . . . . . . . . . . . . . . . . . 31 CertaPro Painters . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Columbus Exteriors, Inc.. . . . . . . . . . . . . . . . . . . . 16 Community Advantage . . . . . . . . . . . . . . . . . . . . 32 Construct-All Corporation. . . . . . . . . . . . . . . . . . 27 Felhaber Larson. . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Final Coat Painting . . . . . . . . . . . . . . . . . . . . . . . . 27 FirstService Residential . . . . . . . . . . . . . . . . . . . . 29 G & J Awning & Canvas . . . . . . . . . . . . . . . . . . . . 25 Gassen Companies . . . . . . . . . . . . . . . . . . . . . . . . . 10 Gates General Contractors . . . . . . . . . . . . . . . . . . 2
Gaughan Companies. . . . . . . . . . . . . . . . . . . . . . . . 9 Gopher State Sealcoat, Inc.. . . . . . . . . . . . . . . . . 33 Hellmuth & Johnson, PLLC.. . . . . . . . . . . . . . . . . . 10 Jet-Black. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Mutual of Omaha Bank. . . . . . . . . . . . . . . . . . . . . 32 New Concepts Management Group, Inc. . . . . . 33 Omega Management, Inc. . . . . . . . . . . . . . . . . . . 26 Parsons Construction, Inc.. . . . . . . . . . . . . . Outsert PCS Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Plehal Blacktopping . . . . . . . . . . . . . . . . . . . . . . . . 17 Reserve Advisors. . . . . . . . . . . . . . . . . . . . . . . . . . 32 Reserve Data Analysis . . . . . . . . . . . . . . . . . . . . . 27 Restoration Technologies, Inc. . . . . . . . . . . . . . . 32 Sara Lassila, CPA. . . . . . . . . . . . . . . . . . . . . . . . . . 32 Sela Roofing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Stinson Services. . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Strobel & Hanson, P.A. . . . . . . . . . . . . . . . . . . . . . . 17 TruSeal America, LLC. . . . . . . . . . . . . . . . . . . . . . 23 Xtreme Exteriors . . . . . . . . . . . . . . . . . . . . . . . . . . 35 July | August 2016
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Carin's Corner
No shortage of tales, no matter what the property manager’s role By Carin Garaghty, CMCA, Keller Property Management
I
t had been a hot, sunny day (steamy, muggy and sticky being other words to describe it) and my friends and I were deliriously happy to sit on the beach, swim in the lake and roast hot dogs at a gorgeous campsite in Lake City. Our site overlooked Lake Pepin and the campground’s picnic area, office, facilities and camp sites are surrounded by towering, old trees in a heavily wooded forest. That night as we lay in our tents, a ferocious wind started to blow, the rain kicked in and thunder and lightning were right behind. It turned into a vicious storm with flood and wind advisories for the county, and at 5 a.m. the manager Joanne was in her truck, waking every camper and ordering us to the shelter. As we huddled in the bathrooms of the shelter and Joanne made sure all heads were counted, I admired her calm demeanor as she watched the radar and chatted with guests, knowing that when the storm passed, the light of day would not reveal injured campers in tents crushed by fallen tree limbs. I thought to myself, “I would not want that job.” Whether our property management duties involve renting campsites and apartments, managing high-rise condos or commercial properties, we all hear complaints and scattered compliments, and we are all likely to hear, once a week or so, from a business partner, from a homeowner, from a board member — while offering sincere sympathy — “I would not want your job.”
I spoke to a woman who found a squirrel in the fireplace, and listened as she described giving it food and water for two days, hoping it would scale back up the chimney and find its way out. Instead it eluded her linen bag when she finally opened the door. Traps baited with food didn’t work, either — this was one fast squirrel! Instead of being hysterical or upset, she was nonchalant as she asked my advice on what to do next. Instead of blaming the association that her chimney allowed a wild animal into her home, she seemed not to mind that it did, and was even enjoying the chase. I smiled and laughed after I hung up the phone. Speaking of wild animals, I thoroughly enjoyed a letter from the property manager at a Florida condominium where my parents spend the winter. It opens with a sentence I’ve not had occasion to use in my experience: “It’s that time of year again, when alligators are on the move for mating season.” The manager informs that alligators can travel five miles in a day, and that residents should be vigilant while walking pets on leashes, and that alligators will enter open garage doors and open front doors. The property manager further advises that trash cans must be used instead of trash bags, that pet food should not be left on the lanai, and that leaving a pet unattended on a lanai is not only against community rules, but alligators have no problem coming through lanai screens, making food out of your pet. “Wow,” I thought, imagining the property manager at his computer, just another day at work as he writes the annual letter advising on alligator avoidance, “I want that job!”
Sometimes we get a pleasant surprise, though, like when a situation with blowup potential turns into another humorous tale. Recently
July | August 2016
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Financials for Dummies By Chuck Krumrie, Broker/Owner, Urbanwood, Inc.
L
et’s say you’re a newer Board member reviewing the monthly financial statements. You’re not a CFO, you’re not a CPA. However, math is no stranger and you can balance your checkbook handily — but so much of what you’re looking at is just a jumble of numbers.
and pricier projects addressing the association’s long-term physical needs. (It’s not unusual to have reserve funds sitting in more than one place: perhaps a savings account and a CD. To continue our metaphor, one pocket may be smaller, like a pair of jeans or fancy dress slacks.)
Allow me to present a very basic introduction to common interest community financial statements. If by the fourth paragraph, you are finding this way below your level of comprehension, please proceed to the next article. This truly is Financials for Dummies. Management companies’ accounting systems can vary and their reports can differ in format. Smaller firms like the one I own use QuickBooks because it is the standard for smaller businesses. Regardless of the software, there are certain monthly financial reports you expect to find. My firm produces six: a Balance Sheet, an Accounts Receivable aging report, a Profit and Loss statement (P&L), a P&L budget comparison for the month, a P&L budget comparison year-to-date and a Transaction Detail report.
Monthly financial statements are primarily concerned with the operating pocket. Money comes in, money gets spent, the community keeps rumbling along. A certain portion of that money spent is a Contribution to Reserves (CTR). This is where the association pays itself; it is a budgetary line item expense just like lawn care, rubbish removal and all that. Inasmuch as the association needs to pay its bills to keep functioning, it needs to sock some money into the future for those larger ticket items. That and the requirements of state law explain why the CTR is an operating expense.
Before getting into the specific reports, I think it useful to zoom out a couple clicks and address a broader concept. Your association will have at least two bank accounts — checking and savings. Think of the association’s financial holdings as a pair of pants with two pockets. One pocket is the operating category, the other the reserve category. Operating funds afford the weekly, monthly, cyclical operations of the community. Lawn service, snow and rubbish removal, regularly recurring maintenance — these sorts of things. Reserve funds are dedicated to capital improvement projects: roofing, siding, hard surface replacement. These are larger
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Most financial report packages contain a lot of information. And it isn’t necessary for you to know the significance of every figure. Take, for instance, the Accounts Receivable aging report. I get more questions from my Board members about this report than any other. If you don’t know what to look at, it’s like playing “Where’s Waldo?” with a numerical matrix. But the gist of the A/R report is actually quite straightforward. It speaks to owner accounts, who owes what within any given time period. I encourage my Board members to use it primarily to track delinquencies. Who is out and by how much? And is the total figure cause for concern? The thing to remember about the A/R is that positive and negative numbers have a context. A negative number on someone’s account
Whether your community is large or small, we provide comprehensive management services by evaluating your community’s wants, needs and goals. means that account has a credit with the association. Conversely, seeing a large positive number on an account is not positive for the association, as it means someone is seriously in arrears. Consider the P&L. On top it will show the various forms of income and the lower portion will show the line items of expenses. And at the bottom, it will show which category is the bigger number. What did you take in? What did you spend and what did you spend it on? Are you in the red or the black — and why? A P&L’s usefulness is enhanced when it’s lined up against budget numbers. Thus you can measure the budget’s accuracy of prediction and spot trends. The Transaction Detail report is a further break-down of the various line items found in the P&L. So if you have a line item for Building Repairs in the P&L, the transaction detail report will show the individual invoices. The thing to remember is that financial statements are served as a package because they all tie together in some manner or other. There is no one report that will give you all the information, just as there no such thing as a band of one. (That’s called a solo artist.) The Balance Sheet is a statement of the association’s assets, liabilities and equity at a specific time. In the business world, it’s used as a measuring stick for a company’s liquidity. So as not to get too far into the weeds, I recommend keeping largely to the assets side. This will show the balances of the pockets in the pants. It will show the A/R (again, positive is not a positive thing). The liabilities and equity side will tell you how much the association has paid itself.
Back in understand 2012, the Minnesota Legislatureof decreed thatcost-effective all We the importance efficient communities governed under the Minnesota Common Interest practices that result in the cohesive operations of the community Ownership Act must adopt the accrual basis of accounting. Our hands-on management is responsive to the requests of the Accrual basis differs from cash basis in the way income and expense Board of Directors and Homeowners while preserving the are recognized. Accrual recognizes an expense upon receipt, property and it’s lifestyle of the community. regardless of when due. Cash recognizes expense when the invoice is actually paid. Accrual recognizes income when has it is due For over four decades, Gaughan Companies been trusted andfor cash does so whenand it isperspective. actually received. our integrity Our Management Teams treat
your Association as if we owned it. Each member of our team w
Accrual basis is preferred by those with more than average knowledge always be accessible, reliable and accountable to you, the of accounting because it offers a better depiction of financial status homeowner. during a specific accounting period.
There. Don’t you feel smarter? If now you approach your financials withMaking greater confidence, then this missive has accomplished its the Difference: humble task. Gaughan Companies is small enough to tailor their servic to meet the needs of the Associations they manage, and large enough to make sure all areas of Associations’ need are handled promptly and professionally.
~ Susan Sabrowsky Ashbourne Townhom
Community Association Mana Accessible. Reliable. Accountable. Hands-on Management.
Whether your community is large or small, we provide comprehensive management services by evaluating community’s wants, needs and goals. Creating peace of mind for tree care services. Positive attitudes. Professional interactions. Exceptional service. Because when you look good, we look good.
Call us: 651.317.4080 www.BirchTreeCare.com facebook.com/BirchTreeCare
We understand the importance of efficient cost-effec practices that result in the cohesive operations of the Our hands-on management is responsive to the req Board of Directors and Homeowners while preservin property and lifestyle of the community.
For over four decades, Gaughan Companies has be for our integrity and perspective. Our Management T your Association as if we owned it. Each member o always be accessible, reliable and accountable to yo homeowner.
Making the Difference:
Gaughan Companies is small enough to tailor July August 2016 9 they m to meet the needs of| the Associations large enough to make sure all areas of Associ
We’re the pillar of your association. Very few law firms in Minnesota even practice in this area of law, much less wield the talent we bring to it. In any measure of ability – from years of experience, to leadership in state and national organizations, to the size and diversity of our client portfolio – our attorneys’ knowledge of community association law places Hellmuth & Johnson in a community of one. Our clients benefit from our experience in the following areas: Collection of Association Fees • Judgment Collections • Construction Defects & Warranties Property Insurance • Claims Enforcement of Covenants and Rules • Foreclosure of Liens
On your side. At your side.
Contact us today. 952-941-4005 hjlawfirm.com
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Minnesota Communit y Living
8050 West 78th Street Edina, MN 55439
Reserve Plan — What and Why By John Russo, Ph.D.; CAI Reserve Specialist, RSTM, RESERVE CONSULTANTS, INC.
F
or “older” association owners, reserve plans are easy to explain — they are what “Christmas Club” was when they were young. Christmas Club was handled by the local bank. You put a dollar or two per week into the account, and when you needed money to buy Christmas presents (voilà) you had $50 or $100 — it made Christmas a lot more fun and easy to deal with. So then — a reserve plan (account) is just the “bank,” where you deposit money every month as part of your total fees; when you need to do roofing, siding, asphalt, concrete replacement, etc., voilà you have the $50,000 or $100,000 you need. You don't need an assessment, and you don't end up with a run-down property that reduces property values, kills sales or causes financing problems. The specific components of the property that are included in a (Capital) Reserve Plan are dictated by the association bylaws, set up by the developer when the property was first built. They are the components that the developer declared as being the responsibility of the association (to collect money from owners and replace when necessary). There are no “standard” components included; the developer could have included or not included anything. Also, I called the plan a Capital Reserve Plan because only capital components (versus expense items such as grass cutting, insurance, painting, landscaping, drive seal coat) can be included. Since associations are basically corporations, any expense money accumulation year to year is called — yes, you guessed it, income, to be taxed by the government. Not so for capital components. The plan components (let’s say roofing, siding, and asphalt only) are assessed by an expert like me to determine how long it will be before they need replacement and what the current cost is to replace those components. Then, those current costs have inflation applied (so much percentage per year) to estimate what the costs will be when components will need replacement years in the future. Then the experts figure out, generally using computer help, how much has to be put into the Capital Reserve Plan account each month so that the monies will be there when needed. Part of each owner’s fee each month is dedicated (strictly) to reserves and should not be used for any expense item payment. Most of the time these monies won’t be used for many years — as many as 20 to 25 in some cases, such as for roofing and siding. It isn’t necessarily true that in the early stages of an association’s life, sufficient reserve monies have been collected. It is pretty easy to not have concern for collecting replacement monies when the whole complex is new or only a few years old. Failure to collect only $30 to $40/unit/month over a 10 to 15 year period, however, is very hard to make up all of a sudden in the last five years when roof and
asphalt replacement is reasonably imminent. Collections in these last few years can be two to five times what they would have been with a constant collection for the whole 20 years. That $30 to $40/ unit/month could suddenly be $100 or $125/unit/month — or an assessment of $4,000 or $5,000. Assessments are, of course, the worst situation that can occur, but without a good long term Capital Reserve Plan, assessments could be the only answer to avoid having to postpone proper replacements and allow deterioration of the property. Minnesota Statutes (laws) require Capital Reserve Plans for most (but not all) association properties. In addition, the association CPA, in any annual audit, will note whether or not a Capital Reserve Plan exists and whether or not it is “adequate”. Adequate means 100% funded. That says that when monies are needed for replacements at any time during the 30-year term of the plan, the plan shows funds available — in year 1 all the way through year 30. The consequence of a plan not 100% funded is assessment. Another reason to have good Capital Reserve Funds is so that work will be done (by the association) when it is needed. Components that are underfunded or left up to individual owners to replace almost always end up with not enough money to keep the property up or some owners not wanting to do the work, leading to a decline in property appearance. Of course, some components such as asphalt or roofs or boilers for condominium buildings, really cannot be up to individual owners. These components must be cooperatively done — and monies must be collected over time to do so, or groups of owners suffer directly. Capital Reserve Plans should be “normalized,” i.e., the collection should increase at a standard rate (we use 4%-5% increase per year) so there are no big swings. Collection at a standard amount, say $50/unit/month, for all 30 years of the plan is also not a reasonable approach. It does not account for inflation, and means that the current owners are paying a much larger share, because $50 today is worth much more than it will be in 10, 20, or 30 years. Good Capital Reserve plans minimize the amount to be collected ($/unit/month) at year 1 and throughout the plan, but with a reasonable increase each year. They are also easy to read and understand and don’t include too much detail that boards and owners really can’t understand or use. They are the best opinions of expert reserve professionals, but they look far into the future and therefore the “crystal balls” are understandably somewhat fuzzy. They should be updated (by Statute) every three years.
July | August 2016
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member pulse
Question
How do you handle unpaid assessments?
By Christopher R. Jones, Esq., Hellmuth & Johnson, PLLC
“Member Pulse” is your chance to comment on timely and relevant topics. Each issue will feature questions related to the topics or themes of the upcoming issue. Your responses will be published in the next issue. To respond to the question, or suggest a question for a future edition of “Member Pulse,” contact us at memberpulse@cai-mn.com.
Answers
“We’ve tried to put proactive measures in place for financial compliance with assessments. A year or so ago, we had a homeowner who flat-out refused to pay his assessment. Luckily, having a strong relationship with a legal firm came in handy. We had the firm craft a letter and the matter was then resolved.” — Doug P.
“Assessments always seem to be a surprise for those in our community. We really try to inform homeowners and remind them they are coming. We also have worked with those in our community on payment plans and such to help.” — Stacy P.
For the next issue...
Question 1
Has your association experienced issues related to mental illnesses, such as depression, anxiety, or hoarding?
Question 2
How does your association handle conflicts between neighbors? Send your responses to: memberpulse@cai-mn.com 12
Minnesota Communit y Living
July | August 2016
13
A Primer on Collection for Common Interest Communities
By Nancy T. Polomis, Esq., Hellmuth & Johnson PLLC
I
n order to function properly, a community association requires that homeowners pay their assessments in a timely manner. Collecting assessments is a challenge for many associations, especially in an unstable market. When the economy is unpredictable, some members reorganize their financial priorities, and not always in the association’s favor. As is the case for mortgage lenders, associations seeking to collect delinquent assessments generally have two collection remedies: lien enforcement and judgment proceedings. A mortgage lender typically requires that a borrower sign a promissory note and a mortgage to obtain a loan. The note establishes a personal obligation to repay the loan. The mortgage establishes a lien on the home, which can be foreclosed if the loan is not paid. Similarly, when an owner purchases a property within an association, the owner accepts, through the declaration, personal liability to pay assessments. The owner also agrees that if assessments are not paid, then a lien in favor of the association will attach to the property. That lien can be foreclosed in the manner of a mortgage. Associations may claim a lien for unpaid assessments based on language in the association’s declaration. In addition, for associations governed by the Minnesota Common Interest Ownership Act (MCIOA), an automatic lien arises against a unit and in favor of the association for any assessment levied against that unit from the time the assessment becomes due. Unless the declaration provides otherwise, fees, charges, late charges, fines and interest are all part of the continuing lien. Regardless of whether an association is governed by MCIOA, the association records a lien statement to notify parties in interest of the delinquency. Recording a lien statement will also alert title companies to the lien’s existence; title companies will often require the owner to pay the lien amount in full upon sale or refinance of the property. Informing the owner that a lien statement has been recorded often motivates the owner to pay the delinquency. The association may then foreclose the property based on its assessment lien. The foreclosure process can take nine to twelve months for a foreclosure by advertisement (the method by which most mortgages and liens are foreclosed) or eighteen months or more for a foreclosure by action (the method that must be used if foreclosure by advertisement is not authorized under the association’s declaration or if there are other issues preventing foreclosure by advertisement). Costs can vary depending on the type of foreclosure and the difficulties encountered in serving the occupants of the unit, among other factors. An association typically recovers its foreclosure costs in one of two ways: the owner pays all delinquent amounts (including the costs 14
Minnesota Communit y Living
of foreclosure) to stop the foreclosure, or the association completes the foreclosure, takes ownership of the property (subject to a first mortgage), and sells the property to recoup the collection costs. However, if the property’s market value is not sufficient enough to cover costs (pay off the first mortgage, and reimburse the association the delinquent assessments, cost of foreclosure, and costs for the eventual sale of the property), then the association will lose money. In that case, the association may choose to merely record a lien statement against the property, but not foreclose the lien. In the alternative, the association may seek a judgment for an owner’s personal liability for unpaid assessments. Associations often choose this remedy when a property lacks equity to recover the costs of lien foreclosure. If an association, with an attorney’s assistance, determines that the property has insufficient value to recover the foreclosure costs, then the association may choose instead to seek a personal judgment against the owners. Of course, obtaining a judgment and collecting on that judgment are two different issues. Associations often use wage or bank account garnishment to collect a judgment. Judgments are valid for ten years (and appear on credit reports), so judgments that may not be collectible today may be collectible at a later date. However, if the delinquent homeowner seeks protection in bankruptcy, the association’s ability to collect unpaid assessments is likely to be significantly delayed (at best) or completely extinguished (at worst). If a homeowner files a Chapter 7 bankruptcy petition and receives a discharge of debt – as is typical – that homeowner is no longer personally obligated to pay the unpaid charges that accrued prior to the date on which the homeowner filed his bankruptcy petition. The lien for unpaid assessments remains in place, but, if there is insufficient equity in the property to cover the unpaid assessments and costs of foreclosure, the association may have no choice but to write off the delinquency as bad debt. Since significant penalties can be imposed on creditors who continue to try to collect a debt after a bankruptcy petition is filed, associations should seek competent legal counsel before taking any action after being notified of a bankruptcy filing. Although the economy is improving, many associations continue to face collection issues. Experienced community association legal counsel and professional management can help associations survive and thrive despite the changing marketplace. This article is intended as a brief overview of collection remedies. Collection of assessments can be complex, and an association’s decision as to how best to proceed involves many factors. Associations with collection issues should consult with professional counsel before pursuing any particular collection strategy.
CAI-MN 2016 Golf Tournament ANNIVERSARY
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General Counsel for Associations:
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Save the Date! CAI-MN 2016 Vision Awards International Market Square
2016 Why should you be involved? Nominating someone for an award is one of the highest compliments you can give an employee, partner or customer. Help us raise up our industry professionals and give back to the people that you work with each and every day.
Join Us! September 22, 2016 Deadline to nominate is August 5, 2016. Recognize those outstanding in the community association business! Nominate someone — or an association — for a Vision Award today.
Submit Your Nominations Today! www.cai-mn.com/nominate
Community Management Community Management is part art, part science — and part professional experience. Three Vision Awards recognize community management personnel. The Community Management Professional Award recognizes those professionals who, through their excellence, enable the community managers to do their jobs even better! Nominees for these awards may include any community management professional other than community managers. Recognition is given to a community management professional who displays integrity; reliability; commitment to the industry; loyalty to consumer clients and the ability to interact well with board members, managers, service providers and other industry professionals. Promotion of ethical conduct and competence are included as part of the qualifications for this award. Community Managers, of course, are those magicians who keep everyone happy: owners, board members, vendors... everyone. Time and again, they share their experience and expertise with their associations, helping them operate effectively and efficiently.
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The Excellence in Service Award recognizes a community manager who displays integrity; reliability; commitment to the industry; loyalty to consumer clients; and the ability to interact well with board members, managers, service providers and other industry professionals. Promotion of ethical conduct and competence are included as part of the qualifications for this award. The Financial Impact Award recognizes a community manager who has positively impacted a community in a significant manner from a financial standpoint. A nominee for this award might, for example, have been instrumental in helping an association complete a capital improvement project on (or under) budget, or may have helped an association work through the complexities of a major insurance loss. The nominee may simply have recognized areas in which an association could realize savings, helping the association survive a budget crisis or weather an unforeseen but necessary expenditure without “breaking the bank.” Visit the website for a complete list of award categories and additional information.
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Criminal Records and Fair Housing By Micahel D. Klemm, Esq., Hellmuth & Johnson, PLLC
I
t is common practice for landlords to screen prospective tenants, and many associations require owners to conduct background checks before leasing units in common interest communities. Credit reporting agencies offer inexpensive tenant screening services that compile credit information, residential history, employment history, and public information regarding judgments, bankruptcies, evictions and criminal convictions. In the interest of safety and security, some associations and landlords have adopted policies and practices against leasing to individuals with criminal records; however, based on recent guidance from the U.S. Department of Housing and Urban Development, doing so may create liability under the Fair Housing Act. The Fair Housing Act prohibits discrimination in residential leasing based on race, color, national origin, religion, sex, familial status (the presence of children in the household) or handicap. There are two types of Fair Housing Act violations: intentional discrimination, and policies or practices that have an unjustified discriminatory effect. On April 4, 2016, HUD’s Office of General Counsel issued guidance regarding how the Fair Housing Act applies to the use of criminal history in housing decisions1, such as refusal to rent based on an individual’s record of arrests or felony convictions. HUD’s guidance notes that treating individuals with similar criminal histories differently because of their race, national origin or other protected characteristic constitutes intentional discrimination in violation of the Fair Housing Act. In addition, a housing provider violates the Fair Housing Act if the provider’s policy or practice regarding criminal history of occupants has an unjustified discriminatory effect on individuals of a particular race, national origin, or other protected class, even if they had no intent to discriminate. This is commonly known as discriminatory effects liability. HUD’s guidance describes the three-step analysis of claims that criminal history screening results in a discriminatory effect in violation of the Fair Housing Act: First, the plaintiff (or HUD) must prove that the screening criteria results in a disparate impact on a group of persons because of their race or national origin. HUD’s guidance includes national statistics indicating that racial and ethnic minorities have disproportionately high rates of arrest and incarceration. Based on those statistics, it appears that the plaintiff (or HUD) is likely to meet its burden of proof.
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Second, the burden shifts to the housing provider to prove that the particular criminal history screening criteria is necessary to achieve a substantial, legitimate, nondiscriminatory interest, such as ensuring safety and protecting property. HUD’s guidance states that screening based on prior arrests (not resulting in conviction) cannot satisfy this requirement, because arrest does not prove guilt. Further, a blanket prohibition on leasing to any individual with a felony conviction does not satisfy this requirement, because it does not take into account the nature, severity and recency of the criminal conduct on a case-by-case basis. Third, the burden shifts back to the plaintiff or HUD to prove that there is an alternative that has a less discriminatory effect. For example, HUD’s guidance states that individualized assessment of relevant mitigating information beyond the criminal record (such as age, circumstances, rental history, and rehabilitation efforts) is likely to have a less discriminatory effect than categorical exclusions. HUD’s guidance notes that the Fair Housing Act does not apply to “conduct against a person because such person has been convicted . . . of the illegal manufacture or distribution of a controlled substance as defined in section 102 of the Controlled Substances Act (21 U.S.C. 802).” Based on this statutory exemption, there is no discriminatory effect liability under the Fair Housing Act for refusing to lease to a person because he or she has been convicted of manufacturing or distributing illegal drugs in violation of the federal Controlled Substances Act. Criminal background checks are an important part of tenant screening, but policies and practices must be carefully tailored to comply with the Fair Housing Act in light of HUD’s guidance. Associations and landlords should consult with their attorneys for advice and assistance in this matter. 1. Helen R. Kanovsky, U.S. Dep’t of Hous. & Urban Dev., Office of General Counsel Guidance on Application of Fair Housing Act Standards to the Use of Criminal Records by Providers of Housing and Real EstateRelated Transactions (2016).
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YOUR COMMUNITY COUNTS. YOUR VOTE COUNTS. One-third of Americans who are eligible to vote have never registered. Even worse, of those who have registered and are eligible to vote, fewer than 58 percent did so in the last presidential election. More than 67 million people live in community associations; these individuals can play an important role in building their communities’ political power. When these Americans exercise their right to vote, they’re not only ensuring their voices are heard at the local, state and national levels, they also are helping to empower their individual communities.
If you or others in your community haven’t yet registered to vote, CAI has made it easy for you to do so now online at www.caionline. org/YourVoteCounts. Voter registration deadlines vary from state to state, so CAI encourages you to register today. It only takes a couple of minutes. Remember: If you don’t vote, you’re allowing others speak for you. Every vote counts—and together, we can have a powerful impact and protect the interests of America’s communities. Help increase our impact. Share this link with others and encourage them to register to vote: www.caionline.org/YourVoteCounts.
Reproduced with the permission of CAI © Copyright Community Associations Institute (CAI). All rights reserved.
Residential Property Rights Defined — Use of Political Lawn Signs
By Nick de Julio, Ewald Consulting
E
very legislative session, the CAI-MN Legislative Action Committee reviews a number of bills that are introduced in the House and Senate by legislators. Some sessions we see new ideas proposed and others we see the recirculation of ideas. This past biennium was no different, as HF 1142 was introduced during the 2015 Legislative Session. The bill brought forward by Rep. Phyllis Kahn (DFL-Minneapolis) is an idea that gets brought up every session. Under the bill, any provision of a homeowners association document that limits the right of an owner of residential property to display a political campaign sign during the calendar dates specified in section 211B.045 would be void and unenforceable. A “homeowners association document” would have included the declaration, articles of incorporation, bylaws, and rules and regulations of a common interest community. This bill was only introduced and no hearing or action was taken on any of the provisions during the 2015 and 2016 Legislative Sessions. Now that the legislative biennium is complete, the bill/issue would have to be reintroduced during the 2017 Legislative Session. Coming off an election year, it is hard to say what will happen. However, this topic and others that involve property rights are what the LAC continues to watch for as well as educate legislators about common interest communities and how they work and are set up.
July | August 2016
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Providing Legal Advice to Homeowners Associations Since 1975 We are passionate, driven and determined in practicing homeowners association law. •
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Saints Outing Recap By Bryan Mowry, CAI-MN Chapter Executive Director
On June 14, the Social Committee held its St. Paul Saints baseball game event. Although the game was rained out,
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Minnesota Communit y Living
Call for MCL Articles Thanks for reading this issue of Minnesota Community Living. The CAI-MN Editorial Committee of property managers, attorneys and business partners wants to make this publication the best it can be, and our goal is to give you something to read that’s useful, interesting and timely. Everyone in our line of work knows how valuable it is to network, forge relationships and build community. Dealing with the challenges of the job comes with tremendous disappointments and rewarding outcomes, sometimes in the same day. That’s why we invite you all to share your experiences. Share your resources. Look at the following list of story topics and see if you know someone who can contribute to the magazine. You don't need to be a professional writer — we can help you develop your idea into an informative and entertaining article. Upcoming Topics: • Success Stories • Problems Solved • Achievements • Estate Planning • Year-End Financials • Evaluating Potential Vendors • Holidays • Decorations • Parties • Cleanup If you have an idea for an article in one of these areas, or you’d like to suggest a topic for us to cover, contact Bryan Mowry at bryanm@ cai-mn.com, or contact the CAI-MN office at (651) 203-7250.
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The CAI-MN Annual Meeting will be held during the Vision Awards on September 22, 2016, at International Market Square.
Visit www.cai-mn.com/VA_2016 to register.
July | August 2016
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July | August 2016
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Ask the Attorney By Nigel Mendez, Esq., Carlson & Associates, Ltd.
This column is comprised of questions that have been posed to me by homeowners, property managers and related professionals regarding legal issues that they have encountered with respect to their associations. Discussion of these questions, as well as prior questions, can be found on the CAI-MN LinkedIn page: tinyurl.com/CAIMN-LinkedIn.
Q:
In addition to making your rules clear, it is imperative that the rules do not conflict with any other governing documents. As a refresher, the articles of incorporation supersede the declaration, which supersedes the bylaws. In terms of priority, rules are beneath each of those documents, and cannot change anything contained in them. Using the pool example above, if the declaration stated that the association pool “is open to all members and their guests from dawn until dusk,” the rule that it was only open certain hours would be unenforceable. However, it should be noted that not all conflicts will be as clear as the pool example.
We need help with our rules! We have some rules, but we are not sure how we can enforce them — or even if we are allowed to enforce them! Can you give some guidance?
A:
Rules are an important part of association living. They can help keep order in an association, make it easier to live in close proximity with neighbors, and allow for members of an association to be treated fairly. Equally important to how you enforce a rule is how you draft one. A well-drafted rule will make it clear to the reader what is, and what is not, allowed to take place in an association. A rule that states that the pool closes at 9:00 pm might seem clear, but without further information about when the pool opens, it is vague. I have encountered association members who would love to argue that the pool opens again at 9:01 pm! It would be much clearer to state that the pool hours are from 8:00 am until 9:00 pm. An ambiguous rule can be difficult or impossible to enforce.
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One area where associations can run into trouble is rentals. Take, for example, a declaration that states rentals are permitted (with some additional language about term of leases, requirements that the lease to be subject to the declaration, etc.), but does not contain a limit on the number of units that may be rented at any time. A rule that limits the number of units being rented at any given time to five would be unenforceable. While the declaration does not state how many units can be rented, so there is no direct conflict, the declaration does set forth the limitations on renting, and it does not include a limit on the number of units.
Once an association’s rules have been established, the issue of enforcement arises. It is important to ensure that rules are enforced in a uniform manner and all members are treated the same. Well drafted rules will have a section that outlines how enforcement will occur, and may include a fine schedule. If the rules contain such a provision, it is important to follow it. The most common type of rule enforcement is the imposition of fines. If the association is covered by MCIOA (the Minnesota Common Interest Ownership Act), then fines may be imposed for violations of the governing documents, including the rules. If your association is an older planned community that is not covered by MCIOA, the declaration or bylaws may grant enforcement powers to the board, but that should be verified prior to taking action. Although MCIOA provides authority for the board to levy fines, those fines must be reasonable, and the homeowner must be given notice and an opportunity to be heard before the board, or a committee appointed by the board. See 515B.3-103(a)(11). To ensure that a fine is warranted, the board should try to obtain as much evidence of the violation as possible, including photos, recordings, or multiple witness statements clearly describing the violation.
Under MCIOA, a fine is deemed to be an assessment against the unit and can be the basis of a lien foreclosure proceeding. However, older non-MCIOA associations generally do not have that same power. These associations are limited to obtaining a personal judgment against the homeowner rather than foreclosing the lien. Further, when a unit sells that has fines attached, MCIOA associations will collect the fines at the time of closing, but nonMCIOA associations may not be able to do so. To have a question answered in a future article, please email it to me at nmendez@carlsonassoc.com with the subject line of “Ask the Attorney.� While I can’t promise that all questions will be answered, I will do my best to include questions that have a broad appeal. Questions will also be answered by other attorneys practicing in this area of law. The answers are intended to give the reader a good understanding of the issue raised by the question but are not a substitute for acquiring an opinion from your legal counsel.
July | August 2016
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Thunderstorm Safety — Avoiding a Lightning Strike By CAI National
W
arm weather usually means fun in the sun, but summer heat also can bring severe weather. Threatening thunderstorms often loom large on summer afternoons so it’s important to be prepared for downpours and accompanying lightning, which can strike outdoors or indoors. Consider the following suggestions when planning both outdoor and indoor events this summer to reduce the risk of a lightning strike.
Watch the Weather
Pay attention to your local weather forecast before participating in outdoor activities. If there’s a chance of thunderstorms, consider rescheduling or moving events indoors. If that’s not possible, have an emergency plan in place in case a severe storm rolls in and designate a sufficient nearby structure as an emergency shelter.
Stay Inside
If severe thunderstorms are imminent, go indoors and wait until they pass. Safe, enclosed shelters include homes, schools, offices, shopping malls and vehicles with hard tops and closed windows. Open structures and spaces do not provide adequate protection.
Duck and Crouch
If you’re caught outside during a severe storm, it’s important to crouch low on the ground, tuck your head and cover your ears to help protect yourself from harm. Do not lie down; lightning strikes can produce extremely strong electrical currents that run along the top of the ground, and laying horizontally increases electrocution risk.
Turn Off Faucets
During a thunderstorm, lightning can sometimes be conducted through the plumbing. Avoid any type of contact with running water, including bathing, showering, and washing your hands, dishes, or clothes.
Turn Off Electronics
All electrical appliances—televisions, computers, laptops, gaming systems, stoves, and more—that are plugged into an electrical outlet could carry a current from a lightning strike. Surge protectors will reduce the risk of damaging electronics.
Stay Away From Windows
Not only is lightning a threat, but high winds and hail create flying debris that could be harmful during a thunderstorm. Close all windows and doors and keep away from them.
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CAI-MN 2016 Golf Tournament ANNIVERSARY
Monday, August 8, 2016
Midland Hills Country Club | Roseville, MN Sponsorship and attendee registration open now! www.cai-mn.com
Minnesota Community Living 1000 Westgate Drive, Suite 252 St. Paul, MN 55114 Phone (651) 203-7250 Fax (651) 290-2266 Email info@cai-mn.com