CAI-MN Minnesota Community Living - Sep/Oct 2011

Minnesota’s premier homeowners association magazine

September/October 2011

Volume 29 • Issue 5

Ice Dams: In this Issue: Reserve Studies for the First Time Buyer

Answers to Five Frequently Asked Questions

5th Annual Golf Tournament Photos And Much More!

Visit us online at www.cai-mn.com.

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Minnesota Communit y Living

Board of Directors

From the President

school project?

By Jonathan Edin | CAI-MN President

Motivation. What motivates you to go to work extra early to work on a project? What motivates you to try your best when you play a game or a sport? What motivates you to stay up late helping your kids work through a difficult

Economic necessity, pride, and/or helping others succeed may be some of the motivations behind these activities. We work hard to earn our pay and provide value to our employers, to be recognized, and to advance. We try our best in games or sports for enjoyment and the satisfaction of performing well, and, for some, the joy of competition. We help our kids late at night because we care about their futures and want them to succeed. Some motivations are extrinsic because they come from external rewards. Others are intrinsic; we believe we can improve ourselves or be agents for change or success in others.

As volunteers in a trade organization we show up for meetings, work behind the scenes organizing events, and attend programs. We are motivated to some degree by extrinsic factors, like making contacts that might lead to the next sale. When

I think of CAI-Minnesota though, the vitality of the organization rests on the intrinsic motivation of its volunteers.

We put our individual business advancement interests in the background to work with our competitors to improve the vendor experience for everyone. Presenting top-notch educational offerings is the result of a lot of behind-thescenes effort that is rarely recognized but that raises the profile of the organization as a go-to association for industry resources. We take pride in CAI. We want it to be an agent for positive change, through enhancing professionalism, education, and even the legislative process.

I encourage all of our volunteers to take a moment to contemplate their CAI experience.

CAI has come a long way in the last few years.

It got that way through the motivation of its volunteers. We want to continue to excel. Let’s remember that as we work through new initiatives and burnish up older ones. We are in this together, for the good of our industry and those we serve.

President Jonathan Edin Phone 651.222.2155 JEdin@mncondodefects.com President-Elect Traci Lehman, CMCA, AMS, PCAM Phone 612.381.8600 tracil@citiesmanagement.com Treasurer Michael P. Mullen, CPA Phone 952.928.3011 mike@cpamullen.com Secretary Halo Stafford, CMCA, AMS, PCAM Phone 952. 277.2785 hstafford@gittleman.com Directors Tom Engblom, AMS, CMCA, PCAM Phone 866.800.4656 tengblom@cabanc.com Steve Hoogenakker Phone 763.213.2410 steve@landscape.pro Michael Klemm, Esq. Phone 952.953.8832 klemmm@seversonsheldon.com Rich Klobuchar Phone 763.551.9827 rklobuchar@usinternet.com Nancy Polomis, Esq. Phone 952. 941.4005 npolomis@hjlawfirm.com Jim Rezek Phone 763-424-9984 jimrezek@comcast.net Gene Sullivan Phone 952.922.2500 gene@ncmgi.com

Check Out CAI-MN’s

New Website

Benefits of the website include: • Track the educational events that you attend • Print attendance certificates after you attend an event • Download events to your Outlook calendar • Add a member photo to your profile and member directory

www.cai-mn.com Committee Chairs Legislative Action Chair Joe Crawford Phone 952.212.2216 joe.crawford9@gmail.com

Vision Awards Chair Lisa Astelford, CMCA Phone 952.277.2787 lastleford@gittleman.com

Golf Tournament Chair Tosh Tricas, CMCA, AMS, PCAM Phone 888.219.2534 capt.tosh@gmail.com

Tradeshow Committee Chair Mark Schoenfelder Phone 952.345.2900 mark@schoenfelderpainting.com

Communications Chair Joel Starks Phone 952.224.4480 joel@sharpermanagement.com

Education Committee Chair Gene Sullivan Phone 952.922.2500 gene@ncmgi.com

Home Owner Training Chair Sara Lassila, CPA Phone 952.474.1631 September sara@saralassila.com

Membership Chair Steve Arrell Phone 763.315.8900 | October 2011 steve@newexterior.com

3

Know Your Rights: What Every Property Owner Should Know About Making an Insurance Claim for Storm, Hail or Fire Damage by

W

ith the recent history of significant storms throughout the Midwest, many property owners, including both commercial building owners and private homeowners, have been faced with significant property insurance claims.

While the typical property owner may not be sophisticated in the technicalities of these claims, there can be no doubt insurance companies understand their rights, as well as the explicit terms of their particular insurance policies.

Further, there is an old saying in the insurance industry that when property owners are purchasing insurance the most important concern is price, and when property owners are making an insurance claim the most important thing is coverage. In other words, some property owners skimp on coverage in favor of saving dollars and live to regret it.

Because of this, all property owners must understand their rights when making a property damage claim. Property owners face a number of technical and contractual issues when it comes to making a damage claim, even when there is a disagreement between themselves and the insurers with regard to the value of the loss.

a disagreement between the property owner and their insurer as to the cost of repair for a loss. In this context, an “appraisal” refers to a process whereby the insured can submit evidence regarding their view as to the value of the loss and the insurer can do the same.

Insureds are often very surprised as to the insurer’s view of the value of the loss.

Often the insurer will “make an offer” with regard to a loss that is far less than what the insured perceives as the cost of repair. When an impasse occurs, under most every policy sold in the State of Minnesota, the insured has a right to demand to enter into the process called an appraisal.

The appraisal process can be formal and involve attorneys in the event the insured decides to retain someone to act on their behalf. As the “appraisal” is an alternative dispute resolution process, like mediation or arbitration, if an attorney is retained evidence is presented regarding the insured’s calculation on the value of the damages followed by a presentation by the insurer on the same issue.

One important provision included in every policy in Minnesota gives property owners a right to demand an appraisal of the loss when there is a disagreement with the insurer as to the value of the loss. The word “appraisal” in this context can be confusing.

Then, the appraisers (one of whom has been retained by the insurer and one of whom has been retained by the insured) discuss the evidence presented. If they agree, then they sign the Appraisal Award and the matter is over. If the appraisers disagree, an umpire selected by the two appraisers will review the evidence and typically sign on with one of the appraiser’s views. The insured and the insurers both pay their own fees for their respective appraiser, and one-half of the umpire’s fee. Often, with the assistance of an attorney, the ultimate Appraisal Award can be many times the amount offered by the insurer after limited review by their adjusters.

While many people are familiar with the term appraisal when it comes to evaluating the value of a property itself (say, for example, with a mortgage or a tax appraisal), that same term is used for an alternative dispute resolution process utilized when there is

The appraisal process is one of the most overlooked rights of an insured when a property loss occurs. Very often insureds will perceive that their only right against the insurer is to sue them for breach of contract.

This appraisal process, however, is often the

J. Robert Keena, Hellmuth & Johnson, PLLC

best way to increase the amount of the award for the loss. Even without an attorney, many insureds have obtained better claim results after an appraisal than without. When an attorney is not used, the insureds typically have their own contractor act as their appraiser and simply forward correspondence to the insured demanding an appraisal of the loss. Their contractor then presents the evidence with regard to the cost of the repair and a contractor for the insurer or even an adjuster presents their own evidence to an umpire. Typically without an attorney the umpire will then make a decision regarding the value of the loss. Although the process of appraisal and other rights of the insureds under an insurance policy should be used as a standard course of business by the insurers in response to claims by property owners, there are times when the insurers fail to act in good faith and deny their insureds rights to which they are entitled under the law.

Historically, Minnesota has been a state in which insureds have very few rights to pursue a claim for “bad faith” insurance adjusting. Many other states surrounding Minnesota have had bad faith laws which historically have favored insureds. Minnesota’s laws in the past have had hurdles that were very difficult to overcome.

In 2008, however, Minnesota adopted Minnesota Statute Section 604.18 which, although referred to as the “Good Faith Statute,” gives insureds rights and remedies and penalties when they have been treated unfairly or in bad faith by their insurer.

The “Good Faith Statute” allows the District Court to award “taxable costs” to an insured against an insurer if the insured can show 1) the insurer lacked a reasonable basis for denying a policy benefit; and 2) the insurer knew that it lacked a reasonable basis for denying the policy benefit or recklessly disregarded its lack of a reasonable basis for denying the benefit. This new statute certainly has teeth. Under this statute, an insured, upon successfully presenting a violaKnow Your Rights continued on page 15

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Minnesota Communit y Living

Calendar

Index

2011 October

The Essentials of Community Volunteer Leadership

October 22, 2011, 8:30 am – 4:30 pm Dorsey Ewald Conference Center $75 for members (early); $100 for members (regular); $100 for nonmembers (early); $125 for nonmembers (regular)

November

Avoiding Legal Landmines

November 2, 2011, 11:30 am – 1:30 pm Bloomington DoubleTree Hotel Free – homeowner; $30 – manager/ business partners; $15 – manager/business partner bringing one homeowner; free – manager/business partner bringing two or more homeowners

features 4 Know Your Rights: What Every

Property Owner Should Know About Making an Insurance Claim for Storm, Hail or Fire Damage

8 Ice Dams: Answers to Five

Frequently Asked Questions

For more information regarding an event, call the office at 651.203.7250 or visit the CAI-MN website. Online registration is available at www.cai-mn.com.

Published by Community Associations Institute — Minnesota Chapter, copyright 2011. 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 Chapter Staff Editor Jane Duntley at janeyd@ cai-mn.com, or at CAI–Minnesota Chapter, 1000 Westgate Dr., Suite 252, St. Paul, MN 55114.

By Matthew A. Drewes

11 5th Annual CAI-MN Golf Tournament

12 Association Vertigo

Register online at www.cai-mn.com

By J. Robert Keena

By Gene Sullivan

19 Reserve Studies for the First Time Buyer

By John P. Poehlmann

20 Member News 21 Improving Your Happiness in the Most Contentious Issue Facing HOAs this Winter

By Steve Hoogenakker

series 3

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President’s Message

By Jonathan Edin

Self-Management

By Joel Starks

Thank You 2011 Annual Partners Platinum

Gassen Companies

Gates General Contractors, Inc. Gittleman Management

Hellmuth & Johnson

Sela Roofing

Xtreme Exteriors Gold

Community Association Banc

Reserve Advisors Silver

Carlson & Associates

Hammargren & Meyer, P.A.

Levin & Edin

New Exteriors by SMA, Inc.

Omega Management Bronze

American Building Contractors

BNC National Bank

Complete Building Solutions, LLC Construct-All

Homeowner Association Website – HOA WEB

Michael P. Mullen, CPA, PLLC

Schoenfelder Painting

SERVPRO of Brooklyn Park/Champlin

[ ADS Index ] of Advertisers American Family Insurance – Chris Way........ 13 American Family Insurance – Jeff Mayhew.... 22 CA Banc/CondoCerts........................................ 7 Carlson & Associates, Ltd .............................. 22 Columbus Exteriors, Inc.................................... 2 Construct-All Corporation ............................. 15 Clean Response............................................... 18 Felhaber Larson Fenlon & Vogt ..................... 15 Final Coat Painting.......................................... 13

Gassen Companies............................................ 9 Gates General Contractors, Inc...................... 17 Gittleman Management.................................. 10 Hammargren & Meyer, P.A. .............................. 6 Hellmuth & Johnson, PLLC......................... 7, 14 Levin & Edin..................................................... 13 LS West............................................................ 20 New Exteriors by SMA, Inc............................. 22 Omega Management, Inc............................... 12

Plehal Blacktopping, Inc. ............................... 13 Reserve Advisors.............................................. 14 Russo Consulting, Inc. .................................... 21 Sela Roofing .................................................... 24 SERVPRO.......................................................... 12 Thomsen & Nybeck......................................... 13 Xtreme Exteriors.............................................. 23

September | October 2011

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Self-Management Series

Self-Managed Association Boards: The Top Six Challenges that Face a Board Today

By Joel Starks, Sharper Management

I

n this series we are focusing on you the board member and the challenges you face each day when running your homeowners association. We are exploring six challenges and ways to work through them. If you see something that seems common or you identify further challenges, do share. I will add your comments and feedback as the year goes on. You can email your comments to joel@ sharpermanagement.com.

A Board President speaks A small-association board president reported the following struggles—not to mention the earful she gets from frustrated homeowners who don’t know how hard it can be to manage an association and work full time. Today we focus on foreclosures.

1. Enforcing rules: it is difficult to confront friends and neighbors.

2. Knowledge of pertinent statutes: trying to understand the “legalese.”

3. Developing meaningful specs for services/vendors, etc.: Not my area of expertise and requires time.

4. Frequent phone calls from members with matters that need attention: Time.

5. Keeping track of paperwork: Time.

6. Foreclosures: How can we protect the investment? What if they vacate?

Foreclosure. With the RFNOF on file with the county, any filing on the property will be sent to the board and will better prepare you for what is next.

Charge It! If there is a posted notice on the unit, call the phone number on the notice. That will get you to the local real estate representative.

The local rep may have a contact with the servicer of the loan who is in state X. The actual owner could be a bank in state Y. The person who coordinates the maintenance of the unit could be in state Z. They don’t necessarily work together so the trail of responsibility can be confusing. When there is a problem the board shouldn’t hesitate to use its powers of special assessment to get things fixed. Make sure you are charging for all of the effort. Keep a log of all charges, penalties, and damages to the property and repairs.

Prep and Protection Upkeep on the unit is the most important factor. You need to protect the investments of all individuals. Think about winterizing the unit. Perform periodic inspections and be sure there are no existing issues with water, sewer or exterior that could damage one or more adjacent properties. Think property value preservation and your fiduciary responsibility. It is not your concern if the unit is occupied or not as long as it looks nice and the dues are paid.

Be Proactive The key to protecting your community when there are foreclosures is knowledge.

You have to know that the unit is vacant.

You have to know who owns it—the bank or the owner.

This Just In: Casper Not Friendly Good luck getting the bank to vote on any measure or appear at a meeting. Essentially the unit is a ghost. It is not uncommon for the board to vote or make repair decisions repairs without a bank representative. Keep the association’s best interest as the focus.

The owner may or may not pay association dues during the process. When you know there are issues with the unit, you should file a lien when they are late. At the same time, you should file a Request for Notice of

An August 2011 article on Bloomberg’s website reports that some associations are being forced to take banks to court after realizing that the banks’ delays in foreclosing have enabled homeowners to stay in their

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Minnesota Communit y Living

residences for years without paying association dues.

Welcome to the Neighborhood Finally, it is important to note the new owners when the unit is finally sold so you can start collecting dues and get back to normal in regards to fees collection and maintaining a positive income for that property and the association.

When the board works to protect the investments of all, it enables the home to be sold and assures new owners that they acquired a home that was looked after and managed.

Banks need to be pushed. They will step up, but they need a good push to ensure action is being taken.

Next issue I want to look to you for topics.

Help me help you. Submit your ideas and I will get you the answers or at least find basic knowledge that may be of service to you and your board. Want do discuss maintenance calendars? Setting the meetings? Proper meeting etiquette? This next series is called “HOAs: You ask the Questions.”

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September | October 2011

7

Ice Dams: Answers to Five Frequently Asked Questions

By Matthew A. Drewes, Esq., Thomsen Nybeck, Attorneys at Law

I

ce dams are all too common during Minnesota winters.

They may happen for a number of reasons, and there are debates about whether they should happen at all. When they occur, arguments frequently arise about how to take care of the problem. In common interest communities this also leads to disputes about who is responsible to perform the repair work and, more importantly, who should have to pay for it. Sadly, winter again is approaching, and for many, ice dams will follow. This article will review the causes of ice damming, the various parties who may have responsibility to pay for repairing the damage, and who might have the responsibility to correct the problem.

What Are Ice Dams?

Ice dams are characterized by a buildup of ice at the edge of a roof. They occur when snow accumulates on a roof and the surface of the roof is heated sufficiently to melt the snow, while the eaves (the portions of the roof more exposed to the elements) remain below freezing due to cooler outside temperatures.

Icicles may form as a result of ice dams, but the presence of icicles does not necessarily signal the presence of ice dams. That said, it’s better to be safe than sorry, and if you’re in doubt you should react as though you have ice dams until you receive a credible confirmation that ice dams are not present.

What Causes Ice Dams and How Do They Cause Damage?

Sunny winter days, which are common in Minnesota, frequently contribute to ice dams. What many people don’t realize is that one or more other factors usually cause the ice dam. Some builders or their representatives will contribute to the confusion about the nature or cause of ice dams by attempting to excuse their presence. They may assure homeowners that ice dams are normal and unpreventable, or that the problem is caused by the homeowner’s or the association’s failure to maintain its roofs properly, or instead 8

Minnesota Communit y Living

that the problem has arisen due to abnormal or extreme weather conditions that could not have been foreseen. In fact, ice dams should not occur and in most cases are preventable, though fault and financial responsibility may present some thorny issues.

The two most common causes for ice dams are found inside the structure. The first cause is “bypass air” from the dwelling that enters the attic, and the other is inadequate ventilation inside the attic space. In some ways the direction a building faces may contribute to the problem, as can certain architectural styles or features, but at least one of the two issues listed above are usually involved when an ice dam forms.

The term “bypass air” refers to warm air from the dwelling that finds its way into the attic and, during the winter, can start to warm the underside of the roof. This warm air may actually leak through light fixtures or other openings between the dwelling and the attic, or it can result from insufficient insulation in the attic, allowing ambient heat from the unit to rise into the attic. It is also possible that air ducts or other ventilation systems may leak or radiate heat into the attic. Service providers exist who can perform a “blower door” test that determines whether there is excessive air escaping from the living area into the attic space of a structure. Some even work through government-subsidized programs to make their services more affordable.

A ventilation issue arises when air flow in the attic itself is inadequate. Roofing systems are designed with vents near the peak and vents in the soffits. The soffit is the horizontal surface, usually made of painted metal, that you see when you look up at the underside of the eave of your roof. These vents exist to permit air to rise up through the soffit, flow along the underside of the roof deck, and escape out the vents near the roof peak. When this air flow occurs uninterrupted, the surface of the roof is more likely to say a relatively uniform temperature from top to bottom, limiting if not eliminating the temperature variations that can cause the upper areas of the roof to be warm while the lower areas of the roof remain cold (the cause of ice dams).

If insulation blocks this ventilation because it is filled or packed against the underside of the roof, inconsistent roof temperatures characterized by warm upper roofs and cold lower roofs (the cause of ice dams) can result.

Ironically, insulation intended to limit the amount of bypass air in the attic can cause ice dams by blocking needed ventilation.

Of course, water leaks need not occur just because there are ice dams. Proper roofing techniques can help protect against water damage even where ice dams might form.

This primarily means proper installation of an “ice/water shield” a sufficient distance up the roof, and also protecting the bottom edge of the roof, where it meets the fascia. Ice/ water shield can protect the roof edge, but some contractors will install a metal “drip edge” at this location to protect against voids between the roof deck and fascia where water can enter. Gaps or openings that allow water to enter when it backs up under the shingles should not exist at or near roof edges. Consider also that just because you haven’t seen water inside your home does not mean that water has not entered the structure. Water reaching the inside of a building violates building code and constitutes a major structural defect whether it enters the dwelling space or not.

How Should You Respond if You See Ice Dams?

If you see ice dams on your home or in your community, ensure the association’s board of directors and the property manager, if any, know about the ice dams and any resulting leaks. Provide the notice in writing as quickly as possible. The association and any affected unit owners should then cooperate for the purpose of making an inspection of the roof and attic —and the unit, if necessary— to investigate the cause of the ice dams and any damage arising from them.

If your community is less than 10 years old when you first notice the ice dams (or if the ice dams occur within 10 years of a renovation to the building) you should also provide written notice to the developer, builder or contractor, as applicable. Do this immediIce Dams Continued on page 16

September | October 2011

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Minnesota Communit y Living

C O M M U N I T Y A S S O C I AT I O N M A N A G E M E N T

5th Annual CAI-MN Golf Tournament – July 13, 2011

Jerstad Photography

Thank You Sponsors Par 3’s and Hole-in-One Sponsor Xtreme Exteriors Golf Cart Sponsor Hellmuth & Johnson, PLLC Photographer Sponsor Allstar Construction Management

Beverage Cart Sponsors Lawn Ranger Concierge Landscape Smartstreet, A Division of RBC Bank Lunch Bar Sponsor Roell Painting Company

Giveaway Bag Sponsor Loyear Restoration Services

Lunch Sponsors Prescription Landscape Gates General Contractors, Inc.

Putting Contest Sponsor TruSeal America, LLC

Dinner Bar Sponsor Reserve Advisors, Inc.

At the Turn Sponsor Community Development Inc.

Dinner Sponsors Community Association Banc Gates General Contractors, Inc.

Driving Range Bar/Beverage Sponsor Clean Response, Inc. Trophy Sponsors Levin & Edin Closest to the Pin Sponsors Gassen Companies – Men Carlson & Associates, Ltd. – Women Longest Drive Sponsors Allstar Construction Management – Men Loyear Restoration Services – Women Longest Putt Sponsors Gassen Companies – Men Gassen Companies – Women

Hole Sponsors ACI Asphalt Contractors, Inc. Allstar Construction Management Asphalt Associates Inc – Asphalt Concrete Solutions Carlson & Associates, Ltd. Eco Lighting Distributors Giertsen Co. Go Get FRED High Profile Grounds Maintenance Inc. J & W Asphalt, Inc. Lawn Ranger Metro Paving, Inc. Northrup Roofing & Remodeling Plehal Blacktopping Inc. Rainbow Treecare SERVPRO Tenet Painting Thomsen Nybeck TruNorth Painting

September | October 2011

11

Association Vertigo

By Gene Sullivan, New Concepts Management

M

y father, a military pilot with the United States Marine Corps, told me of a story of his early training days where the Corps’ fixed wing training unit in Pensacola, Florida became increasingly concerned over the number of young pilots who ended up ditching their plane in the water over and over again while beginning take off.

What was initially being written off as a bad batch of recruits, who couldn’t be taught how to fly became an early lesson in understanding vertigo. “Vertigo” is that dangerous state of mind all pilots will face at some point in their flight experience where they become confused with their direction and orientation. This can easily happen when you are forced to react by putting your aircraft in quick and tight maneuvers. For that brief moment the pilot does not know which way is up or down.

Upon further investigation it was found that the cause for the increased pilot error was that the base had changed the direction of the runway for take-off. This meant the pilots had to take a steep bank or turn while initially ascending. This, coupled with having to reach across the cockpit to perform some specially timed procedures, caused these inexperienced pilots to become briefly disorientated as they tried to “correct” what felt like the proper maneuvers to in order to stay in the air.

In managing Common Interest Communities, “Association Vertigo” is a common experience we must all learn to fight. This type of “vertigo” is usually the result of good hearted, well intentioned people who are constantly being driven by the tyranny of the urgent.

The voices and concerns that a volunteer Board of Directors can hear from those in their community can be absolutely dizzying at times. While what you do in performing your role at any given time might seem trivial or mundane, it does take discipline to plan and to look continually ahead.

12

Science fiction author Robert Heinlein once was quoted as saying “In the absence of clearly-defined goals, we become strangely loyal to performing daily trivia until ultimately we become enslaved to it.”

See if this doesn’t sound all too typical. Your monthly Board meeting is ready to begin.

You have an agenda prepared with a full slate of items to be discussed and decisions needing to be made. However, at the homeowner’s forum just prior to the meeting, several homeowners ask for you to discuss other concerns. Instead of having the discipline to say “We’ll discuss this if time allows this evening,” or “We wish to give this request serious thought, let us put it on the agenda for next month,” your efforts go into another marathon meeting.

Why? Because in your sincere desire to take care of the issue “now” you realize that you have spent your time discussing something no one is prepared for instead of spending your time discussing and enacting upon the items you had come prepared for.

What is the end result? Homeowners and Board Members alike ask themselves, “Why does it seem that nothing ever gets done around here?”

Does this mean I am advocating that Boards never take the time to answer the “quick question or concern”? No, but as Mr. Heinlein was quoted earlier in this article: In the absence of clearly-defined goals and a methodical approach in resolving them, you will find yourself developing the bad habit of allowing yourself to get caught up in the immediate, instead of the necessary.

Minnesota Communit y Living

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September | October 2011

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Minnesota Communit y Living

Know Your Rights continued from page 4 tion of the statute, is entitled to “the lesser of either $250,000 or one-half of the proceeds awarded in excess of the amount offered by the insurer at least ten days before trial,” as well as “reasonable attorney’s fees actually incurred to establish the insurer’s bad faith.”

(Citing Minn. Stat. § 604.18, subd. 3).

So, for example, under this statute, if an insurer were to deny coverage in bad faith and later the insured were to recover $100,000, the insured could be entitled to $50,000 as an additional penalty, along with the attorney’s fees incurred to establish the statutory breach. This will result in positive benefits for insureds in that it will dissuade insurers from recklessly denying rights ONSTRUCT LL ORPORATION under insurance policies.

MEMBER There is a variety of conduct which could constitute a violation under ASSOCIATION INSURANCE REPAIR the statute. ´ Fire ´ Water Although a Court of Ap´ Smoke ´ Vandalism peals decision ´ Wind ´ Emergency Services has yet to be ALL INSURANCE CLAIMS WELCOME issued directly applying to WE WORK WITH ALL INSURANCE COMPANIES this statute, www.construct-allcorp.com some examples of conduct

C

-A

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Hour Service

763-427-5900 Bonded Licensed Insured

that may constitute a breach of the statute include: 1) failure to honor an insurance demand for an appraisal; 2) failure to admit coverage when there is no evidence to support a lack thereof; 3) failure to promptly pay an undisputed amount of loss; and 4) delay in conducting the investigation or inadequate investigation of a loss by an insurer.

While it is true that citizens also have to wait for a Court of Appeals analysis on the application of any new statute, the Minnesota Good Faith Statute gives insureds rights which they previously did not have. It also may result in insurers acting in a more prompt and professional manner in the analysis of a claim.

This new statute, coupled with an insured’s understanding of all of their rights under the policy, such as their right to appraisal, can facilitate quick resolution of insurance claims in this era of increased storm damages and complex statutory and insurance policy applications. The message to insureds is simple: They must know their rights.

September | October 2011

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Ice Dams from page 8 ately. Failure to provide timely notice is just one of a number of pitfalls that await you if you hope to recover from those who might be responsible for any defects causing your ice dams. Keep in mind also that, to avoid an argument of spoliation (or destruction of evidence), you should be prepared to allow the builder or contractor to investigate the cause and effect of your ice dam problem.

It would be wise to seek the assistance of an attorney familiar with these issues before potentially taking an action that compromises your ability to obtain a repair or recovery for your problem.

Whose Job Is it to Fix This?

Deciding who will be responsible to take steps to stop an ice damming problem becomes a challenging question. Conditions inside the structure usually cause the ice dams, but inside the structure does not necessarily mean inside an owner’s unit. The party responsible to perform the work may depend on the type of association involved (condominium or townhome). Moreover, both interior and exterior conditions may contribute to cause damage, and repairs may be necessary in both locations to prevent further problems.

A. Exterior.

The short term solution might be the easiest to identify. The association usually has the responsibility to maintain common elements and building exteriors. Frequently, this means the association should remove snow and ice from the roofs until a more permanent solution can be implemented. While it is a temporary solution to remove snow from the roof or to melt a channel in an ice dam, this should not be a permanent solution.

Raking, shoveling, or even sweeping snow off of roofs, and especially efforts to chip ice away, are likely to damage the roof and should not be necessary if the roof system is performing properly. Moreover, depending upon the severity of the winter, clearing snow and ice from your roofs can quickly sap an association’s resources.

The association should examine the roof and fascia where an ice dam has formed to determine whether roofing materials were properly installed. If corrections are necessary to the shingles, underlayment, ice/water shield, or if a drip edge must be installed, the association should take steps to address these areas.

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B. Interior.

A unit owner’s responsibility for making interior repairs or alterations to eliminate ice dams may depend on the type of community involved. In a condominium, unless the declaration states otherwise, the common elements include all portions of the association not contained within the unfinished interior surface of the owners’ units. This means the attics usually are part of the common elements. As such, the association will in most cases have the responsibility to maintain not only the roofs of a condominium, but also the attics. The association should, in such cases, evaluate and address any bypass air or ventilation issues.

In a townhome association, the attics usually are part of the unit. This means if a unit owner observes that he or she has ice dams, that owner may need to conduct his or her own investigation into any possible internal issues that are causing ice dams. If multiple owners have the same problems, however, it may be best to pursue the investigation and any alterations jointly, or with the association managing the process. This will maximize efficiency and perhaps lower the overall cost of the work. In addition, the association may have an interest in doing this work or ensuring that the alterations are consistent throughout all units because the building exterior will be affected if the ice dams return.

Who Gets the Bill?

Ice dams may generate several costs. First, there is the short-term need to remove the snow and ice that creates the ice dam itself, as well as the water that pools behind it. Longer term, the cause must be investigated. If leaks have occurred, the roof should be evaluated.

Then there are the repairs that are necessary in light of this investigation. What follows are some thoughts about where to look for the money to pay for these things.

A. Insurance.

If an ice dam causes damage to the interior of a structure, this often will constitute an insured loss. Pursuant to most applicable policies, and certainly under Chapter 515B of Minnesota Statutes (also known as the Minnesota Common Interest Ownership Act, or MCIOA), the association’s insurance policy is to provide primary coverage for the loss. However, the association usually is entitled to allocate the deductible under its

own policy against the owners whose units are involved in the claim or whose actions or inactions resulted in the loss. Ideally, owners will have HOA policies in place with loss assessment coverage, which will cover the association’s deductible if necessary. There may be reasons not to submit an insurance claim, however, such as avoiding an increase in insurance rates, or because the association intends to pursue the builder or contractor who is responsible for the conditions causing the ice dams.

B. Builder or Contractor.

If ice dams exist in a newer association, or if they began shortly after recent renovations or a re-roofing project, it is quite possible they’re a result of defective construction practices, and an express or implied warranty may cover the condition. As mentioned above, providing written notice to the builder and any applicable subcontractors is one step in preserving the right to obtain a recovery for the defect. However, there are several statutes of limitations that apply to claims for defective construction and breach of warranty. In addition, depending on the nature of your claims or the provisions of applicable purchase documents and governing documents, you may have to navigate potential restrictions or limitations on your ability to pursue a recovery. If you have any doubt whether you have a right to pursue a claim for recovery from your association’s builder or from your contractor, you should still pursue a full evaluation of the situation. Options may still exist even if you did not provide prompt written notice, or if the contractor has gone out of business or filed for bankruptcy, so you should never assume you have no chance at recovery. Of course, the earlier you pursue a complete evaluation, the better.

C. Common Expense: Shared vs.

Allocated.

If insurance coverage is unavailable for performing necessary alterations or to correct deficiencies in the roof system, and recovery from the applicable builder is unavailable or unsuccessful, the association and the affected unit owner(s) must explore the proper solution. Associations may, and often do, choose to treat exterior work such as removing snow and ice, investigating the cause and fixing roofing issues, as a common expense borne equally by all owners. Note however, that if the association is governed by MCIOA, it is Ice Dams Continued on page 22

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Reserve Studies for the First Time Buyer

By John P. Poehlmann, Reserve Advisors Inc.

N

ow that it’s budget time for many associations, boards are updating their reserve studies. Many others have never had a professional reserve study and are now considering investing in having their first independent study done. Questions arise such as “what is the purpose of a reserve study?”, “what are the benefits to the association?”, or “How do we go about getting a reserve study conducted for our association?”

First, it’s important to understand what a professional Reserve Study is and how an association benefits from having one. A Reserve Study is an independent long term analysis (generally 30 years) of association property that determines the amount of funds required to repair or replace the common elements of an association as they wear out over the life of the association. Examples of common elements include exterior walls, roofs, paving, elevators and swimming pools.

A professional Reserve Study is a key financial planning tool that helps the board fulfill its fiduciary responsibility to maintain the common property of the association.

The American Institute of Certified Public Accountants (AICPA), in its Audit and Accounting Guide, Audits of Common Interest Realty Associations, states that the association’s “primary duties are to maintain and preserve the common property.” The professional Reserve Study becomes the blueprint for the ongoing financial well-being of the association that current and future boards rely upon. Legislation among the states has increased dramatically in recent years clearly defining the fiduciary obligations of boards and managers, and funding of reserves for replacement. Among the states with legislation regarding reserves and Reserve Studies are California, Florida, Illinois, Michigan, Nevada and Virginia.

The trend is certainly toward more stringent requirements. The purpose of these laws and the AICPA Audit Guide is to protect the investment of current and future association homeowners.

Key Components of a Reserve Study Determining an appropriate amount to reserve is dependent upon the amount of common property and that property’s condition.

A Reserve Study conducted by a qualified firm will include...

• A complete inventory of all common elements subject to repair or replacement; • The useful lives of the common elements and, more important, their remaining useful lives; • A determination of future replacement costs by element and by year; • Relatively stable reserve budget recommendations for at least each of the next 30 years.

Some firms provide more insight by documenting the current condition of each element. Additionally, the Reserve Study consultant can analyze maintenance problems and use his or her expertise to provide engineering recommendations that will extend the lives of the common elements, thus saving the homeowners money.

Directors and Officers liability insurance helps protect board members from personal liability.

However, litigation can still be very costly, time consuming and stressful. It is not uncommon for litigious issues to arise years after one’s tenure as a board member is concluded or one hasmoved away from the association.

An independent Reserve Study will also satisfy the requirements of the AICPA Audit Guide.

The audit guide states that disclosures should be made regarding the determination and adequacy of reserves. Additionally, the professional Reserve Study serves as the foundation for meeting state statutes that call for adequate or reasonable reserves.

Why Should We Hire a Consultant?

Licensed engineers and architects with experience in performing Reserve Studies possess the best qualifications. These professionals are best able to provide you with an objective, independent opinion for capital repairs and replacements over the life of your association.

What About Updating the Study?

It’s important to update a Reserve Study every few years. Remember, a Reserve Study is a financial snapshot of the association.

Periodic updates account for: extended or diminished remaining lives of common elements due to such factors as maintenance practices, weather conditions, actual changes in inflation factors that affect local market rates for materials and labor, changes in fund interest earned, and changes in association property due to additions and deletions.

The update will also help maintain and confirm the financial well being of the association well into the future. This ensures that the association will have an accurate, perpetual financial planning tool that current and future boards will rely upon with confidence.

An accurate Reserve Study ensures that adequate reserves for replacement will be available at any point in time, especially during those critical periods of heavy capital expenditures. A properly funded reserve also treats current and future homeowners fairly.

Overfunding of reserves suggests that current homeowners are paying more than their fair share. Reserving too little results in a deficit position or insufficient funds to cover the replacement of major items like a boiler or roof. The board is then left with the unpleasant task of seeking special assesments from the homeowners or borrowing.

With a professional reserve study, claims of financial mismanagement by current or future owners are greatly reduced because the board exercised sound business judgment and planned responsibly with expert advice.

The marketability of the homes is also strengthened by showing prospective buyers and their lenders that the association is properly managed. Today, more than ever, buyers and their lenders are closely scrutinizing the association’s budget, current reserves, and long range projected expenses. Many banks now require independent reserve studies as a requirement for approving mortgages.

How Do We Select a Qualified Reserve Study Firm?

Selecting the right Reserve Study consultant requires several considerations to obtain the service that best fits with the long term goals and objectives of your association.

Reserve Studies Continued on page 22 September | October 2011

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Member News Local Businesswoman Recognized with National Managers of Excellence Award Stana Gerlach, CMCA, AMS, an association manager with Gittleman Management Corporation in Bloomington, has received a Managers of Excellence award. The award was established by Reserve Advisors, a national provider of reserve studies, insurance appraisals and transition studies, to recognize community association managers who are industry leaders.

Gerlach has been in the industry for more than 10 years and oversees seven townhome and condo associations in suburban Minneapolis.

hiding from them. They get resolved through honest and direct conversations.”

Throughout her career, Gerlach has pursued professional development opportunities, such as her CMCA (certified manager of community associations) and AMS (association management specialist) designations through the industry’s trade group, Community Associations Institute.

As an award winner, Gerlach fosters open and honest communication with the associations and boards she works with: “I believe in bringing my boards into the conversation. I encourage board members to participate in vendor meetings and supply them with the necessary information they need to make informed decisions,” says Gerlach.

“And, I always deliver the truth, even if there’s a problem. Problems don’t get resolved by

Award Background Reserve Advisors established the Managers of Excellence program to honor the best community association managers throughout the country. The Managers of Excellence award is presented on a quarterly basis to managers who: demonstrate a strong commitment to community associations and enhancing the overall value of the properties; exhibit industry experience and expertise; understand the importance and benefits of a reserve study; and exhibit professional conduct.

CAI-MN Remembers Marj Peterson Marjorie “Marj” Peterson died peacefully at home on August 24, 2011 after a 15-month battle with cancer. Distinguished business woman, property and community management pioneer, beloved mother, grandmother and great grandmother. Marjorie was the first female member of the Edina, Minnesota chapter of the Rotary and served as the first female president of the national Community Associations Institute and was one of the first community managers to receive the national designation of “Professional Community Association Manager” awarded by that organization. As a teacher, author, colleague, mentor and friend to many, she made a difference in the many lives she touched. She will be remembered for her laughter, dedication, creativity and the love she shared unselfishly with all. She was preceded in death by her husband, Donald Max, her parents Harry Sweezo and Agnes Sweezo and brother Harry Jr. She will be well remembered and dearly missed by her children, Karmin (Steve) Eisma, Kevin Peterson and Kurtis (Kimberly) Peterson; her grandchildren, Sabrina, Max, Preston, Grace and Lauren; her stepmother, Ardis Sweezo of Watertown SD, and her many friends and colleagues. A memorial service was held on September 17 at the Cremation Society of MN. In lieu of flowers, the family requests that you make a contribution, in her memory, to The American Cancer Society at www.cancer. org or mail your donation to American Cancer Society, P.O. Box 22718, Oklahoma City, OK 73123-1718, to help wipe out this deadly disease. Heaven just got so much better.

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Minnesota Communit y Living

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Improving Your Happiness in the Most Contentious Issue Facing HOAs this Winter

By Steve Hoogenakker, Concierge Landscape

T

o say that winter snow maintenance is a fluid issue (albeit slushy fluid) is an understatement. A single snow event for one townhouse association indirectly involves a hundred employees, countless pieces of equipment, notoriously bad weather predictions and the hundred or more residents in your association.

You don’t have control of the weather, but there are things you can influence that will make everyone happier and they don’t have to cost much money!

First, manage the expectations of the residents. Do this with the next newsletter you put out. This is the “Aha” moment when you wonder why you’ve never taken this most obvious step. Managers and board members take entirely too many phone calls regarding snow operations. Spending an hour creating a CLEAR policy regarding snow and ensuring it gets to all the residents on multiple – and I do mean multiple – occasions will surely save many times that in hours talking with angry or confused residents.

One local association has a fantastic fourpage letter that is sent to all new homeowners and gets published every fall.

Language can include something like this: Top Section: In any season and under any weather conditions, the following parking policies exist: Vehicles may be towed immediately, without notice, under the following conditions: blocking garages, blocking fire lanes, blocking fire hydrants and parking the traffic lanes.

WE TOW AGGRESSIVELY AND AT OWNER’S EXPENSE. If there is a car in a 2 car driveway, plowing will probably not occur in the drive next to the parked car.

2nd Section – Plowing: Give an outline of the requirements of the contractor, such as: “The contractor will make a double plow pass down streets prior

to 7:00 am and prior to 5:00 pm whenever snow accumulations exceed 4”. The contractor will return only after snow ceases to completely plow the lots. This will be complete within 12 hours of the cessation of snowfall.

(Optional: Contractor will/will not hand shovel garage aprons when the sidewalk crews shovel the sidewalks OR contractor will get plow blade to within 1 foot of garage door.)

that of your neighbors. To facilitate your care of walkways, salted sand will be maintained in large drums located in each parking lot. IF YOU NEED ASSISTANCE IN SANDING YOUR WALK, CALL THE ASSOCIATION. IF THIS POLICY CREATES A PROBLEM FOR YOU, WRITE TO THE ASSOCIATION AND FULLY EXPLAIN YOUR SITUATION.

3rd Section – Sidewalks: When the snowfall has stopped and when accumulations have totaled 2” or more, the contractors will shovel all sidewalks up to your front door but not your patio area.

When accumulations are between 2 and 8 inches, the contractor has 12 hours to finish shoveling. When accumulations exceed 8 inches, the contractor has 24 hours to finish.

I don’t know if that last paragraph actually transfers any responsibility to the homeowner from the board or contractor. Putting this in your newsletter shouldn’t lower your expectations of your contractor at all. If your residents believed these principles, I would think the phone calls would lighten up and the HOA would generally be more satisfied.

Most importantly, the board has something tangible to refer to when homeowners complain about the board’s response to snow.

And unlike most other improvements available to boards and property managers, the price is right: it’s free. AHA!

4th Section –Slippery or Icy Conditions You may want to talk with an attorney about this one, because a lot of snow removal contracts put the responsibility of requesting salting squarely on the association. This is true partially because a contractor might not be out on your site for 1 to 3 weeks at a time and won’t be able to cure icy conditions in a timely fashion, so maybe placing some responsibility on the homeowner will result in fewer slips and falls and fewer lawsuits.

One example: Slippery or icy walking conditions are the responsibility of the individual homeowner and not the responsibility of the contractor or the association. The association’s governing documents require that it plow but do not require that the association remedy slippery conditions.

Then my favorite paragraph EVER in association documents is this one: “We understand that we have all chosen to live in Minnesota and thereby have accepted responsibility for our own safety under slippery weather conditions. When you selected your home for purchase or rental, you were presumed to have considered your physical condition and the climate and any potential winter walking conditions while getting to your car, mailbox, garage and the like. Please exercise caution when walking and driving.

Salt/sand does not guarantee your safety or

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Member

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ASSOCIATION SERVICES September | October 2011

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Ice Dams continued from page 16 authorized by statute to allocate the cost of any work to fewer than all the units if only those units are benefitted by the work, as long as this is not prohibited by the declaration. Also, unless the association’s declaration requires otherwise, MCIOA associations that are performing work on limited common elements must allocate the cost of work on such areas to the unit(s) to which the limited common element is allocated. Note that, depending on your association’s declaration, limited common elements may include attics and/or roofs, meaning the cost of all necessary work might be allocated back to the benefitted unit owner(s) if the association has reacted reasonably upon receiving notice of the problem.

This does not mean the association may pass along to owners the cost of obtaining an opinion regarding the association’s obligations, and the proper characterization of the area to be addressed (e.g., limited common element, common element, or a portion of a unit). This is not generally a cost directly attributable to maintenance, repair or replacement, and in most cases will not reasonably be considered a cost of enforcing the governing documents. There is no “one size fits all” approach, but this usually is a cost the association must bear as a common expense.

Furthermore, if a party receives notice that snow on the roofs is turning into ice dams, that party risks liability for problems that it should have taken steps to avoid, but didn’t.

For this reason, the association and its owners

Reserve Studies from page 19 • Develop a list of potential consultants Contact trade associations (such as Community Associations Institute, or CAI) for a list of qualified engineers and architects. Ask other consultants such as your lawyer or accountant. While they are not involved in these decisions, they will likely have other association clients that have hired a reserve study expert.

• Obtain written proposals Make sure the fee quoted is a total fee. Ask the consultant to spell out the nature and estimated cost of expenses if the proposal quotes a flat fee plus expenses. Also, put an upper limit on the cost; i.e. “the total cost of the assignment will not exceed $____.”

• Review each firm’s qualifications Focus in on whether the firm has the necessary experience, specializes exclusively in Reserve Studies for associations, and is a member of CAI or the American Association of Cost Engineers (AACE).

• Get references Many people believe that vendors will “stack the deck” with favorable references. A small amount of probing on your part will provide invaluable insight. Ask the reference open-ended questions like, “Why did you select the firm?” and “What do you like best and least about the firm?” While the reference might be pleased with the service performed, it may be for reasons that are unimportant to you.

Professional Reserve Studies are now the key component in helping current and future association boards meet their fiduciary responsibility and comply with state statutes and the AICPA Audit Guide. Additionally, Reserve Studies minimize monthly homeowner contributions without the fear of special assessments, reduce claims of board mismanagement, and provide a valuable selling tool for prospective buyers and their lenders.

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should cooperate as much as possible in diagnosing and eliminating the cause of ice dams, keeping in mind that both have something to lose if the problem is not promptly and permanently resolved.

NOTE: The information in this article is provided solely as general information, and not as legal advice. Your receipt, and even your use of this information, does not establish an attorney-client relationship. Readers are urged to speak with a qualified attorney focusing on community association law when making decisions regarding a specific legal issue.

September | October 2011

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