Minnesota’s premier homeowners association magazine
September/October 2012
Volume 30 • Issue 5
In this Issue: Six Tips for Requesting HOA Project Bids Qualifying for a Community Association Loan And Much More!
Seasons of Change Association Budgeting: It’s That Time of Year!
Visit us online at www.cai-mn.com.
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Board of Directors
From the President
By Traci Lehman | CAI-MN President
Aaahhh… Back to School Time… Remember the excitement and anxiety of starting a new school year? Trying to figure out what school supplies you needed; buying new school clothes; trying to memorize your locker combination; trying to find your classrooms; wondering if you will have a cool bus driver or if any of your friends will be in any of your classes… As I think about my two sons' new school year, it made me think about how my year with CAIMN will be similar to theirs. Avery is in his last year of middle school and Alec is in his first year of middle school.
Alec, my other son, is starting a new school and is very excited to meet new friends and says he going to do a good job now that he is in the “big school.” Like Alec, I am also thrilled to meet and work with the new CAI-MN Board and Committee Members. I, too, want to do a good job in my new role on the board. Just as I will be looking at Avery and Alec’s report cards after each trimester and providing feedback to them on how they can improve, I ask that members of CAI-MN continue to attend our industry events and provide your ideas on how we can continue to grow our organization and provide value to all of our members. Happy school year to all!
Avery has been in middle school for two years Traci Lehman and is looking forward to seeing his same classmates again. Similar to that, I have been on the board with CAI-MN for a few years and look forward to working with the same colleagues again. Avery wants to continue achieving his goal of being an honor roll student in his last year of middle school. In my last year on the Board, I Reserve Consultants, Inc. want our Board and Committees to achieve the goals we established at our planning meeting that Association Property Services was held in July. To Enhance Education – Grow Specializing in RESERVE PLANS Legislative Efforts – Build Awareness/Engagethat are ment – Provide Industry-wide Resources. • Easy to Understand • Practical (Around 12 to 13 Pages) • Color Photos Included • Fee will be the Least Expensive Quoted
facebook.com/CAIMinnesota
John Russo has more than 20 Years Experience in Reserve Planning; Is the only Ph.D. Reserve Analyst in the Midwest.
President Traci Lehman, CMCA, AMS, PCAM Phone 612.381.8600 tracil@citiesmanagement.com Vice President Michael Klemm, Esq. Phone 952.953.8832 klemmm@seversonsheldon.com Treasurer Halo Stafford, CMCA, AMS, PCAM Phone 952. 277.2785 hstafford@gittleman.com Secretary Nancy Polomis, Esq. Phone 952. 941.4005 npolomis@hjlawfirm.com Directors Tom Engblom, AMS, ARM, CMCA, CPM, PCAM Phone 866.800.4656 tengblom@cabanc.com Steve Hoogenakker Phone 763.213.2410 steve@landscape.pro Rich Klobuchar, CFP ® Phone 763.551.9827 rklobuchar@usinternet.com Russ Lis, CMCA, AMS Phone 763.225.6452 rlis@developcommunity.com Jim Rezek Phone 763-424-9984 jimrezek@comcast.net Michelle Stephans, RS Phone 763.754.5500 michelle@reserveadvisors.com Gene Sullivan Phone 952.922.2500 gene@ncmgi.com
952-944-7137 (Office) 952-935-9647 (Fax)
twitter.com/CAIMN Find articles from this issue and archived articles online at cai-mn.com in the Minnesota Community Living Resource Library. V E C TO RBUTT O NS . CO M
Committee Chairs
E C TORBUTT O NS . CO M Legislative VAction Chair Gene Sullivan Phone 952.922.2500 gene@ncmgi.com
Vision Awards Chair Jane Bristow, CMCA, AMS Phone 952.277.2722 jbristow@gittleman.com
Golf Tournament Chairs Paul Brownlee Phone 414.918.4494 paul@reserveadvisors.com
Tradeshow Committee Chair Jon Edin Phone 651.222.2155 jedin@mncondodefects.com
Communications Chair Joel Starks, CMCA Phone 952.224.4480 joel@sharpermanagement.com
Education Committee Chair Kirk Gassen Phone 952.253.4911 kgassen@gassen.com
Tom Engblom Phone 866.800.4656 tengblom@cabanc.com
Membership Chairs Dennis Merillat Phone 952.997.2320 dmerillat@certapro.com
CAVL Chair JoAnn Borden, CMCA, AMS, PCAM Lisa Astleford, CMCA, AMS 3 September Phone | October 2012 Phone 763.746.1196 952.277.2787 lastleford@gittleman.com jborden@developcommunity.com
Association Budgeting: It’s That Time of Year! By Sara M. Lassila, CPA, Sara Lassila, CPA, Inc.
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question that comes up from the community association member, especially around budget time, is “why are we paying more per month than the Homeowner Association (HOA) across the street or down the road?” While this seems like a reasonable question, it is usually an “apples and oranges” issue. Rarely are two HOAs identical. Often the person posing this question to the Board does not have all the details, only the bottom line. Should a homeowner ask your board this question, ask them to get a copy of that other HOA’s budget for the Board to consider during the budgeting process. Many factors will account for the differences in assessments between two HOAs — including the number and type of amenities, the age of the property, the level of service, and the level of reserve funding. Two HOAs that appear the same from the outside may be very different inside. One may have a pool, spa, and exercise rooms and one may not. One may be maintaining
its amenities by hiring outside contractors and one may have homeowner volunteers who maintain these amenities. While age of the property may seem like an obvious factor, sometimes it isn’t, because an HOA development may have been built in stages. When this happens, it may have been years between when the first phase and the last phase were completed. Not only is there a difference in the age of the buildings, but there may be significant differences in the types of building materials. Levels of service will come into play if one HOA sets a desired level of service higher than another HOA. An example of this in Minnesota is snow removal. Many HOAs contract for snow removal once a depth of 1.5 or 2 inches has fallen in one snow fall. Recently, I worked with a HOA that contracted to have the snow removed at all times. Of course, their snow removal expense was considerably higher than the others, but that was the desired level of service.
Reserve funding can be very different from one HOA to another, because each one must determine what they are responsible to maintain and how vigorously they will fund for future major repairs and replacements. Depending on this determination, 10 to 40 percent of the total homeowner assessments could be set aside for reserve funding. The Board should be aware of what money is being spent and why. Remember to communicate clearly to the HOA membership the assumptions and methods used to develop the budget to prevent the “apples to oranges” comparisons.
CAI-MN – Who, What, Why? Join the Fun CAI-MN members include homeowners, board members, property
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managers, property management companies, real estate agents, and myriad professional partners who Contact John Russo, Ph.D. 952-944-7137
serve community associations in Member
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our state. Through CAI, you can take advantage of a range of education courses and the opportunity to become professionally certified. You’ll have access to best practices and knowledge that you can put to immediate use.
Calendar
Index
2012 October
Managers Seminar: Cyber Theft, Fraud & Embezzlement – Avoiding the Pitfalls
October 16, 2012, 11:00 am - 1:00 pm Ewald Conference Center $35 for members (early); $45 for members (regular); $55 for nonmembers
features
series 3 President’s Message
4 Association Budgeting: It’s That Time of Year!
By Sara M. Lassila
6 Ask the Attorney
9 Six Tips for Requesting HOA
November
Managers Seminar: Insurance – What’s Ahead In 2013?
November 13, 2012, 11:30 am - 1:30 pm Ewald Conference Center $35 for members (early); $45 for members (regular); $55 for nonmembers
CAVL Seminar: Insurance – Policies and Claims
November 14, 2012, 5:45 pm - 7:45 pm AAA Minneapolis $15 for members (early); $25 for members (regular); $30 for nonmembers (early); $40 for nonmembers (regular)
Register online at www.cai-mn.com 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.
By Traci Lehman
By Nigel H. Mendez
Project Bids
By Lon Bencini
2012 Annual Partners
10 Tyranny of the Urgent!
By Gene Sullivan
12 Qualifying for a Community Association Loan
By Frank Coleman and Peter Santangelo
15 An Overview of Minnesota
Statutes of Limitation and Repose in Construction Defect Lawsuits
By Alex Nelson
16 PCAM Spotlight: Halo Stafford
By Janice Pyka
22 Apple Orchards: A Taste of the Minnesota Grown Directory
By Janice Pyka
Published by Community Associations Institute — Minnesota Chapter, copyright 2012. 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.
Platinum Benson, Kerrane, Storz & Nelson Gassen Companies Gittleman Management Hellmuth & Johnson Sela Roofing & Remodeling Xtreme Exteriors Gold Complete Building Solutions, LLC Silver All Ways Drains Carlson & Associates Community Advantage Mutual of Omaha Bank - Community Association Banking & CondoCerts Hammargren & Meyer PA Jeffrey Mayhew Agency, Inc. Levin & Edin Omega Management Sharper Management Thomsen & Nybeck Tru Seal America, LLC Bronze American Building Contractors Construct-All Corporation Michael P. Mullen, CPA, PLLC Schoenfelder Painting SERVPRO of Brooklyn Park/Champlin
[ ADS Index ] of Advertisers All Ways Drains................................................ 20 American Family Insurance – Jeff Mayhew.... 13 APMC – Association Property Management Company...................................................... 13 Benson, Kerrane, Storz & Nelson, P.C. .......... 21 Carlson & Associates, Ltd .............................. 13 Columbus Exteriors, Inc.................................... 2 Community Advantage................................... 17 Complete Building Solutions ........................ 18 Construct-All Corporation ............................. 17
Felhaber Larson Fenlon & Vogt...................... 17 Gassen Companies.......................................... 14 Giertsen Company of MN............................... 20 Gittleman Management.................................... 7 Hammargren & Meyer, P.A. .............................. 4 Hellmuth & Johnson, PLLC....................... 11, 20 Levin & Edin..................................................... 10 Mutual of Omaha Bank – Community Association Banking & CondoCerts........... 13 Omega Management, Inc............................... 19
Plehal Blacktopping, Inc. ............................... 11 Reserve Advisors.............................................. 20 Reserve Consultants, Inc. ................................. 3 Russo Consulting, Inc. ...................................... 4 Sela Roofing ...................................................... 8 Sharper Management .................................... 20 Strobel & Hanson ........................................... 16 Thomsen & Nybeck......................................... 17 TruSeal America ........................................ 10, 24 Xtreme Exteriors.............................................. 23
September | October 2012
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Ask the Attorney by
T
his column is comprised of questions that have been posed to me by homeowners, property managers and related professionals regarding legal issues they have encountered with respect to their associations. Can Board Members Be Paid for Their Work on the Board? I have had this question asked a number of different ways. The questions are worded differently, and involve different fact scenarios, but all come down to the same core question: Can we pay our board members? This article will look at the legality of paying board members, as well as some of the pros and cons of such action. Some people believe that board members should be paid as the position is one that can take up a great deal of personal time, requires making decisions that affect a large number of people, and entails the creation and oversight of a large budget. Conversely, others argue that by paying board members you encourage people whose interest is more in collecting the payment than helping the association. Of course, there are other arguments for and against payment. I find that people have very strong opinions on this issue and I will attempt to provide helpful information no matter which way you decide to proceed. As I have explained in prior editions of this column, associations in Minnesota are nonprofit corporations and are governed by the Nonprofit Corporation Act (NCA), Minn. Stat. §317A. Nonprofit corporations are allowed to compensate board members, subject to the limitations in the association’s articles of incorporation or bylaws.1 In addition, many associations are also governed by the Minnesota Common Interest Ownership Act (MCIOA).2 However, MCIOA does not directly address the issue of paying board members for their services.
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If an association’s articles of incorporation or bylaws prohibit payment to board members, then such payments would not be allowed. If the documents are silent on the issue of compensation, then the NCA would allow payment for service on the board. Once you determine if board members can be paid under your governing documents, the issue becomes, should they be paid? What would be a reason not to pay your board members? One of the biggest reasons is liability. The NCA provides a certain level of immunity from civil liability to board members. However, this liability is only provided for volunteer board members. Specifically, Minn. Stat. §317A.257 states that a “person who serves without compensation as a director [or] officer . . . is not civilly liable for an act or omission by that person if the act or omission was in good faith, was within the scope of the person’s responsibilities . . . and did not constitute willful or reckless misconduct.” Compensation includes anything of value received for services rendered, with the exception of reimbursement of certain expenses. Therefore, while the NCA does allow board members to be compensated, doing so removes the liability protection that is otherwise afforded under the statute. Whether or not your association decides to pay board members, there are some things to keep in mind.
• If payments exceed $599, the associa-
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tion may be required to issue a 1099 form to each board member receiving the payments. Repayment of out-of-pocket expenses is not considered payment for board service. For example, if a board member takes a flyer to be photocopied for an association newsletter, the cost of the copies can be reimbursed. Waiver or reduction of assessments for board members would be classified as a payment. In that regard, if your association Declaration states that all assessments must be levied equally among the units, an amendment might
Nigel H. Mendez, Esq., Carlson & Associates, Ltd.
•
be necessary in order to allow for an exception for board members (if they are being paid). Granting an existing board member a year of free dues after they leave the board is still payment, even if it is not realized until a future date.
In summary, the short answer is “Yes, in Minnesota it is legal to pay board members, provided your association documents do not prohibit it.” However, doing so can remove protection from civil liability and can introduce various complications. Can Board Members be Hired to Perform Work for the Association? The short answer to this question is usually yes. However, I would caution an association from doing so. Hiring board members to perform work that a board member does as his/her profession is usually okay. For example, if the Board wants to create a website to provide information to the members and a board member works professionally as a web developer, the board might want to hire that member. Provided there is no restriction against it in the governing documents, that is okay. However, the board should bid the project against other vendors to ensure it is not overpaying, and the board member in question should abstain from voting on awarding the contract. The answer gets more difficult when the job in question is miscellaneous landscaping or handyman work. Hiring a board member who is retired or unemployed to perform hourly work can lead to a big headache for an association. Most likely the board member will be uninsured, which could lead to a claim against the association should he/she become injured or damage property while working for the association. Additionally, the board member may be deemed to be an employee (as opposed to an independent contractor), which would require that the association pay payroll taxes, carry workers compensation insurance, withhold taxes from the employee, etc. Having an employee greatly raises the complexity of running an association. Failure to properly Ask the Attorney continued on page 11
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Six Tips for Requesting HOA Project Bids By Lon Bencini, MinuteBids
C
ommunity associations have a mix of very distinct needs and personalities. Some associations focus on landscape aesthetics, some on community activities and others on environmental efforts. A common theme for all community associations is a focus on getting the best value and the best service at the best price. This article outlines best practices that will consistently deliver the best value from your business partner through a professionally designed bidding process.
The key actions within the best practices include: • Identify Your Project Needs • Assemble Your Scope of Work • Select Your Business partners • Request Proposals • Compare and Review Your Bids • Award Your Project Identify Your Project Needs It would be easy to skip this step and head straight for the "cut the grass" and "plow the driveway" type actions. However, it is very important for boards to discuss items that come before them prior to the time bids are requested to manage the board’s expectations and to ensure everyone understands the needs of your community. • What type of contract works best for your community? • What level of service does your community need? • What level of environmental sustainability does your community desire? Learning and understanding the dynamics, goals, needs and strengths of your board members will help the process flow smoothly and without hiccups. Assemble Your Scope of Work Having a tight, well-written and easily understood scope of work is critical to ensure your community the results it desires from your business partner. • Develop understandable project specifications that lay out exactly what you
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want accomplished on your project, including your community’s desired results. Use maps to identify places to pile snow, irrigation zones, and other critical details important to the successful completion of the project. The more detail you can provide to the bidders, the more accurate your pricing will be. Include all other pertinent information such as type of materials, frequency, clean up, timing and due dates to complete the scope of work and answer any questions the business partner may have.
Select Your Business Partner Now we are close to bidding out your project. You can request bids from as many business partners as you would like, with three as the minimum. You will want to consider some of the following when selecting business partners: • Years of experience and history; • Availability in your area and availability for your project; • Appropriate licenses and insurance; • Project-specific references. It is also helpful to utilize your professional network to find quality business partners. Do you have a roofing contractor you loved? They probably know of some other quality business partners you could contact. Other sources are community managers, local community associations and garden centers. Request Proposals You have successfully identified your community’s needs and goals for this project, set up a scope of work and selected the business partners who will be bidding. Congratulations! Now it is time to request a proposal by creating an RFP (request for proposal). Your RFP needs to spell out exactly what you want and when you want it from the providers. • A due date and time for bid submission; • A simple worksheet (digital or paper) for providers to complete including: ◦ Business partner contact information
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Pricing by element Acknowledgment of the scope of work ◦ Statement of provider qualifications All documents, files and history needed for accurate pricing: ◦ Scope of work ◦ Maps ◦ Photos Property information: ◦ Address ◦ Contact information ◦ Irrigation zone counts Who to call with questions and more information.
The more information you can get to the bidders, the more accurate your pricing will be and the fewer problems you will have down the road. After you have sent the RFPs, it is critical to follow up with each provider to confirm they received the RFP, are intending to bid, know the deadline and understand that their pricing will only be accepted on your worksheet. Compare and Review Your Bids After your deadline has passed, compile the data into a simple spreadsheet for your community board. Be sure that everyone has accurately filled out your worksheet and there are no significant omissions or mistakes. If there are providers who may have misunderstood the scope or done something wrong, decide if you will allow them to rebid or if their original numbers stand. By having the providers fill out your bid worksheet, it is pretty simple to compare apples-to-apples pricing. Award Your Project This is hopefully the easiest step of your process! You have identified your community needs, created a scope and selected providers that fit with those values. You received apples-to-apples pricing that takes little interpretation. Everyone is on an equal playing field and you should have found the best price for your project! HOA Project Bids continued on page 11 September | October 2012
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Tyranny of the Urgent! By Gene Sullivan, New Concepts Management
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here are times when every homeowner association board is faced with a time-sensitive decision that calls for action now. How you handle that situation is very important. To not act could cause harm to an individual or further damage to the property. We all recognize the need to act in this instance, however… There are many other times when the situation really is not an “emergency” but merely an issue where someone has invested a lot of personal time and emotion; in these cases not acting quickly is interpreted as a personal rebuff. And still, at other times, we have been conditioned as a society to be very impatient people. Technology is always improving, allowing us to get information more quickly than before. In our dining habits, for example, we are accustomed to using a drive thru; if the food is not ready by the time we get to the window, we are incredulous. We live under the tyranny of the urgent. And somehow through all of this, we don’t question the quality of our life; we only seem bent on getting “one more thing” done before the end of the day. However, through all of this, have we ever taken a moment to stop and ask ourselves “Is this right?”
It can be so easy to perceive quick action, rather than the outcome of our efforts, as the right thing to do. When our government was first getting established, our founding fathers were careful to always establish a check and balance in order to protect the self-interest of a few, with the wishes of the majority. Founding Father James Madison, in the Federalist Papers, said the purpose of government is to be deliberate – not efficient! What did he mean? When a governing body gathers, be it congress, a state legislature, or a homeowner’s board of directors, it has the authority and ability, but also the responsibility for its actions, because those actions affect the lives of many others in a very real way. Obviously, not everyone can get what they want in a democracy. Because of this fact, it is important for everyone elected in a position of authority to take time to deliberate. It is so important that Minnesota State Statute reminds those serving on an HOA Board that their decisions made outside of regularly scheduled board meetings must have all Board Members weighing in on a matter before moving forward. This is not optional. Many Board Members, however, reason to themselves, “We have five people on the
Concrete – Asphalt – Seal Coating Peter Tjornhom Phone: 952-994-9029 www.trusealamerica.com
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board; if I call and get two other board members to agree with me, I don’t need to contact the other two. We have a majority, and we can move forward!” Remember, when something happens repeatedly, it becomes a habit. Habits once established create a destiny. When an HOA Board creates this “tyranny of the urgent” they will find that… • They experience burnout. Many Board Members come to the conclusion, “I didn’t sign on for this thing to become my entire life!” • Boards don’t see the value that disagreement and discussion have in order to bring clarity to everyone’s position and wishes on a particular matter. • Without this understanding, there can be no way to build a consensus that everyone can truly learn to live with. • Because of this “urgency,” we put greater emphasis on the “quickness” of the decision, as opposed to what is in everyone’s best interest. • And this allows us to experience the “law of unintended consequences.” When this happens an association finds itself always fixing, always changing, and always needing to meet “one additional time.” However, if we choose to be more deliberate, we might be able to finally make a break from the tyranny of the urgent.
Ask the Attorney continued from page 6
HOA Project Bids continued from page 9
classify a worker as an employee can lead to stiff penalties from various State and Federal agencies.
After you award the project and execute contracts, let the nonwinning providers know they were not selected for the project.
Finally, if an association does want to proceed to hire a board member to perform work, the question of who gets the work must be addressed. Is the work just offered to a board member or are all members of the association offered the chance to apply for the position? If it is just the board members, the association would need to ensure that such action is allowed under its governing documents. Some documents provide that a director should not receive any benefit for serving as a member of the board. Being given preferential treatment in the hiring process may be a benefit, and therefore a violation of such a clause.
Effectively bidding out projects can be a time-consuming task but it is too important a job for shortcuts. There are many steps involved in getting business partners the information they need to provide accurate pricing as well as get the desired results for your community. Following each step of the process is your best assurance that you’ve positioned your community for success.
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Contact Lon at lbencini@minutebids.com or www.minutebids.com.
Minn. Stat. §317A.211 Found at Minn. Stat. §515B
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.
September | October 2012
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Qualifying for a Community Association Loan By Frank Coleman, CMCA, RPA and Peter Santangelo, CMCA, Commmmunity Advantage, A Wintrust Company
A
ccording to the recent IBOPE Zogby International 2012 survey on Community Associations:
• 62 million Americans live in an esti• •
mated 315,000 association governed communities. Seven out of ten residents are satisfied with their association living experience. Residents rated their community experience as positive where they believed: ◦ Association board members strive to serve the best interest of their communities; ◦ The association rules protect property values and they value the return received on their association assessment payments.
Elected association board members have the fiduciary responsibility to protect and enhance the association common elements and unit owners' investments by maintaining and preserving the property values of the community. In order for the Board to maintain the Association's property value, they may contract to have a Reserve/Engineering Study completed to define to the Board/Unit Owners the nature, timing, and cost of future capital replacement projects and assessment dollars needed for each project. In current difficult economic times, boards and unit owners are reluctant to raise assessments for future replacement projects and frequently delay projects in order to raise the necessary funds. This increases the probability that repair costs for the later “fix” will be greater due to the problem becoming broader and deeper (or as our grandmothers always told us: “An ounce of prevention is worth a pound of cure.”) In a capital replacement project, boards and unit owners have the following options: • Pay for the project from the accumulated reserve dollars; • Implement a special assessment; • Obtain a commercial bank loan; • Or a combination of any of the above options.
Paying for the capital replacement project from accumulated reserves dollars based on the reserve study is the best option, as dollars are set aside over time. The yearly reserve assessment increases are smaller and less of a burden on the unit owners to pay for the replacement projects. Special Assessments are usually implemented when there is a shortage of reserve dollars to pay for a capital replacement project and unit owners are given a limited period of time to pay their portion of the project cost. If the Special Assessment is large, this may place a burden on unit owners who are unable to pay the one-time assessment charge and default on their payments, which places additional stress on the Association in trying to complete and pay for the project. With a commercial bank loan, the capital replacement project is completed in a short period of time and the unit owners are not burdened with a one-time large assessment payment but are able to spread their portion of the project cost over time. There will be an increase cost to the project due to interest payments; however, this still may be more palatable to the unit owners then a one-time large Special Assessment payment. If the board decides to borrow dollars to complete a capital replacement project, a Community Association Lender will look most favorably (the best loan terms) to boards and unit owners that are proactive, well prepared and meet all the bank guidelines. Community Association Lenders may require the following information: • Average unit market valu; • Number of units; • Delinquent payment of assessments; • Contingencies for bad debt; • Assessment levels; • Owner occupancy ratio; • Insurance; • Present and pending lawsuits; • Repayment plan; • Reserve funding.
An Association should surround itself with qualified professionals to ensure the project goes smoothly and is completed correctly. The lender will need to understand how the scope of work was identified, the duration of the planned repairs, and the process for selecting the professionals to complete the projects. Prior to loan approval, the lender will require copies of the executed contracts for the work to be performed. Depending on the size of the project, an independent engineer or architect may be required to supervise the project and approve all advances on the loan and payouts to contractors. Average unit value and number of units are taken into consideration to determine if the size of the loan requested meets the bank’s guidelines. For example: • A 50-unit building requests a $1,000,000 loan. • The units are valued at $100,000 each. • The assessment per unit would be $20,000 (20% of its value), which the bank might consider too high. Assuming a 5-year repayment, the amount due per unit would be about $333 per month – which does not include interest, regular assessment or mortgage payments. Such an expense has the potential to monetarily stress unit owners, which may increase delinquencies and cause the association to default on the association loan. To prevent this, it is imperative that associations reserve funds for future capital expenses to reduce or eliminate the need for a loan. If an association has reserves and is able to fund 50% of the project, this reduces the financial impact to owners and increases the probability of acquiring a loan. Collateral for a community association loan is the assignment of future assessments of the association. Most lenders have internal guidelines regarding delinquent assessments that Associations must meet, to both qualify for a loan and maintain while the loan is in place. Typically no more than:
Community Association Loan continued on page 18 12
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September | October 2012
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An Overview of Minnesota Statutes of Limitation and Repose in Construction Defect Lawsuits By Alex Nelson, Esq., Benson, Kerrane, Storz & Nelson, P.C.
T
he Statutes of Limitation and Repose outline the time frames within which a construction defect action must be brought. A claim not filed or properly asserted within the applicable time period is considered “time barred," or “stale," and is subject to dismissal in its entirety. A few important things to remember about Statutes of Limitation and Repose are that: • Time periods are short and often ambiguous. • Always consult an attorney if you are not positive about how to calculate them. Any reputable attorney will do a free, initial statute of limitation analysis for you. • My law firm turns down more cases than we take, and the primary reason is missed Statutes of Limitation and Repose. Statutes of Limitation Four main types of construction defect claims are brought in Minnesota, each with its own Statute of Limitation requirements: 1. “327A” Statutory Warranty Claims for homes or condo/townhome units: A homeowner has only 6 months within which to give written notice of the defect to the builder once the defect has manifested itself. An action must be commenced within two years of when the defect was known, or should have been known. 2. “515B” Express and Implied Warranty Claims under the Minnesota Common Interest Ownership Act: a. On homes or condo/townhome units, the statute runs (regardless of anyone’s knowledge of the claim) 6 years from the earlier of: (i) Transfer of title to the first purchaser; or (ii) The time the purchaser takes possession of the unit. b. On common elements in a condo/ townhome community: The statute runs (regardless of anyone’s knowledge of the claim) 6 years from the later of:
A few more general principles to consider when calculating and evaluating Statutes of Limitation: • The clock typically starts when you “knew or should have known” of the defect. That is, when the damage starts to manifest, even if you don’t know the cause yet. • You may or may not get a separate 2 year limitation period for each defect, or even for each location of the defect. • “Working with the builder” may, or may not toll (pause) the Statutes of Limitation.
on a staggered schedule. The warranty time periods are: 1 year – general workmanship and materials. 2 years – electric, plumbing, HVAC, etc. 10 years – “major construction defects” If these 1, 2, and 10 year time periods expire without a defect manifesting, “327A” claims will be forever timebarred. 3. “515B” Express and Implied Warranty Claims under the Minnesota Common Interest Ownership Act: a. On homes or condo/townhome units, the statute runs (regardless of anyone’s knowledge of the claim) 6 years from the earlier of: (i) Transfer of title to the first purchaser; or (ii) The time the purchaser takes possession of the unit. b. On common elements in a condo/ townhome community: The statute runs (regardless of anyone’s knowledge of the claim) 6 years from the later of: (i) Completion of the common element; (ii) The first unit sale; or (iii) Termination of Declarant control. These time periods can be shortened by the Declarant to as little as 2 years, so complete review of the CC&Rs, purchase contracts, etc., is needed.
Statutes of Repose Statutes of Repose apply to bar a claim whether you know about the defect(s) or not. The Statute of Repose is considered an “absolute” time bar. Again, each type of legal claim comes with its own calculation: 1. Breach of Contract or Negligence claims: 10 years from “substantial completion” – when the improvement could be occupied or used for its intended purpose. This period can be extended an additional 2 years, up to a total of 12 years, when the defect manifests in year 9 or 10. 2. “327A” Warranty claims: The various statutory warranties start running upon unit purchase or occupancy, and expire
Some of the limitation periods in Minnesota are extremely short, giving property owners as little as six months to take action against their builder when they discover a construction defect. If a limitation period expires before a claim is filed or otherwise asserted, the legal claim is subject to dismissal in its entirely. So, if you suspect significant or pervasive construction defects in a community you manage, don’t let your association drag its feet…time is always of the essence! Keeping track of any applicable limitation periods, and acting within them (or having your attorney do so for you) will protect not only your association, but also your management company from potential liability if action isn’t taken in a timely manner.
(i) Completion of the common element; (ii) The first unit sale; or (iii) Termination of Declarant control. These time periods can be shortened by the Declarant to as little as 2 years, so complete review of the CC&Rs, purchase contracts, etc., is needed. 3. General Negligence or Breach of Contract Claims: a. Negligence: 2 years after the manifestation of the defect. b. Breach of Contract: 2 years after the builder fails to fulfill the warranty. 4. Fraud or Misrepresentation: 6 years after discovery of the facts constituting the misrepresentation.
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PCAM Spotlight: Halo Stafford by
H
alo Stafford is an Association manager at Gittleman Management and serves as Treasurer on the CAI-MN Board of Directors. She is a professional manager with a board-based background in financial, personnel, and project management and has been a CAI member for 8 eight years. As a prominent member of CAI-MN and the only professional at Gittleman to hold a PCAM designation, we wanted to learn more about her and thought you should too. Family life: Halo is a single mother of two lovely children: Leila, 9, is a dancer and singer (so watch out Hollywood) and Andy, 11, is a big sports fan (looks like Adrian Peterson may have some competition as a running back). He plays basketball, football, and baseball. Path into the profession: Halo started her career in the hotel business then moved into the apartment industry. She did clubhouse management, leasing, and eventually was promoted to Property Manager of an apartment community in Northville, MI. An opportunity presented itself in Association Management in Ann Arbor, MI so she decided to make the career shift into the industry. Soon after she earned a Bachelors degree in Business Management and earned both her
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Minnesota Communit y Living
Janice Pyka, MinuteBids
CMCA and AMS designations while attending college. Halo is very ambitious and feels there is always more to learn.
training. She loves to read and spend time with her children doing various family oriented activities.
Halo earned her PCAM designation in 2009. In order to apply for the PCAM Case Study you must first meet the prerequisites which include successful completion of six M-200 level classes, 5 years of association management experience, and successfully passing the CMCA examination. CAI also requires a certain number of hours of formal education, attendance at CAI or industry related events, completion of CAI or industry related education programs, or volunteering at CAI or other industry related organizations. Once these requirements were met Halo took her PCAM case study in Houston, TX where she stayed for three days. The property assigned for this case study was a large 800-unit luxury community with two gated entry's with 24-hour staff, two pools, hot tub, tennis courts, playground, volleyball court, lakes, fountains, fitness center, and recreation centers. The PCAM study involved answering several questions relating to the operational functions of this property. After submitting the PCAM case study and nervously waiting for about 30days, Halo was ecstatic when she received notification that she had passed the study and earned her PCAM designation. Now that a few years have passed she is ready for her next challenge, through pursing IREM designations. Go Halo!
Little known personal fact: Halo is a vegetarian and very health conscious. She believes in taking care of her body, inside and out.
Hobbies and Interests: Being a wonderful mom to her two children she also finds time to exercise which is very important to her. She enjoys biking, running, and weight
CAI Connections – how, why, and who got you to join: Ron Duprey started the CAI-Michigan Chapter and was the CEO of Kramer-Triad while Halo was employed there for five years. He encouraged her to join CAI and motivated her to complete the education courses and take the path to obtaining all the CAI designations offered for Association Managers. Recently Completed Project: Halo is currently working on a $1.5M building restoration project for a condominium built in 1916. Historical restoration was completed by the developer when the building was converted to condos. Now they are working to complete masonry and tuck-pointing repairs to make the building more structurally sound. Interesting/challenging aspects of the job: There is always something new and unusual that presents itself. There is never a dull moment in Property Management. The most challenging part of the job for Halo is finding balance between evening meetings, children, and a little relaxation time.
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Community Association Loan continued from page 12
• 5% - 10% of the total number of units •
can be delinquent on assessment payments; 5% - 10% of the annual assessment income.
Prior to obtaining a loan, an association should establish a delinquency collection policy and adhere to it. The Association’s assessment income is the Bank’s source of repayment, so the Association must be diligent about collecting all assessments. Delinquent accounts should be turned over to the Association’s attorney as the Association’s delinquency collection policy allows. Associations with high delinquency rates may not be able to secure a loan. Associations considering whether or not to take out a loan should incorporate a reserve for bad debt into their operating budgets. In the event of non-payment or late assessment payments, this reserve will help to ensure the association has sufficient cash flow to meet debt and operation obligations.
by insurance or reserves. Association boards should act to resolve lawsuits in order to focus on day-to-day operations of the association.
Community associations are also required to carry adequate insurance per Minnesota Statutes governing Common Interest Communities. The lender will require proof of adequate insurance as a condition of the loan. Insurance will be required to be maintained while the loan is in place and the lender will require that they are added to the policy as an additional insured or loss payee. Boards should review their insurance levels annually with a qualified association insurance professional.
Community Association Lenders vary in documentation they require, their evaluation processes, and loan terms. Lenders with dedicated association staff, broad experiences, and strong portfolios are generally the easiest to work with and can guide you through the process. Associations considering a capital replacement project should contact a Community Association Lender early in the process, to acquire guidance and options in financing. This will aid in ensuring the loan is acquired in an expedient manner.
Litigation against the association is also reviewed by the bank. As plaintiff or defendant, an association that is a party to a lawsuit complicates matters for owners trying to buy or sell units and can inhibit an association’s ability to obtain a loan. Lawsuits against the association may impact the ability to repay its loan due to increased or unbudgeted legal fees and the potential for a monetary settlement payout not covered
Community Association Lenders know that Association Boards with strong leadership, that are well managed and proactively plan, demonstrate to the unit owners that the Board members are exercising their fiduciary duty to ensure the financial integrity of the Association and property values.
C
bS
The Board should determine the number of non-owner occupied units and what is cur-
rently allowed by Association policy. Lenders' guidelines for non-owner occupied units range from 20% to 30% of the total number of units.
763.544.3355
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Minnesota Communit y Living
763.544.3366
Thank You, Golf Sponsors Tournament Sponsor Cutting Edge Golf Pro Sponsor The Lawn Ranger, Inc. Par 3s and Hole-in-One Sponsor Gittleman Management Corporation Golf Cart Sponsor Xtreme Exteriors Photographer Sponsor Natural Green Landscape Management Giveaway Bag Sponsor SERVPRO Minnetonka
Managing to make a
difference 30 years of association management experience Reserve Plans are included in our management program Proactive management, including weekly property visits Smart, expert, professional advice
Putting Contest Sponsor Hellmuth & Johnson, PLLC At the Turn Sponsor American Building Contractors, Inc. Beverage Cart Sponsors All Ways Building Services & All Ways Drains Benson, Kerrane, Storz, & Nelson P.C. Complete Building Solutions, LLC Levin & Edin Lunch Bar Sponsor Xtreme Exteriors Lunch Sponsors Clean Response, Inc. Natural Green Landscape Management Dinner Bar Sponsor Xtreme Exteriors
Dinner Sponsors Community Advantage TruSeal America Driving Range Bar/Beverage Sponsor TruSeal America Trophy Sponsor Mutual Bank of Omaha – Community Association Banking & CondoCerts Closest to the Pin Sponsors Gassen Companies – Men Gassen Companies – Women Longest Drive Sponsors ACI Asphalt Contractors, Inc. – Men ACI Asphalt Contractors, Inc. – Women Longest Putt Sponsors Stone Valley Painting LLC – Men Stone Valley Painting LLC – Women Hole Sponsors Breiwick Companies, Inc. Carlson & Associates, Ltd. Community Development Cutting Edge Giersten Co. High Profile Grounds Maintenance Northrup Roofing & Remodeling Plehal Blacktopping, Inc. Rental History Reports Reserve Advisors, Inc. Restoration Technologies, Inc. SERVPRO Minnetonka TASK Home Services Thomsen Nybeck TruNorth Painting TruSeal America
Omega Management, Inc.
763.449.9100
www.omega-mgt.com September | October 2012
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Minnesota Communit y Living
September | October 2012
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Apple Orchards: A Taste of the Minnesota Grown Directory By Janice Pyka, MinuteBids and Jessica Miles, Minnesota Department of Agriculture
F
or some family fun, visit a Minnesota Grown Apple Orchard. There are over 110 orchards across Minnesota. You can stop by the one closest to you or pick one a little farther away and enjoy a short road trip. Many orchards offer other activities like hay rides, corn mazes, bakery items and apple treats. Remember, apples are early this year. Don't wait, get out and enjoy the fall weather! Make sure you call ahead or check their website prior to visiting the farm. They will give you updates on on-site activities, apple varieties and more: Applewood Orchard, Inc. Lakeville (952) 985-5425 www.applewoodorchard.com Description: 15 varieties of apples, including Haralson, Honeycrisp and Zestar. We also have summer/fall raspberries and pumpkins. Fresh apple cider, apple cider donuts, caramel apples and apple pie. Enjoy a hayride in the orchard, outdoor grill, 8 acre corn maze, children's maze, climbing haystack and pedal tractors. Thompson's Hillcrest Orchard New Market (952) 461-2055 www.hillcrestorchard.org Description: Apples and fall bearing raspberries available pick-your-own (PYO) or pre-picked. Eight varieties of apples (including newest U of M varieties SweeTango, Honeycrisp and Zestar). Large pumpkin patch with several varieties. Nelson's Apple Farm Webster (952) 461-3355 www.nelsonsapplefarm.com Description: PYO and pre-picked apples: 20 varieties. PYO and pre-picked pumpkins. Wagon rides (weekends), farm animals, 7 acre corn maze, gift shop, apple pies. Also at the St. Paul Farmers Market, look for our signs.
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Minnesota Communit y Living
Minnetonka Orchards, Inc. Minnetrista (763) 479-6530 www.minnetonkaorchards.com Description: Great family fun. Children's play area, petting zoo, corn maze, walking trails. PYO/pre-picked Minnesota Grown apples. Cider, jams, caramel apples, honey, maple syrup, pumpkins, squash, unique gifts and crafts. Fresh-baked orchard pies and our famous fresh apple donuts. Pumpkins in October.
Covered Bridge Farm Forest Lake (651) 464-0735 www.coveredbridgefarm.net Description: Prepicked apples (including Honeycrisp) and pears late summer and fall. Wreaths, swags, greenery, gift shop. Complimentary cider, cookies and candy canes. Replica covered bridge over creek in picturesque rural setting.
Deardorff Orchards and Vineyards Waconia (952) 442-1885 www.deardorfforchards.com Description: Nestled on a scenic 120-acre family farm. Offering juicy PYO apples from over 4,000 trees; 13 varieties including Honeycrisp, Zestar, SweeTango and Haralson. Century-old barn with gifts, apples, wine, cider, jam, honey, pumpkins, squash, mums and more. Tractor pulled wagon ride, kids' haystack and farm animals.
Four Seasons Farm Market Welch (651) 388-4898 Description: It doesn't get any fresher or more scenic! Our roadside market features PYO and just-picked berries, summer veggies, 12 varieties of apples, pumpkins and autumn produce. We also offer honey, flowers, freerange eggs and homemade goodies. New in 2012: Bed and Breakfast/Farmstay accommodations.
Elm Tree Farm Afton (651) 998-0507 www.theelmtreefarm.com Description: Located in the St. Croix River Valley in the town of Afton, we offer certified Organic apples: Honeycrisp, Haralson, Sweet Sixteen, Fireside and Zestar. Also plums, pears, wild blackberries and honey. Aamodt's Apple Farm, Inc. Stillwater (651) 439-3127 www.aamodtsapplefarm.com Description: Great selection of apples: Honeycrisp, Haralson, Cortland, Zestar and more. During peak apple season, the orchard buzzes w/ family fun including wagon rides, hay bale maze and the "Honeycrisp Express" kiddie train. PYO apples or prepicked inside the Apple Barn, along with baked goods, specialty foods and gift items. Visit the adjoining vineyard and winery – St. Croix Vineyards!
Trump's Orchard Faribault (507) 334-5167 Description: Trump's Orchard is a family owned and operated orchard in Faribault, MN, priding itself on quality produce. Several varieties of PYO and pre-picked apples, plums, pears, squash, gourds, pumpkins, amazing homemade caramel apples, honey, popcorn and much more! Deer Lake Orchard Buffalo (763) 682-4284 www.deerlakeorchard.com Description: 28 apple varieties! Cider, pumpkins, apple pies, jam/jelly, gifts and crafts. Live entertainment, petting zoo, pumpkin patch, wagon rides through orchard and into Groggins Woods, pony rides, caramel apple sundaes, grilled apple brats. For more locations around Minnesota (or to order your free Minnesota Grown Directory), visit www.minnesotagrown. com or call 800.657.3878.
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