Another technique for avoiding conflict of interest is for a director to abstain from voting when the outcome is self-benefiting. And make sure the secretary records in the meeting minutes that (fill in name) abstained due to a conflict of interest". That way, the written record will show no intent to sway the vote.

Disclosure is another way of avoiding conflict of interest. The idea behind disclosure is that any possible conflict is brought to the attention of the Board. If the Board has no problem with it, it’s okay. But beware. Technically, if you advise the Board that your brother in law, the association landscape contractor, is giving you massive kick backs to influence the contract, you’ve provided disclosure. If the rest of the Board wants in on the action and makes it known, they’ve also provided disclosure. No foul, right? Hardly. The Board fiddles while the owners do a slow burn. Disclosure can smooth over minor conflicts of interest but if there are significant implications, the disclosure should be made to owners with written documentation for the record. And this may raise more questions than answers. Many conflicts of interest are best avoided altogether.

One of the best ways for the Board to avoid self dealing is to deal openly. Board meetings should be open to all owners and minutes should be complete and easily available. Frequent newsletters should advise of upcoming events. If the Board knows someone is looking over its shoulders, it’s less likely to engage in self serving activity.

Many homeowner association developers exhibit shortsighted interest in their developments. Their primary goal seems to be to make a profit and get out as fast as possible. No training or long range budget or maintenance planning is provided for the new homeowner Board. Assessments are often set artificially low to make sales prices more attractive. This strategy starves the association of funds it desperately needs to properly take care of the assets. All this can and often does can come back to haunt the developer because of disgruntled buyers.

Developers should seek out experts to assist them shape the new homeowner association. Specialist attorneys can write usable governing documents and management consultants formulate good budget and maintenance plans. This makes the whole process "arm’s length" and more credible to owners. In a word, the developer should offer every possible resource to help ensure Board success. And many are free like Regenesis.net, the world’s largest resource for homeowner associations. With this approach, the chance for success are greatly enhanced, the owners are happier and less likely to blame (read "sue") the developer for shortcomings.

We’re all capable of feathering our own nest even when we don’t think we’re doing it. The best policy is to avoid any perception of wrong doing. Step "outside the box" and ask yourself if what you’re doing could be misconstrued by outsiders. Trust is a fragile thing. Treat it like fine crystal. Take precautions to avoid conflicting interests that can disharmonize your community.  BACK

Not in My Castle
In general, Americans are not really "rules" people. In fact, one way of looking at the American Revolution is that it began in response to a dictatorial board of directors (British Parliament) that declared an unfair assessment (taxes) without listening to the will of the people (a membership vote). That negative reaction to authority has been an American tradition for hundreds of years.

There a long-held belief that we should be absolutely unencumbered by external rules in our own homes. But the reality is this: As soon as a family broadens into a community, whether it's a commune, a condo, a city, or country, rules become inevitable. Even the earliest human communities decided at some point that certain things weren't such a great idea, like skewering your neighbor on your spear. In fact, when you boil it down, all rules are a form of conflict resolution. They're an attempt to provide a framework for avoiding disputes or resolving them without escalating to violence. The problem is there are dozens of different theories about how to balance rules and whether to err on the side of fewer or greater restrictions. You'll find homeowner associations (HOAs) with very few restrictions as well as those that tell you how early you're allowed to turn on the television.

The vast majority of rules are designed to regulate interaction between neighbors and to ensure that each can enjoy their property as undisturbed as possible. Rules designed to protect the common elements and prevent the deterioration of property values, however, make up a very important minority of rules. These rules govern how your shutters look or what you can do to your balcony. In general, every rule belongs to one of these two categories: avoiding conflict or protecting property. And some actually do both.

It's important to remember that rules are not optional. They're not optional for the board to enforce, and they're certainly not optional for owners or their guests to follow. Don't bring your potbellied pig or bobcat into a pet-restricted condominium, thinking, "They can't possibly care! Who would say anything?" They will care. Mediators and judges are inundated with hundreds of cases on just these issues, and absent disability or other exceptions, the rule violator is going to lose almost every time. Rules and regulations are contractual covenants. They're not permissive, and they're not suggestions. They are terms that you constructively agreed to, in writing, when you bought your home or unit. That makes them fully enforceable, down to specific compliance. That is, if you finished your floors with $30,000 worth of Italian marble but your governing documents only allow carpet, a judge is not going to care one whit about your investment or the hardship you will incur by removing the tiles. You are going to have to remove them at your expense, under court order. No question. So, to paraphrase a saying, "RTFD: Read The Freaking Documents!"

Before we run through the most common rules and regulations that you'll find in an HOA, it's necessary to explain that the rules are separated into two classes, and these classes are treated very differently. For simplicity, they are referred to as Recorded and Unrecorded.

A Recorded Rule is a covenant, rule, or restriction that is written into the governing documents and recorded into the public record. This includes anything in the original documents as written by the developer and any rules promulgated and recorded later by the board. Recorded Rules are clothed with a very strong presumption of validity, as owners have the opportunity to know about them before purchasing a property; if it's in the public record, you're assumed to know that it exists (aka constructive notice). A Recorded Rule will not be invalidated by a court unless the restriction is wholly arbitrary in its application, is in violation of public policy or contradicts a fundamental constitutional right. The simplest example of an invalid Recorded Rule would be a restriction against a particular race or religion buying into the community. This violates public policy as well as various state and federal statutes. Another example might be a rule that gives the board the power, at its sole discretion and on a case-by-case basis, to regulate what unit owners wear on the common property (a case of arbitrary application). These types of rules will generally be invalidated if they are ever challenged in court, whether or not they have been recorded in the public register. But otherwise, Recorded Rules are mostly bulletproof, so it's very important that any prospective HOA owner reviews the covenants, rules, and restrictions in the public record extremely carefully. If there's a rule that says no loud music on Tuesdays, it doesn't matter how odd or random that might appear. If there's any explanation for the rule, then it will be presumed to be valid and it may be enforced by the board.

Unrecorded Rules are those rules that have been promulgated by the board over the years but never recorded publicly. The important thing to remember about these rules is that a court may invalidate them if they are unreasonable, or if they circumvent a right granted or inferred from the recorded covenants, conditions, and restrictions. For example, assume that a board of directors wants to pass a rule that no pet snakes are allowed in a condominium. Living in the community is famed herpetologist Ssssimon Sssschwartz, and he has a menagerie of more than one hundred snakes. The board passes the regulation, and Ssssimon ssssues.

If this had been a Recorded Rule, our friend Ssssimon would have to find a new home for his snakes or himself. But as a Unrecorded Rule, the court must first determine whether the rule is reasonable. Ssssimon certainly wouldn't think so, but the test for reasonableness is only to determine whether the rule has some legitimate and explainable basis for existence. In this case, the board was worried that the snakes would escape, get into the walls, and breed, requiring a major and expensive eradication effort. That's certainly enough of a basis to be deemed reasonable. For a rule to be found unreasonable it would have to have absolutely no basis in policy, and that's relatively rare.

However, there's another hurdle for the board to face: Does the rule circumvent a right granted or inferred from the recorded documents? The documents are silent on pets, which at first glance might seem to mean that the board is free and clear. But what it actually means is that, since there are no restrictions on pets, they are presumptively allowed. Assuming that they aren't illegal breeds, Simon has a right to keep the snakes in his home, and the board can't promulgate a rule restricting this preexisting right. Ssssimon wins in court.

Assume, however, that the owners feel extremely strongly about this issue and decide to pass the rule by member vote, using whatever percentage is required. They still can't restrict those pets that Ssssimon already has in the building. His snakes will be "grandfathered" into the rule, or permitted because the violation existed before the rule was initiated. As long as they're alive, Ssssimon's snakes can stay. However, Ssssimon will be prevented from replacing his snakes, and new owners will not be allowed to bring new snakes into the building. Of course, the grandfather provision can be very hard to enforce. What is to prevent Ssssimon from clandestinely replacing his dead pets with lookalikes and claiming that they have never passed on? At least one pet lover has attempted to skirt the issue by purchasing a new poodle of identical size and weight, and even dying its hair to match the look of her original pet. People do crazy things for their animals.

There are a couple of defenses, however, that owners can raise to lawfully prevent an HOA from enforcing a rule: estoppel and selective enforcement. Here's how they work. As a general principle, the law requires any rule to be enforced within a reasonable amount of time; otherwise, the violator may assume that the rule is not going to be applied. In the case of contractual covenants, this rule is called estoppel or waiver. In essence, if the board does not act in a timely manner to enforce a regulation, it will be stopped from doing so altogether. Take our friend Ssssimon again. Assume that his condo had a no-pet restriction, and he was in the habit of walking his snakes every day on dozens of tiny leashes in plain view on the property. Despite this, the board of directors failed to notify him that he was in violation of the HOA rules.

If a significant amount of time has passed, when Ssssimon is taken to court, he is going to argue that the board is estopped from enforcing the rule, because he was openly violating it while the directors ignored it. And he is likely to win the argument. The only way for the board to correct a situation where it has neglected a rule is to notify all owners, in writing, that from this point forward it intends to enforce the rule. But anyone who has been violating up until that point will be allowed to continue to do so. This is why it is critical for a board to enforce every rule and regulation, unless the directors are darned sure that they never want to enforce the rule (that is, that they are essentially abandoning it).

When a board truly doesn't want to enforce a rule, this presents an interesting twist. A proposed amendment to the Uniform Act would allow boards to essentially "decriminalize" certain rules by officially stating that they will not be enforced for policy reasons. This would give boards a tool to fix unusually restrictive rules that were inserted into the documents by the developer, or that are no longer needed due to changes in the HOA.

The second defense, selective enforcement, plays out exactly as it sounds. Just like our own government, an HOA cannot enforce a rule against one resident but intentionally ignore another similar violation. When Ssssimon is taken to court, perhaps he can demonstrate that there's an eighth grader in the building with a pet snake and that the board is aware of the violation but failed to enforce it. If so, Ssssimon is going to be allowed to keep his menagerie because the rule was enforced selectively rather than universally. It's a case of "what's good for the goose is good for the gander": rules are to be applied either universally or not at all. The wrinkles involved in HOA rules and regulations can actually be rather difficult for the majority of owners to grasp. Society encourages cooperation and reasonable application of laws.

"I know dogs have to be on a leash," a pet owner will say, "but not my dog! He's the best boy ever!" But that owner is going to be the same person who hits the roof when her dog is attacked by a less friendly animal that is also breaking the rules. Unit owners will plead for the board to "be reasonable," and often, the board relents. But waivering on rules opens the doors to valid claims of estoppel and selective enforcement, even when application of the rule might be extremely important to protect either the property or the residents. So, as difficult as it may be to accomplish, it's very important to enforce every rule, every time.

From New Neighborhoods: The Consumer's Guide to Condominium, Co-Op, and HOA Living by Gary A. and Ryan Poliakoff   BACK

Completing Lender Affidavits
Several years ago, a New England property manager and board were sued by a unit owner who claimed the information provided on the Lender Affidavit Questionnaire was incorrect. The Appeals Court ruled that the homeowners association and manager were responsible for the information on the questionnaire, the information regarding a special assessment was incorrect and the manager and HOA were liable for negligent misrepresentation. The unit owner claimed he bought the unit relying on the statement that there were no special assessments pending.

At the time the questionnaire was filled out, there was no special assessment pending and the homeowners association had not voted on a special assessment. And, the HOA maintained the unit owner did not read the questionnaire, nor did the owner rely upon it when purchasing the unit. However, the court decided the HOA was responsible for the unit owner purchasing the unit without knowing about the future $6,000 special assessment and that the unit owner should not be responsible to pay this special assessment.

Property managers agreed that a questionnaire needed to be completed to facilitate lending to condominium owners, however, they also agreed that they should not subject themselves to liability for the loan process. In addition to the question of liability, discussions also have centered around why the questionnaire should be filled out without a legal requirement to do so, and the costs associated with completing the form. Throughout the closing process, other providers of information for the closing are paid a fee for that information, so why should HOA managers spend time and effort and expose themselves to potential liability for no compensation?

With the 2007, 2008 and 2009 changes to FHA, Fannie Mae and Freddie Mac lending guidelines, HOAs and managers are being asked to complete lender affidavits and questionnaires that are often even more comprehensive. It is important for HOAs and managers to use their own form to limit their liability.

A great argument for using your own form is that you are more certain the information is accurate and you will not be answering questions when you may not be certain of the answer.

Richard E. Brooks of Marcus, Errico, Emmer & Brooks, P.C.   BACK

Using a Professional Manager
Many homeowner associations employ a professional manager to direct HOA operations. It’s essential that you find a qualified manager with whom you can work productively. A professional HOA manager will help the board preserve assets, maintain property values, establish continuity, and provide assistance with operational and financial matters.

Right Hand of the Board. The board sets policy and establishes a direction for the HOA and the manager sees that the policies are implemented. Just a few of the ways professional managers assist boards include:

• Managing human resources: compliance with Equal Employment Opportunity Commission (EEOC) guidelines, payroll, reviews, and hiring

• Coordinating and supervising maintenance activities like landscaping, repairs, snow removal, trash pickup.

• Alerting the board when legal assistance is needed.

• Advising the board of regulatory issues and compliance requirements: fair housing procedures, fair debt collection practices, FCC antenna regulations.

• Coordinating member/board communication: preparing a newsletter, posting notice of meetings, arranging social interactions.

• Managing office operations: accounts payable and receivable, bookkeeping, filing.

• Managing HOA finances including budgeting, collecting assessments, directing the reserve plan and pursuing delinquencies.

• Working with accountants and auditors to maintain the HOA’s financial viability.

• Working with insurance companies to file or settle claims.

• Working with state and regulatory agencies as an advocate for the HOA.

• Preparing proposals and screening contractors.

The homeowner association’s size, amenities, facilities and budget determine the type of management it needs. Whether you select an on-site manager or a management company, it’s essential that you select a qualified management professional with credentials that indicate their level of professionalism such as:

Certified Manager of Community Associations® (CMCA®). These managers have demonstrated fundamental knowledge in managing homeowners associations by passing the CMCA examination. They comply with the National Board of Certification for Community Association Managers’ Standards of Professional Conduct and renew every two years through continuing education.

Association Management Specialist® (AMS®). These managers have earned the CMCA certification, passed an additional education course, and managed the finances, administration, and facilities of an association for at least two years. They adhere to professional ethical standards and renew their AMS designation every three years through continuing education.

Professional Community Association Manager® (PCAM®). These managers have met advanced educational requirements in law, communications, operations, and asset protection and have at least five years’ experience managing HOAs. They have also earned the CMCA certification and AMS designation, adhere to professional ethical standards, and renew their PCAM designation every three years through continuing education.

Large-Scale Manager® (LSM®). These managers hold the PCAM designation and have at least ten years’ experience in managing homeowners associations. They have met advanced educational requirements, adhere to professional ethical standards, and must redesignate every three years with continuing education.

Accredited Association Management Company® (AAMC®). To earn this accreditation, a management company must adhere to CAI’s Professional Manager Code of Ethics, have managed HOAs for at least three years, have a PCAM as the company’s senior manager, show that at least 50% of its managers hold a PCAM or AMS designation or CMCA certification and provide continuing education for its management staff.

Certified Property Manager (CPM). These managers have been certified by the Institute of Real Estate Management in property management. The CPM credential does not require homeowner association management training.

Where to Find Qualified Managers. CAI’s Credentialed Professionals Directory. Managers who have earned CAI credentials above are listed online www.caionline.org/directory/nbccam_search.cfm

CAI Chapter Directories. Many CAI chapters maintain online or printed directories of qualified managers. A complete list of chapters is available at www.caionline.org Links are included for chapters that have websites.

Networking. Not all homeowner association managers will be listed in the directories above. However, you can get recommendations on qualified managers by talking to industry professionals at local and national meetings of CAI.    BACK