Assessments and Collections

April 23, 2009

Written by: Peter Harrison

GOOD COLLECTION PRACTICES IN HARD TIMES

Our country's recession has affected all aspects of life in our country, and homeowner associations have taken the brunt of some of the worst of it. The majority of associations throughout the country, Utah being no exception, are now having to deal with increases in past-due assessments, foreclosures, bankruptcies, and short sales. Homes are losing equity, banks are afraid to lend, and owners find themselves having to pick and choose which bills they will pay, as the threat of losing their houses looms over them. The refinancing options-once homeowners saving grace-are no longer available to these struggling home owners. These factors all lead up to the obvious result of nonpayment of assessments, leading to foreclosures and bankruptcies; this contributes to suffering association budgets. On top of these difficulties, many associations are dealing with costs for construction defect litigation and repairs on thirty-some year-old buildings, which often equal large special assessments.

Everyone in the industry is sharing in the pain of the associations. Managers and association relationships are being strained as managers scramble to come up with quick solutions to enduring problems. Boards get easily upset with managers as they are now paying more attention to accounts receivable and budgets. Both the board and managers want their attorneys to be able to collect faster than they are doing. Meanwhile, attorneys are trying to satisfy all of their clients, while seeing a dramatic increase in collection activity.

We are all, essentially, trying to milk a dry cow. There are situations where there is no money to be collected. However, if associations act quickly and creatively, they place themselves in a situation where there is the hope that money will be collected at some point, allowing associations to get their accounts receivables current.

It is important for attorneys to explain the collection process to both the board and managers. Managers need to realize that, with this economy, boards cannot count on all the debt to be collected. Managers need to set realistic timelines and help boards come up with manageable budgets, while factoring in bad debt. It is time to start thinking creatively. The proven method of demand letters and liens are not as effective as they used to be. There are things that both boards and managers can do to help prevent a bad situation from turning worse.

The following suggestions will help both associations and managers avoid the pitfalls that are becoming all-too-common in the collection process:

· MAKE YOUR COMMUNITY AN ATTRACTIVE PLACE TO LIVE
· NOW IS THE TIME FOR FRUGALITY
· FACTOR INTO YOUR BUDGET BAD DEBT
· ACT QUICKLY AND PRUDENTLY
· BE CONSISTENT AND FAIR
· ASSIST IN NEGOTIATING SHORT SALES
· USE SPECIAL ASSESSMENTS WISELY
· OBSERVE THE LAW IN COLLECTING ASSESSMENTS (FDCPA)
· PAY ATTENTION TO BANK FORECLOSURE NOTICES
· GET SOMETHING OUT OF BANKRUPTCIES

Vial Fotheringham hopes that putting some of these ideas into practice will be beneficial for your associations. Please let us know if you need help with any of your collection needs. For more information on this or other HOA issues, please email at phh@vf-law.com.

*The information provided above should not be considered a substitute for legal advice. It only highlights areas that can become complicated. Please seek the assistance of qualified legal counsel to help with your specific collection concerns.

Rules and Assessments, Creating Balance in an Association

April 15, 2009

Written by: Michael Montag

If asked, many would say that the most important things a homeowners association takes care of are collecting assessments and enforcing the rules and regulations. In economically prosperous times, it’s a virtual no brainer–get a reserve study, create a budget, and assess accordingly. Associations need to design a concrete set of rules, an enforcement resolution, and a schedule of fines, and then stick it to the few who don’t voluntarily fall in line. Also in prosperity, the vast majority of owners follow rules accordingly, paying what they owe and allowing the association to have the cash it needs to take care of priorities.

What happens, however, when the economy takes a nose dive? In times such as these, owners start “forgetting” to pay assessments, foreclosed homes sit empty, and people have bigger worries than the proper placement of their garbage can or the condition of their lawn. The association’s cash flow dwindles, while weeds grow and paint peels. What is the board of directors to do?

Facing increased numbers of unpaid accounts, boards have several competing concerns. On the one hand, the board must meet the association’s financial obligations, with a duty to enforce the governing documents. On the other hand, pursuing delinquent owners can be expensive and, sometimes, fruitless. In addition, many boards question the morality of hounding owners over amounts that sometimes seem trivial. Unfortunately, there is no clear-cut solution that will work for all associations, but there are several options.

Perhaps the most obvious answer is the idea that the board should simply prevent the problem before it starts. This could mean revisiting the budget to make sure it is free of wasteful spending, or checking the schedule of fines to make sure it provides the needed disincentives without being unreasonably high. More importantly, it means addressing issues as soon as possible. If an owner hasn’t paid their assessments, waiting until several months [or years] go unpaid encourages further delinquency, increases the costs of pursuing payment, and lowers the amount the association is likely to collect. Likewise, if the association is fining an owner for a minor violation of the declaration, allowing the violation to continue and fines to compound doesn’t accomplish much. If the board addresses problems as soon as they appear, however, the association is much more likely to get what it needs with fewer feathers ruffled in the process.

This, of course, is the easy scenario; there are often much more difficult cases. Whether it is because of financial hardship, personal grudges, or a genuine factual disagreement, some owners will simply not cooperate. Several associations choose to ignore such offenders, rather than take on the expense and stress of collecting money owed. This alternative only creates a host of new problems: the association loses out on money it needs, and the board risks breaching its fiduciary duties by short-changing the association and unevenly enforcing the governing documents. Avoiding difficulties now will only create a much bigger mess later.

At the other end of the spectrum are those associations who draw a hard line; as soon as their documents allow it, they will sue an owner to collect any past-due amount. While this approach has the benefit of consistency, it can also be a real mess. If the association has not dotted every “i” and crossed every “t,” it risks failing to collect at all, meaning that the HOA not only loses out on the amount owed, it is also unable to charge to the owner its costs for collecting the debt. This is a major issue in fines cases, in which the association’s case is often harder to prove, especially if they have let the fine grow to an unreasonable size. Furthermore, the board--in this situation--risks an owner mutiny if it jumps into litigation against owners for the slightest offense.

Naturally--and more successfully--most associations find a balance somewhere in the middle. When assessments go unpaid, they pursue that money to the greatest extent they can, including filing suit and ending up in court if need be. The legal case is typically straightforward and so boards, with good reason, consider chasing assessments a key part of their fiduciary duty to the association. Things are a bit trickier with fines, because of their greater uncertainty of collection. Boards must determine which cases are worth pursuing, as well as keeping in mind which cases that could get the board in trouble for selective enforcement. Consistency would be key here, but is virtually impossible. Similarly, the board must always comply with its governing documents, but the prescribed procedures typically leave little room for flexibility when practical considerations dictate a certain course of action. Clearly, consulting with the association’s attorney is a must.

In today’s economically challenging times, homeowners associations face unique challenges. When dealing with unpaid fines and assessments, it can be difficult to determine what course of action fulfills a board’s duties. More often than not, legal counsel is critical, and all boards should remember that being prepared for a situation before it happens is always the best solution. For more information on this and other HOA information, please email mdm@vf-law.com.

Pets in Your Association, Furry Friend or Nuisance?

April 12, 2009

Written by: Jason Grosz

Pets are a very controversial subject in both Homeowners Associations and Condominiums. Many association documents place restrictions--including type of animal, specific breed, etc--on which pets an owner may have in their home. Often, these boundaries will limit even the number of dogs or cats an owner may have on their property. HOAs also frequently prohibit all "livestock, cattle, an fowl" on the property, while some forbid all types of reptiles. Additionally, many condominium restrictions even place limitations on the size or weight of dogs. (Time to put Rex on a diet!)
When evaluating pet restrictions in your Association, it's important to consider (1) the sort of behavior you're trying to regulate and (2) the clarity and consistency of your rules. For many owners, pets are considered family; rather than banning these furry family members, many Associations choose to establish policies regarding animal waste clean-up, off-leash areas, and noise control.
It is also important--when forming pet restrictions--to remember there are federal anti-discrimination laws that come into play when an Association regulates service animals for the disabled A pet restriction that interferes with a disabled person's use of a guide animal is often unenforceable.
Finally, for those that keep exotic pets, consider both your HOA's governing documents, as well as your city or county ordinances. Many municipal codes place limitations on keeping "exotic animals"--such as big cats, snakes, and other reptiles. For more or to speak with a lawyer knowledgeable in all aspects of this and other HOA legal issues, please email jlg@vf-law.com, or check out the following links:
For the Multnomah County Code on Animals: http://www2.co.multnomah.or.us/counsel/code/ch13.pdf
For the Portland City Code: http://www.portlandonline.com/auditor/index.cfm?c=28177
For the Washington County Code: http://www.co.washington.or.us/Code/index.htm

Renters, Bearing the Brunt of Unpaid Assessments

March 15, 2009

Written by: Greg Coxey

In today's economic climate, many owners of condominium units, townhouses, and single-family homes are opting to rent their homes in lieu of trying to sell them in a down market. This scenario, however, has the potential to create many problems for homeowners associations. One such problem is what to do when an owner has a renter in the homes, but the owner is failing to pay assessments.
In issues regarding unpaid dues, an owner/association relationship often points blame to residents, rather than the owners themselves. In a recent case vis-à-vis unpaid assessments, an association brought suit against a renter of a townhome for failure to pay assessments. Though the resident was the wife of the owner and the owner himself did not reside in the unit, the trial court found in favor of the association. This decision was later appealed and overturned, as the appellate court agreed that the current renter was only a resident, and the association had no recourse when it came to renters. This case illustrates an important point: unless there is a provision in the governing documents that allows the association to collect assessments from the renter, there is nothing the association can do to collect past due assessments from the renter.
When it comes to renters, it's necessary for associations to understand that they are free to give the resident copies of the governing documents, rules, and regulations, as well as notify the them when the aforementioned are being violated. However, the association's recourse for violations lies with the owner of the property, and not the renter. The owner is legally responsible for anything that his or her renter does based upon signed governing documents upon purchase. This means that the owner is subject to fines and other legal remedies as a result of their renter's conduct, and it is the owner's responsibility to control said renter, even in cases of necessary eviction.
In the common problem where an owner is still violating their governing documents by refusing to pay assessments, the association cannot look to the renter for compensation. The resident is not obligated to the HOA, and they cannot force the renter to turn over payments to cover the owner's delinquent dues. For more information on this or other HOA legal issues, please email gbc@vf-law.com.

Sensitive Association Document Procedure

March 2, 2009

Written by: Ryan Harris

Homeowners Association and Condominium Owner Association boards are constantly confronted with a complex question: what should the board do when a homeowner requests sensitive association documents? The law firm of Vial Fotheringham, LLP has seen this dilemma arise recurrently, often with the demanding homeowner seeking to sue the Association in order to view or obtain said documents. If these matters are not handled with both legality and sensitivity, neither party will be satisfied.
While HOA boards would usually prefer to refuse these document requests, Oregon law generally gives the homeowner the right to inspect and copy the Association’s records. Both the Oregon Planned Community Act and the Oregon Condominium Act require the Association to make its documents and records reasonably available for inspection, provided the request is made in good faith and for a legitimate purpose (See ORS 94.670: 8; ORS 100.480: 8). Similarly, if the Association is incorporated under the Oregon Nonprofit Corporation Act, it is required that the Association make its corporate documents available to the homeowners as well.
Another question that arises under this predicament pertains to which documents that the Association must have readily available to their homeowners. The Nonprofit Corporations Act requires that the Association keep the following: Articles of Incorporation, bylaws, resolutions, minutes, names and addresses of directors and officers, financial statements, accountant reports, and the most up-to-date annual report. The Oregon Condominium Act and Oregon Planned Community Act also require that all of the aforementioned "records of the association be made reasonably available" (ORS 94.670:8; ORS 100.480:8).
For the benefit of Association boards, however, there are a few boundaries that can be legally placed upon document requests. First, the Association can require that all requests be submitted in writing; the board can then also insist that the writing contain a short explanation as to the purpose of the request. This simple hurdle may dissuade owners from making frivolous requests, or then pursuing them extensively. Secondly, the board can charge owners a reasonable fee for copying said documents, as long as this charge is common knowledge. Experienced in situations such as these, Vial Fotheringham is competently able to sort out these tricky stipulations in detail for both parties.
Finally, while an Association should generally comply with a homeowner’s request for documents, there are some documents that should never be produced to owners, or other parties for that matter: documents regarding employment, contract negotiations, or collections should not be readily disclosed. Furthermore, communications between the Association and its attorney should never be open to the public; by disclosing attorney-client communications--even when the communications do not seem particularly sensitive--the Association may inadvertently waive attorney-client privilege. For more information on this or other HOA legal issues, please email rdh@vf-law.com.

Architectural Review: Protecting the Aesthetics of your Neighborhood

April 2nd, 2009

Architectural Review is a vital part of maintaining the aesthetics and property values in many Homeowners Associations. Many HOAs have architectural restrictions which protect ocean or mountain views, maintain a pleasing and uniform aesthetic, or prevent owners from allowing their homes to deteriorate. From a practical perspective, this process is often administered by an Architectural Review Committee or “ARC” which is appointed by the Homeowners Association Board of Directors.

Where do they get the authority to tell me what I can build?

The authority of an HOA Board or Architectural Review Committee to review plans prior to construction can typically be found in your HOA’s CCRs and Bylaws. A common provision might say the following:

“No building, addition, fence or other structure shall be built or altered on any lot within the Pleasantville Homeowners Association until plans have been submitted and been approved in writing as to the harmony and external design by the Architectural Review Committee composed of three or more representatives appointed by the Board.”

In addition to your CCRs and Bylaws, many HOAs adopt Architectural rules or restrictions designed to help streamline the process. These rules may provide specific guidelines about what sorts of structures will be approved. For example, there may be limitations on height, color or setback requirements. Other rules are procedural, outlining a process for submitting plans, obtaining a hearing in front of the committee, or appealing an adverse decision to the Association Board of Directors.

Why is it important to observe your Governing Documents and Rules carefully?

With the recent boom and bust in real estate, Architectural Review has become an increasingly contentious issue. Many aggrieved owners turn to the court system to resolve architectural review disputes. Lawsuits often arise in two contexts: either (1) an owner receives an adverse decision preventing him or her from building their dream home; or (2) A neighbor of the builder is unhappy with the structure going in next door and seeks to have construction halted. Occasionally, neighbors have sought to have an existing structure torn down for being in violation of the Association CCRs.

Architectural review litigation is highly unpleasant, costly and time consuming for HOAs.

What can my HOA do to prevent the disputes and resolve them quickly if they do come up?

1. Establish clear rules: Many CCR and Bylaw provisions relating to architectural review are ambiguous. For example: “No home built in the Pleasantville subdivision shall block the ocean view of any other home within Pleasantville.” This provision is inherently ambiguous. What does it mean to “block” the view? Does this mean entirely eclipse any view of the ocean? Or does it mean block the ocean view in even the slightest manner? Provisions like this one are problematic and can lead to lawsuits.

Many HOAs adopt rules or guidelines that clarify or interpret vague Architectural Review provisions. Carefully drafted rules will sometimes prevent these disputes.

2. Enforce your rules fairly and uniformly: Once your HOA has a clear set of rules in place, it is critical that the Board enforce them uniformly and fairly. Members are often more angry about “selective enforcement” than they are about having their plans denied. These owners may argue that the HOA denied their plans based on a set of rules that other neighbors violated without penalty. This is unfair to the members of the Association, and can undermine the Board’s ability to resolve the dispute. Worse still, it can affect your HOA’s ability to enforce other important rules, such as payment of assessments.

3. Get some help: If you find yourself at a Committee or Board meeting where tempers flare, get some help. Contact an attorney or other specialist who has experience resolving architectural review disputes on behalf of HOAs. If you do find your association served with a lawsuit, contact your attorney and insurance carrier immediately so that you can protect your HOA’s rights.

Jason Grosz
Attorney at Law
jlg@vf-law.com

Online Collections Program

We are extremely excited to announce the launch of our web-based assessment collection system – communitycollect

April 1st, 2009

Last year, the Vial Fotheringham Collections Department collected over $1.2 million with our aggressive CFE program, all without using the funds of the Homeowner Associations. We are proud to announce the entire system is now online and paperless! The new program is available online 24/7 and offers real-time information!

communitycollect is an online application that streamlines our services, and allows our clients, association board members, and managers, to check the status of delinquent accounts in collection. We know that the key to successful assessment collection is the timely exchange of reliable and accurate information between Vial Fotheringham, the board members, and managers regarding a turned over account. Traditional methods of communicating information are slow and cumbersome in a world where information is possible in real-time.

In the context of assessment collection, the traditional monthly hard copy status report is a relic of the past. Today's sub-prime mortgage crisis reminds us that it is imperative that our boards and managers have the very latest information available to them in order to make swift and intelligent business decisions regarding collections. Relying upon a month end status report that is outdated the minute it is printed is no longer a useful tool. You want to know where you are at this very moment, and where you are headed.

The Internet offers us the ability to communicate real-time information to our boards and managers whenever it is convenient for them to access the information. What could be better than a manager receiving reliable, up-to-date information just before a board meeting, or even while he or she is attending the meeting? Through communitycollect, real-time collection information is readily available whenever and wherever needed via the Internet. communitycollect forms an integral part of Vial Fotheringham’s philosophy of effective assessment collection: be persistent, timely, and aggressive in our collection efforts. In practice, telling the delinquent owner what we plan to do, when we plan to do it, and then carrying out that action is an extremely effective approach to assessment collection. With communitycollect, we have executed this approach to a new level of sophistication.

To learn more about communitycollect, please contact:

OREGON & WASHINGTON - Sarah Lappin, Attorney at Law:
P: 503. 684. 4111, Ext. 156 or e-mail her at csl@vf-law.com

IDAHO - Jeremy O. Evans, Attorney at Law:
P: 208.629.4567 or email: joe@vf-law.com

UTAH - Peter H. Harrison, Attorney at Law:
P: 801.355.9594 or email: phh@vf-law.com