Get in the habit of running a highly effective association
How would you like it if a genie - or fairy or some other supernatural spirit - handed you a silver platter and said "Put all your wishes for your association on here, and I will make them all come true?"
Well, no one really believes in fairy tales, but the end result can still be the same. All you have to do is follow the simple formula of successful associations and it is relatively easy.
I have attempted to glean stories from clients who have minimum problems in operating their association boards, dealing with owners, and their managers do not go home with splitting headaches after every meeting. If you are getting a different result, then maybe you need to implement some simple changes.
Here are the seven habits of highly effective associations (with apologies to Steven Covey, author of "Seven Habits of Highly Effective People"):
1. Board members get a financial and management packet in advance of the meeting, in addition to the minutes, so they come in prepared. It seems to me that if you are going to take on this job, you need to prepare for a meeting, so obvious questions do not take up the valuable time of the board and the agenda can proceed swiftly.
Associations that have four-hour board meetings are the source of all the horror stories you hear about association living. If you have an agenda, stick to it, and get it done in an hour, which is absolutely feasible. Then everyone who wants can sit around over coffee and discuss the great issues of the day while the manager and the working people can go home. Effective boards meet quarterly, do not revote on expenditures a second time after they have been included in a budget, and do not read the minutes or the management report at the meeting.
2. Deal with problem owners as if they are neighbors with problems. Community association living does not imply that a board can sit in an ivory tower, promulgate rules and policies and never talk to anyone. Sometimes due to a misunderstanding, ignorance of the rules, or just a mistake, an owner who has a problem emerges as a demagogue and leader of a dissident group. This person may never have been the least bit interested in getting involved in the association and now they are either running for or trying to take over the board for all the wrong reasons.
A board needs to make someone available, and it does not necessarily have to be a director, to talk to the unhappy owner, find out the real problem and then relay it to the board to see if it can be solved. Sometimes a quiet sit-down can go a long way to keeping peace in the family (Lunatics and crazy people, excepted, of course!)
3. Send a warning letter, and then schedule a hearing before a fine is levied. Even though this is a legal requirement for both HOAs and condominiums, it is amazing how many boards arbitrarily levy fines and they do not even have rules in place, let alone fining procedures.
Not only does this cause serious conflict, it is also illegal. Simple steps: a) adopt rules governing conduct and fine procedures, b) make sure all owners and tenants always have copies, c) send a violation letter with a warning, d) send out notice of opportunity for hearing, e) then levy fine. Simple and legal.
4. Have election rules in place before the election, not the day of. I cannot tell you the number of calls I get the day of an election because the board wants to stop someone from running but has no basis to do so. The association attorney, not the property manager, should develop election rules well in advance of the election, with proper forms. Again, all owners need to be aware of the rules of the game before everyone starts playing.
If only owners can run for the board, and someone is suspected of not being the owner, have rules for verification in place, and get it handled before the annual meeting. If the board wants all candidates and/or voting members to be current in the payment of their assessments, they cannot decide the morning of the election to limit this to only members in good standing, when no one is even aware of it.
5. Have professional looking financial and association records. Do you have a copy of the recorded declaration, all recorded amendments and all plats on file? If not, then you will be scrambling around every time someone asks for a copy and spend hundreds or even thousands of unnecessary dollars obtaining them. Have your financial records been prepared and updated in accordance with professional accounting standards and have they been reviewed by an independent CPA no less than every other year (but really should be every year)? If you cannot figure out your statement and the columns do not line up, you need a financial facelift, ASAP.
Many unhappy owners start out with trying to obtain and then review incomplete or sloppily kept records. There is no excuse for either. If you cannot tell at first glance how much money is in the bank, and how much the association owes, this is a good place to start.
6. Records can be obtained easily, in an organized fashion for a nominal fee. Do you want to start a civil war? Easy. Give everyone a hard time about seeing records they are legally entitled to, make them wait an inordinate amount of time, and charge them a ridiculously high fee. Boards and managers that give people a hard time about letting them look at or get copies of things they are legally entitled to as owners, have no desire to live in peace. If a smooth and easy procedure is in place, then there is no reason for the board or the manager to even know someone asked. It is a simple administrative procedure, and unless the management company is a one-person shop, even the manger does not have to be involved.
7. A budget is adopted for necessary expenses plus a reasonable allocation for reserves. The worst meetings anyone can attend are when a special assessment for a large amount has to be levied. This occurs for one of several reasons: the association was under-assessed for too many years; inadequate reserves were set aside, year after year; there are a huge percentage of owners who are delinquent; or there is a catastrophic emergency.
Unless the area is declared a national disaster for climate-related reasons, then there should be little for people to complain about except their driveway did not get plowed fast enough. However, if the need arises to replace roofs when no money has been set aside and/or the reserve account is tapped, you will meet long-term residents who have never attended a meeting, and it won't be for the reason that they just now decided to meet you.
The well-run association has a financial plan, a reserve study, a long-range plan and a useful life study.
Reserves and capital expenditures, if not fully funded, can at least take the sting out of any additional assessments. Associations are budget based. If contracts are bid judiciously, and all of the possible cost savings measures are implemented, then assessments constitute what it costs to run the property.
It is the failure to save for the future and boards that refuse to increase a budget in order to keep assessments low - knowing full well certain fixed costs have gone up - that create an explosive device with a timing mechanism.
If a board can follow the simple procedures adopted by peaceful, well-run associations, where property values are stable and lemonade pours out of the spigots, then association living can be a dream instead of your worst nightmare.
• Jordan Shifrin is an attorney with Kovitz Shifrin Nesbit in Buffalo Grove. Send questions for the column to him at jshifrin@ksnlaw.com. This column is not a substitute for consultation with legal counsel. Past columns can be read at www.ksnlaw.com.