Resources Helpful to Homeowner Boards

QUESTION: All of the owners in our small condominium association are obligated to share the maintenance costs of the property by paying a monthly assessment of $180 a month.

This income pays for operating expenses such as general upkeep, insurance and utilities and for reserve funds for major repairs. When some of the owners don’t pay, we are unable to pay all of our bills on time or we have to defer payments into our reserve savings account.

I am a newly elected board member and I’d like to take stronger action against those who aren’t paying their fair share. Do you have examples of collection procedures that we could use for our association?

Our board would like to learn more about Community Assns. Institute. What resources do they provide?

ANSWER: Community Assns. Institute has many publications that would be helpful to you. The booklet called “Collecting Delinquent Assessments” is available from the Greater Los Angeles chapter. Send your check for $17, made out to CAI, to P.O. Box 84303, Los Angeles, Calif. 90073-0303.

The chapter will be presenting their Leadership Training Program for condominium, cooperative and homeowner association board members on Sept. 18 at the Red Lion Hotel in Culver City. Attendees receive a comprehensive resource manual about budgeting, rules enforcement, legal issues, insurance and board operations. Contact Kathleen Daniels at (310) 285-8286 for more information. Advance reservations are required.

Every local chapter of Community Associations Institute offers this training seminar for association board members. If you live outside of the Los Angeles area, check your telephone directory to find a chapter near you. All of the chapters offer seminars, trade shows and other educational opportunities throughout the year.

Board Free to Spend Money for Legal Advice

Q: Without discussion with the rest of the owners, the board of directors of our condominium association decided to consult with an attorney about possible legal problems. They paid the attorney a $2,000 retainer fee even though the association didn’t have the funds available. Two of the board members paid several months of their assessments in advance so that enough money could be accumulated to cover the $2,000.

Six months later, a new board was elected and decided the attorney’s advice was unnecessary. They attempted to get a refund of the $2,000 but the attorney said that the retainer fee was entirely used and, after some delays, provided dates and times spent working with the former board, including the initial meeting with them to explain his services. The board apparently consulted the attorney whenever they wanted.

Many of the owners feel that we were cheated by the attorney or the board members or both. What do you think?

A: The board has the authority to consult professionals regarding the operation of the association’s business affairs. I urge association boards to consult an attorney who specializes in community association law since legal issues often are a challenge for inexperienced and experienced board members.

You should not expect your board members to be legal experts. I think that they were being prudent to consult with legal counsel. Two of them were so convinced that this advice was needed that they prepaid their assessments. That is an indication of the seriousness of the matter. Perhaps you are concerned about the cost but preventive legal advice can be much cheaper than hiring an attorney after the board has made a poor decision or set a bad precedent. Advice that keeps you out of trouble or avoids a costly lawsuit is good advice and protects the association from mistakes before they happen.

A retainer fee is not always necessary, however. Some attorneys will charge an hourly rate based upon the exact number of hours of service.

Remember, the board members have ultimate responsibility and are granted most of the decision-making power in the association. They did not have to inform all of the owners before spending the money for legal advice. However, if they had communicated with the owners about the issue, they might have eliminated this controversy.

Your letter doesn’t state any specific reasons that the board did not keep accurate records about the reasons that they referred problems to the attorney and the content of the advice that was received. This information would be helpful to future boards and would keep them from subsequently seeking advice about the same matters.

It is easy to find fault with the former board’s decisions if you are unaware of the problems that they faced. Perhaps they were protecting someone’s privacy by not disclosing the reasons for the consultation.

My advice is to give the former board members the benefit of the doubt and get off their backs. Don’t contribute to an “us against them” campaign when you disagree with board decisions. If you have the opportunity to serve on the board you will find that it isn’t always easy to make prudent decisions without some professional guidance. Board members who think they know all the answers are often the ones who make the biggest mistakes.

Boards should plan ahead during the budgeting process and set aside enough funds for legal, accounting and management advice so that funds are available when the need arises.

Is Liability Insurance Coverage High Enough?

Q: Our 184-unit association is concerned about a recent appellate court decision that gives persons who are injured on the association’s property the right to sue the individual owners to cover medical and therapeutic expenses. Our association has $2 million of liability insurance coverage. The board of directors has advised the owners to add “loss assessment coverage” to their individual homeowner’s insurance policies. However, my insurance company does not offer this type of coverage, and I’m not sure that it would protect an owner from this type of injury claim.

Should our association purchase more liability insurance? What is the purpose of the loss assessment coverage on an individual’s policy? What can we individual owners do to protect ourselves?

A: First, consult your insurance experts to discuss both the association’s coverage and your individual policy. Most associations are now purchasing an umbrella liability policy in the range of $3-million to $5-million limits. An umbrella liability policy is relatively inexpensive. It is additional coverage beyond the regular liability policy that would cover a catastrophic claim. In the case of a catastrophic loss, the association members might need to contribute to a special assessment to cover the expenses. Loss assessment coverage on your individual policy might pay for this type of assessment. Since every claim is different and every policy seems to have exclusions, I cannot assure you that loss assessment coverage is guaranteed to cover any assessment that might be levied against you.

I would advise the association to obtain additional liability coverage of at least $5 million and inform all of the owners of the amount of coverage.