a View from the Property Line

Put Executive Sessions in their (Proper) Place

2008-05-05T11:50:00.000-07:00

Executive Sessions can be effective management tools when used judiciously by the Board of Directors; on the other hand, when misused or even abused, executive sessions can lead to trouble for the Board.

Executive Sessions can be used to foster conversation amongst the community association leadership without fear of any reprisal by the non-directors in attendance at a meeting. This confidential aspect to the executive session allows for directors to discuss more sensitive issues before presenting a unified stance to the membership and without infringing on any one individual's privacy rights or giving the appearance that the Board is not acting in unison with its directives.

Executive Sessions can also be improperly deployed, often resulting in the perception that the Board has no accountability to the membership, thereby fueling distrust, dissension, or other anti-Board sentiments by the membership or other non-director association personnel.

So how does the Board avoid these negative distinctions by using the executive session as a positive tool for community governance? Follow these simple guidelines and your Board should reap the benefits of executive sessions while avoiding the pitfalls that improperly-managed executive sessions can engender.

1. Don't overuse the executive session and be judicious. The executive session should be purpose-driven. Focus on the objective or agenda item to be dealt with and do not use this session to isolate or intimidate factional leadership and/or manipulate the results of a vote that the membership should be privy to.

2. Create an environment for sharing ideas. The Executive Session should be used to foster the free exchange of ideas and discussion on sometimes difficult topics. Don't hinder this process with heavy-handed tactics; instead, encourage board members to offer opinions, ideas, experiences and solutions to the issues being dealt with at the executive session.

3. Communicate to the membership. Don't mask the executive session in a shroud of secrecy. Instead, let members know why, when and for what purpose they are being excused from the executive portion of the meeting.

4. Don't hide the vote - take action in meetings, not executive session. Because the Board's actions are memorialized in the meeting's minutes, make sure that formal votes occur in the regular meeting, and not in the executive session.

*thanks to BoardSource, and its white paper, Executive Sessions: How to Use Them Regularly and Wisely, http://www.boardsource.org/Spotlight.asp?ID=14.337, copyright 2006 BoardSource.

If you're going to buy Foreclosure Properties, don't forget that there's a RIGHT OF REDEMPTION

2008-04-27T13:33:00.000-07:00

I'm writing this article because of a recent run-in with a prospector of real estate after this prospector purchased a property at a local county constable's sale. This property belonged to a homeowner who had fallen several years behind on the maintenance assessments to the community association, and simply could not come up with the necessary funds to rescue the home from the clutches of foreclosure.

Now I am not decrying the business of buying and selling foreclosure properties -- this is America after all, and the foreclosure mechanism is just another animal by which wealth is redistributed to those who can afford it from those who cannot. It really makes for a rather efficient transfer of property in most cases; however, Texas Property Code section 209.001, et seq., does recognize a homeowner's absolute right to redeem such a foreclosed property within 180 days after the foreclosure sale commenced if a property owner's association lien is the instrument being foreclosed upon. It's called the Texas Residential Property Owners Protection Act and it is very much alive and well.

In fact, Section 209.011 of the Texas Property Code states that "[t]o redeem property purchased at the foreclosure sale by a person other than the property owners association, the owner must pay to the purchaser of the property:

(a) any assessments levied against the property by the association after the date of the foreclosure sale and paid by the purchaser;
(b) the purchase price paid by the purchaser at the foreclosure sale;
(c) the amount of the deed recording fee;
(d) the amount paid by the purchaser as ad valorem taxes, penalties, and interest on the property after the date of foreclosure sale; and
(e) taxable costs incurred in a proceeding brought under Subsection (a)."

Tex. Prop. Code § 209.011(e)(2). Thus, if a homeowner has the funds necessary to comply with those sums listed in the above provision, and that homeowner tenders said amounts to the purchaser of the foreclosed property, then the purchaser must allow the homeowner to redeem the property. It's that simple.

I have attended some constable's foreclosure sales in the past and I cannot tell you how many uninformed, ill-advised, uninitiated prospectors I've seen purchase property after property without having the faintest clue that the property is subject to purchase money liens, government tax liens, etc. These buyers lack the understanding of priority lien concepts, assumption of mortgages, and other pitfalls that come along with foreclosure sale prospecting. Instead, these people buy the property in hopes of turning a quick buck, ignorant of the laws under which they purchase, then trample the rights of those people who would attempt to redeem when such a situation becomes tenable. Now back to the original prospector I was speaking about.

In this case, the homeowner obtained the necessary amounts to redeem under section 209.011 of the Texas Property Code, tried to redeem the property from the purchaser, but the purchaser refused the redemption offer. The purchaser demanded all sorts of outlandish sums for property management, attorney's fees, and "research costs" for prospecting the property. It was obvious that the prospector was conducting a "money grab" -- attempting to attach all manner of ethereal charges to the property -- so that the profit margins could be artificially boosted on the purchase if the homeowner ever tried to redeem. The homeowner, distraught and not knowing where to turn to, actually asked the community association for help.

The homeowner may have the last laugh here because the right to redeem goes hand in hand with the foreclosure sale and is not to be ignored if such a remedy is sought. Texas Property Code section 209.011(f) states that “[i]f a purchaser fails to comply with this section, the lot owner may file a cause of action against the purchaser and may recover reasonable attorney’s fees from the purchaser.” So now, the homeowner may seek recovery of all attorney's fees incurred in the fight to redeem the property. The law is clear in this case, the homeowner can redeem if it complies with the statutory provisions of the Texas Residential Property Owners Protection Act. All the homeowner needs to do is tender those amounts listed under Section 209.011. In turn , the purchaser of the property must tender a deed back to the homeowner or suffer civil penalty.

Ultimately, I hope that the purchaser at least learns a valuable lesson from all of this legal wrangling: the homeowner's right of redemption is absolute under the Texas Property Code when a property owner's association forecloses its lien. Don't be an uninformed prospector; instead know the law regarding foreclosure sales before you buy.

Timing Isn't Everything

2008-02-01T10:42:00.000-08:00

"Timing, degree and conviction are the three wise men in this life."
-- R.I. Fitzhenry

I don't usually write about condominium issues, but I thought that the following article may be beneficial to those readers who are living in condos now, or are contemplating doing so in the near future. This is a cautionary tale about: (1) being careful when making assumptions regarding the validity of an association's corporate charter as it relates to the association's ability to enforce a condominium "regime"; and (2) understanding the distinctions that can be made under the Uniform Condominium Act (the "UCA") between the condominium and the condominium's association -- they are TWO separate issues. If you ever decide to challenge the authority that an association possesses to enforce a condominium regime, when an association is formed may not matter depending on the circumstances surrounding the condominium's formation.

Let's set the table. I was perusing the appellate court cases relating to Community Associations last week (thank you CAI for your timely bulletins) and I came across a case out of Plano where a plaintiff sued a builder/developer challenging the validity of a condominium regime (the "Condominium") because the plaintiff was deeded property in the Condominium before the Condominium's association (the "Association") was incorporated by the developer/builder. The plaintiff tried to argue that because the property was conveyed prior to the Association's incorporation, then the association did not have the requisite authority to enforce the Condominium's declaration against the plaintiff or any other Condominium owners.

However, the developer/builder had previously filed the declaration for the Condominium (the "Declaration") in September 2003. The developer/builder then conveyed three lots to the plaintiff in November 2003, January 2004, and April 2004. The developer/builder incorporated the Association in August 2004. After incorporation, multiple disputes arose between the plaintiff and the Association. As a result, the plaintiff initiated a declaratory judgment action against the Association seeking determinations that the Association was not a legal entity and could therefore not enforce the Declaration against the plaintiff. The plaintiff did succeed at the trial court level and won its declaratory judgment against the Association based on the Association's lack of standing as a legal entity to enforce the Declaration.

Enter the Texas Court of Appeals.

The Texas Court of Appeals aptly pointed out that the UCA defines "condominium" as "a form of real property with portions of the real property designated for separate ownership or occupancy, and the remainder of the real property designated for common ownership or occupancy solely by the owners of those portions." The Court continued by stating that "a condominium is created 'only by recording a declaration' that contains a description of the property, the number of units, and the name of the owners association (emphasis added). The Court found that the Declaration had been filed prior to any conveyance of property, thus the Condominium was properly formed and the plaintiff (now appellee) was still subject to its provisions, regardless of which entity actually administered those provisions.

In addition, the Court cited relevant provisions of Texas Property Code which suggested that there were no mandatory consequences for conveyances of property prior to incorporation. To wit:

A unit owners' association must be organized as a profit or nonprofit corporation. The declarant may not convey a unit until the Secretary of State has issued a certificate of incorporation ...

Tex. Prop. Code § 82.101 (emphasis added). The Court interpreted the "may not convey" language as directory versus mandatory. The Court summarized that the UCA and its commentary establish that the "defining event" in the creation of a condominium is the filing of a declaration, and not the incorporation of the association which governs it. Thus, the plaintiff was ultimately not excused from obeying the Declaration governing its properties within the Condominium and the Court reversed the Trial Court's ruling.

Bottom line: Timing isn't everything. If you are going to challenge the validity of your condominium association's actions based on the legitimacy of that association's corporate charter, better do some research regarding the timing of your condominium's declaration filing. As the above-case demonstrates, the declaration filing date seems to be the operative controlling factor, not the date whereupon the association was incorporated. You just might save yourself some time, money and unnecessary grief.

The Tax Code Giveth and the Tax Code Taketh Away...

2007-12-28T10:15:00.000-08:00

One of our clients recently suffered the misfortune of having to pay delinquent property taxes on a reserve of land that was essentially gift-deeded to them by a former developer of the Subdivision many years back. This Association had no idea that the property given to them by the former developer still had unpaid assessments on it -- to the tune of SEVEN years' worth of taxes, penalties and interest -- until the taxing authority, in this case, the County, filed suit against the unsuspecting Association in district court. Our client paid all annual taxes due and owing each year that it owned the reserve since 2000, but never received notice of the delinquency for tax years 1998 through 2000 until our client was served with the tax suit. What makes this an even more galling story for our client, and for other potentially liable Associations out there, is this: under the Texas Tax Code (the "Tax Code") there is literally NO remedy for an Association seeking recovery of these delinquent taxes, penalties and interest if there was no mistake or omission made by the taxing authority which led to the delinquency and/or failure to pay by the Association EVEN IF THE FAILURE TO PAY WAS DUE TO A LACK OF NOTICE BY THE TAXING AUTHORITY or the former developer, in most cases.

Section 33.011 of the Tax Code states in part as follows:

§ 33.011. WAIVER OF PENALTIES AND INTEREST.
SUBCHAPTER A. GENERAL PROVISIONS
(a) The governing body of a taxing unit:
(1) shall waive penalties and may provide for the waiver of interest on a delinquent tax if an act or omission of an officer, employee, or agent of the taxing unit or the appraisal district in which the taxing unit participates caused or resulted in the taxpayer's failure to pay the tax before delinquency and if the tax is paid not later than the 21st day after the date the taxpayer knows or should know of the delinquency; (emphasis added).

Nowhere in the above provision does lack of notice by the taxing authority (or by the conveying party) factor into the legislators' calculus of when a taxpayer can seek recovery of delinquent tax payments. Notice is covered in other sections of the Tax Code, like Section 33.04:

§ 33.04. NOTICE OF DELINQUENCY.
SUBCHAPTER A. GENERAL PROVISIONS
At least once each year the collector for a taxing unit shall deliver a notice of delinquency to each person whose name appears on the current delinquent tax roll. However, the notice need not be delivered if:
(1) a bill for the tax was not mailed under Section 31.01(f); or
(2) the collector does not know and by exercising reasonable diligence cannot determine the delinquent taxpayer's name and address.

This statutory provision is significant because it used to provide a remedy for taxpayers who failed to receive notice from the taxing authority. Prior to the 2001 amendment to this tax code section, delinquent taxes, penalties and interest were waived if the taxing authority failed to provide certain notices under Section 33.04. In our client's case, this excised language would have saved the Association several thousand dollars in delinquent tax payments to the County. However, as the statute now reads, there is simply no recourse against the taxing authority if this notice is not provided, because Section 31.01 of the Tax Code provides an "out" for same:

§ 31.01. TAX BILLS.
SUBTITLE E. COLLECTIONS AND DELINQUENCY
(a) ...
(g) Except as provided by Subsection (f) of this section, failure to send or receive the tax bill required by this section does not affect the validity of the tax, penalty, or interest, the due date, the existence of a tax lien, or any procedure instituted to collect a tax (emphasis added).

Reading the above provisions together renders the following outcome: if the Association finds itself saddled with a delinquent tax bill and wishes to challenge it, then the Association must first pay the delinquent taxes within 21 days of notice of the delinquent taxes (by suit or otherwise) even though they are disputed, and then seek a review by the taxing authority (Commissioner's Court or other administrative procedure) to assert an error or omission by that taxing entity. If after an administrative hearing is granted and the taxing authority can demonstrate that it sent notice to the delinquent taxpayer (notice is presumed proper under the Tax Code!) or that there was no apparent error or omission committed by same, then the taxing authority is absolved of any wrongdoing.

In the case of our unfortunate client, it lost its appeal at the administrative hearing (the County vouched that all requisite notices and tax bills were sent to the proper address, presumed and otherwise, and there was no error admitted to) and so there will be no refund of payment for those delinquent taxes, penalties and interest. Instead, our client must now seek redress from the former developer who conveyed the reserve to the Association -- a developer who may or may not have known that such liabilities were due and owing at the time of conveyance. In the end, the Association is only left with a legal avenue to pursue monetary recovery from a private party while the taxing authority is insulated from further investigation.

As Section 33.04 of the Tax Code illustrates, the Tax Code giveth (pre-2001) and the Tax Code taketh away. If your Association suspects that it may owe any amount of delinquent taxes, be proactive and inquire about same with your taxing authorit(ies) each year, even if you have received your annual tax statement. Taxing authorities are NOT REQUIRED to list delinquent tax amounts on your current tax bills, so do not let that omission comfort you. That phone call or letter to the County tax office or other taxing entity could end up saving your Association big money in the long run.

*A special "thanks" is extended to the 2001 Texas Legislature for eliminating what little protection taxpayers enjoyed under the Tax Code and for reducing certain notice provisions into mere "window dressing" to the chagrin of unsuspecting taxpayers statewide.

When in Doubt... PUT IT IN WRITING!

2007-12-26T10:17:00.000-08:00

Seasons' Greetings dear readers! A few moons have passed since my last blog entry -- partly due to a chronic malady known as the "human condition" -- it seems that as long as people are people, a lawyer's work is never done. Although life can get hectic at times, the holiday season always provides a measure of respite to reflect on the year that was and, also to catch up on my journal reading (so that I can impart any wisdom gleaned from such articles to my loyal readership). Be that as it may, the following cautionary tale comes to us from our friends to the southeast in Galveston, from a Texas Court of Appeals case, Indian Beach Property Owners' Association v. Linden, No. 01-05-01116-CV (March 22, 2007).

In this case, a homeowner (Linden) endeavored to erect a chain-link fence, that most gaudiest of deed restriction "of-fences," on the perimeter of his non-commercial, residential property. Like all good homeowners should, Linden submitted an ACC application for review and was summarily denied. However, one of the Board members intervened and orally told the Lindens that their denial was due in part to a setback provision that the Lindens thought was inapplicable to their property. The Board member also orally asserted to the Lindens that a letter explaining the inapplicability of the setback would be sufficient as a reapplication to the ACC for reconsideration. Thus, the Lindens followed suit and submitted a letter explaining the setback and didn't hear anything from the ACC during the subsequent 45-day reapplication period. The ACC didn't consider this letter a proper reapplication and therefore didn't issue a reply. Unfortunately, the Indian Beach POA's deed restrictions contained a "silent affirmation" provision (as do most Associations) that deems approval for any ACC application not acted upon by the ACC within the prescribed approval period (provided that the improvement sought conforms with the harmony and general aesthetic of the Subdivision). At trial, the Court found that the letter did constitute a legitimate reapplication based on principles of reliance and notice to the ACC attributable to the Board member's intervention in the application process. Hence, the Lindens got their fence and the Association lost twice in court (once at trial and once on appeal).

The real lesson here is not to be wary of board member intervention in the ACC process (which ultimately led to the Lindens' success) but to put ACC decisions in WRITING. I understand the purpose of these "silent affirmation" clauses is to promote efficiency by the ACC, so that those overworked and underpaid (read: UNPAID) ACC committee members can perform their duties without the hassle of so much paperwork if the improvement is to be approved. However, these provisions are double-edged swords: if the ACC fails to express its decision in writing, good or bad, then that decision is automatically ratified as approved for the homeowner and will most likely be upheld in a court of law, as it did in the Indian Beach case. Better to err on the side of caution and address all correspondence received by the ACC with some type of written response. The ACC can generate a form library of sorts that can deal with certain repeatable issues, like "Linden letters" that may or may not conform to the standards of a formal ACC application. These simple form responses, while marginally more expensive than doing nothing, could provide insulation from a bigger Association expense down the road: litigation over unwanted improvements in the Subdivision. Don't leave it in the hands of the courts, put it in writing next time.

Intrinsic Threat: Who's Minding the HOA "Store"? PART TWO

2007-09-05T14:57:00.000-07:00

This week's article concludes what I started last week -- talking about how associations can guard against "embezzlement schemes, financial scamming by trusted fiduciaries, and even outright theft by vendors and/or board members." Part Two of the "Intrinsic Threat" covers items 6 through 10 on the association's checklist of conduct to be wary of or actions to take to minimize the risk of directors'/vendors' unscrupulous actions.

6. Choose a bank that fits your security needs. Safeguards like requiring dual signatures on every check or prohibiting electronic funds transfer between accounts under different Fed ID numbers should be demanded of your banking services provider.

7. Be informed on association insurance coverage(s). Have the association's insurance agent(s) attend a monthly meeting of the board and review the association's coverage(s), plans, and other specifics. The board should keep copies of the polic(ies) readily available for review or consultation by any director.

8. Insure association funds as you would its property. Don't forget that you can also insure the association's funds by obtaining fidelity coverage that meets or exceeds the association's funds. Some D&O insurance coverage provides a measure of this protection, however, it may not be adequate. Check with your insurance agent to verify this. Make sure that property management companies dealing with the association also follow suit.

9. When in Rome, ... If the association utilizes an independent property management company, then require that these safeguards against theft and embezzlement be applied to the property manager's business practices as well. Two lines of protection is better than one, or none, in this regard.

10. An Auditor can be the association's best friend. Even if an annual audit of the association's books and records is cost-prohibitive, an audit should be performed every few years nevertheless. Bank balances should be independently reviewed annually for verification.

None of the above measures will guarantee that your association won't fall victim to the actions of a rogue director or some other sort of fiduciary bad actor. But by implementing these strategies, you can at least afford some protection against these threats and create an environment where checks and balances exist to improve the moral and operational efficiency of the association's leadership.

*Special Thanks to Darcy Mehling Good, Esq., "Whodunit?", Common Grounds, July/August 2007 from which excerpts of this article are attributed to.

Intrinsic Threat: Who's Minding the HOA "Store?"

2007-08-28T08:40:00.000-07:00

I recently came across an article in a national community association magazine that was germane to a current client matter that I'm dealing with -- regarding board members misbehaving in their roles as fiduciary to the association under which they serve. I felt that the message was an important one that all of the readership would appreciate and use as a reminder that, even though people may have the best intentions, they are still fallible, and so we must guard against that weakness when protecting the association's coffers.

There has been a rash of recent cases where homeowner associations have been victimized by embezzlement schemes, financial scamming by trusted fiduciaries, and even outright theft by vendors and/or board members. What can an association do to protect itself from these dangers? Remembering the 10-item checklist below may keep your association from becoming a target of these ne'er-do-wells.

1. Know the association's federal tax ID. Use the tax ID to periodically verify the existence of all listed bank/financial accounts held by the association. Make sure that this number is distributed to all members of the board so that no one member can exercise complete control over those accounts. Accountability by each board member to all other board members ensures a checks-and-balance approach to "minding the store" when nobody's looking.

In one particularly messy embezzlement case, the treasurer of the board was the only person to have knowledge of the bank accounts and amounts deposited to them, so the board could not independently verify what deposits and payments were or were not occurring until it was too late and the past-due notices were piling up from various vendors.

2. DON'T SIGN BLANK CHECKS. Common sense and practicality not only demand this, but also, a person is not acting as a fiduciary to the membership if it signs a check without knowing what its purpose is. Require dual signatures for all checks issued by the association and demand a monthly statement of accounts from your financial institutions and/or management company. Also consider using a lockbox so that homeowner payments are transferred directly to the association's bank accounts while reducing the risk of wrongful deposit of these payments elsewhere.

3. Safeguard the association's reserves. As an association builds up reserve funds in its accounts, ensure that these reserves are tied up in longer-term "non-liquid" instruments such as certificates of deposit. This measure will help deter any temptation by a wayward member or manager from converting these assets to cash for personal benefit. Reserves should be under the control of one or more board members (or have access if managed by a third-party) so that no one person can control the purse strings for these funds.

4. Sign up for duplicate monthly bank statements and/or online/email statements. Get more "eyes on the board" viewing these monthly statements and you reduce the chance that any one member tries to procure any monies for personal benefit. Again, nobody is accusing anybody else here, but what you are doing is eliminating the temptation and reducing risk.

5. Reconcile accounts payable with invoices and credit card receipts. This one is self-explanatory. Be sure and review credit card statements and vendor invoices to ensure that outgoing association payments match them. Question any unfamiliar payments and/or vendors (we had one instance where a client found out that a board member was fabricating vendors to make payments to, but magically, these funds ended up in the hands of the board member!) and be vigilant for any "funny accounting." Math is math and incoming demands for payment should match outgoing monies for payment.

Well, that's all for now. Stay tuned for Part 2 of this article which concludes next week as we review items 6-10 of the anti-scammers checklist.

*Special Thanks to Darcy Mehling Good, Esq., "Whodunit?", Common Grounds, July/August 2007 from which excerpts of this article are attributed to.

Enforcing Restrictive Covenants Means Exercising Vigilance

2007-08-21T13:46:00.000-07:00

A recent case handed down by the Texas Court of Appeals confirms what most of you already know: properly enforcing the deed restrictions in your community requires constant vigilance. In that case, Girsh v. St. John, the defendant homeowners successfully won their appeal when the appellate court ruled that the statute of limitations had run out on the deed restriction violation.1 In other words, the complaining neighbor had waited too long to enforce the restrictions, and thus, lost her right to do so. The controversy stemmed from the defendant homeowners placing a mobile home on their property in violation of the subdivision's restrictive covenants. St. John, a fellow homeowner, sued to enforce the restrictive covenants based on her 1998-99 discovery of the mobile home on defendants' property. But since the mobile home had been in place on the property since 1984, nearly 15 YEARS before any legal action was taken in this matter, the ultimate question became one of diligence: was the violation generally discoverable by exercising reasonable diligence?

One would think that, generally, a neighbor would notice if a mobile home was resting on an adjacent property, right? Well, St. John argued that the foliage and overgrowth of bushes and greenery on the Girshes' land obscured the view of the mobile home and prevented discovery of same until the neighboring land was cleared sometime in 1998 or 1999 thereby exposing the mobile home to public view. And this theory seemed to strike a chord with the trial court, which ruled in St. John's favor. But the appeals court thought differently:

we find that, as an owner of property in Tall Timbers, Section Two, St. John "had some obligation to exercise reasonable diligence in protecting [her] interests" (quoting HECI Exploration Company v. Neel, 982 S.W.2d 881 (Tex. 1998)). The record evidence indicates the mobile home was present in the Girshes' back yard openly, and there is no evidence of the use of artificial devices or methods to camouflage or hide it. St. John's request for application of the discovery rule would require us to hold a full-size mobile home's presence on a residential lot in violation of a restrictive covenant, with said lot located in a highly populated subdivision, is a category of injury inherently undiscoverable even with the exercise of reasonable diligence, because of the presence of indigenous flora spontaneously growing nearby. A decision by us favorable to St. John would mean that she had established that the category of reasonably diligent property owners would not discover the existence of a full-size mobile home on a residential lot in the midst of a populated subdivision during the four-year limitations period.2

And so it went. The Girshes won the appeal and St. John, as well as all vigilant homeowners and community associations, was taught a valuable lesson. When you see a violation of the restrictive covenants in your subdivision, take action now rather than later. Sure, all cases won't deal with a 12' x 46' mobile home resting in a neighbor's backyard, but the point is to take notice of the condition of property, open your eyes to deed restriction violations, and solicit input and feedback from your membership (who most often know more about the alleged violations occurring at any given time than the association.)

The statute of limitations for enforcing a deed restriction violation is generally four years, which is generous, compared to other certain causes of action. Don't get caught in the "limitations trap" as detailed in the case above and be proactive in your association's deed restriction enforcement program. Deed restriction enforcement not only protects homeowner value, but it also promotes the community aesthetic while preserving an overall balance between individual homeowner expression and collective neighborhood beautification.

*Special thanks to the Community Associations Institute Law Reporter July 2007 edition for reporting this case in its monthly newsletter.

1 See Girsh v. St. John, 218 S.W.3d 921 (Tex. App. - Beaumont 2007).
2 Girsh, 218 S.W.3d at 935-36.

Another Legislative Year Bites the Dust...

2007-06-15T14:02:00.000-07:00

I wanted to take a few moments to reflect on the recently-departed entity that was the 80th Regular Session of the Texas Legislature. Every two years, Community Association managers, board members, legal counsel and lawmakers, friends and foes alike, gather 'round the "water cooler" (and the various committee podiums) to debate, craft legislation, and vote about issues of power, control, architectural guidelines, fine systems and homeowner foreclosures, to name a few.Thanks to the hard work and efforts of Community Association Institute Lobbyists and grass roots volunteers, there was no major legislation passed again this year that could be considered damaging to the operation of Community Associations in general.

However, one bill that passed muster (and that now awaits signature by the governor) actually echoed the sentiments from one of my earlier articles regarding developer-controlled associations: House Bill (HB) 2402, authored by Representative Vicki Truitt and Senator Kim Brimer, incorporated provisions from HB 3709 authored by Representative Bill Callegari which placed controls on developer governance of a community association after that developer has lost its controlling interest. The text of that bill is printed below and adds Section 209.013 to Chapter 209 of the Texas Property Code. Basically, this bill establishes: (1) once a developer has lost controlling voting rights in the association, then (2) the developer cannot modify the dedicatory instruments thereafter to retain authority or controlling interests, and (3) such documents can only be modified upon the election of new board of directors.

In my practice, I have crossed paths with developers who have tried to do this very thing and enact by-law resolutions and/or deed restriction amendments so that they could extend their power and authority over the association. The situation is inequitable at best, and so, this legislation could be a boost to beleaguered associations who are laboring under developer control long after the developer has "overstayed its welcome."

Chapter 209, Section 209.013(a) reads:

"Sec. 209.013. AUTHORITY OF ASSOCIATION TO AMEND DEDICATORY INSTRUMENT

(a) A dedicatory instrument created by a developer of a residential subdivision or by a property owners' association in which the developer has a majority of the voting rights or that the developer otherwise controls under the terms of the dedicatory instrument may not be amended during the period between the time the developer loses the majority of the voting rights or other form of control of the property owners' association and the time a new board of directors of the association assumes office following the loss of the majority of the voting rights or other form of control."

Governor Perry has until June 17th to sign the bill, veto it, or let the bill become law without his signature.

*Thanks to the folks at CAI and their efforts each and every year to safeguard the rights of community associations across the state and beyond.

Serving Two Masters: Developer-run Associations

2007-05-15T12:53:00.000-07:00

In every Subdivision's infancy, the Developer most often has to take control as the de facto leader of the Board of Directors for the Homeowners Association -- a reality that can create a conflict of interest for the Developer. Developer-appointed Directors are often caught in a dilemma: who do they serve? the Association for which they were appointed, or, the Developer from whom they derived the appointment (with all presumed loyalties attached thereto)? And what about "self dealing?" When are actions taken for the Association really for the betterment of the Association? The Developer-led Association treads a slippery slope when it comes to liability avoidance and justification of its actions.

Here are some areas that a Developer-led Association must be wary of lest it incur liability for not acting in behalf of the Association, and the membership homeowners, who pay dues in expectation that the Board of Directors is serving their community's interests.

1. Contracts and Leases. Directors have a clear duty to act in the best interests of the Association and to only enter into agreements that further those interests. Contracts must be examined for economic and business impact upon the Association, and not towards any perceived detriment to the Developer, even though one might arise from the contract performance. Developer-appointed Directors must exercise good business judgment, disclosure, and control when considering these obligations.

2. Assessments and Budgets. Self-dealing in this arena evokes a failure to adequately determine a budget for the Association and/or assess consistent maintenance charges for both owner-controlled and Developer-controlled lots within the Subdivision.

3. Acceptance of Common Elements. Most communities develop their common areas by close negotiating and project management with their Developers. This relationship usually terminates with a release by the Association upon completion of the common area development/construction objectives. This process contemplates construction and upkeep, not ownership. But in the case of Developer-led Associations, there is a commonality of interest and it may be hard to discern between the acceptable condition of common area elements when the construction and acceptance of same are all controlled or governed by the same entity, the Developer.

4. Maintaining Adequate Records. Commingling of funds and poorly-kept records are scourges in this area of concern. The wise Developer maintains accounts for the development enterprise separate and apart from the Association's funds while maintaining adequate books and records of payables and receivables.

5. Enforcing Developer's Obligations towards the Association. Oftentimes, a Developer may refrain from enforcing architectural controls and regulations against its own lots (or against all lots) in the Subdivision because of the perceived notion that enforcement will inhibit sales of future units. This perception opens the door to liability against the Association for breach of fiduciary duty alleged by the membership. Better that the Developer-led Association enforce the rules and regulations for a community so that development proceeds according to the plan set forth in the dedicatory instruments.

*special thanks to Wayne S. Hyatt, Condominium and Homeowner Association Practice: Community Association Law (3rd Ed., 2006) from which excerpts were taken to create this article.

Don't Be A Nuisance!

2007-03-13T09:42:00.000-07:00

It's midnight and the rhythmic sound of drums and a screeching guitar blare out from some youngster's speakers parked outside your home. That's the third time this week. You bury your head in the pillow and hope that the noise will cease, but you are granted no relief. So you drag your weary bones out of bed and go outside to confront the little noisemaker. But to your surprise, the source of your sleeplessness has finished his serenade and has left the premises. What's a frustrated, tired resident to do? Well, the Association's restrictive covenants provide some measure of relief while state law does the rest.

Loud noises, foul odors and intrusive activities, among other unpleasantries, all fall under the category of nuisance. In the legal context, nuisance is some thing or some activity that substantially interferes with an individual's use and enjoyment of her land(s).

The Association's restrictive covenants provide the basis for most neighborly nuisance disputes. A typical nuisance provision will read like this: "no noxious or offensive activity of any sort shall be permitted nor shall anything be done on any Lot which may be, or may become, an annoyance or nuisance to the neighborhood." The provision is sufficiently broad to encompass all manner of possible activities that could be considered nuisances to the homeowners. Once the nuisance provision is in place, the Association must have a uniform method for enforcing such. This typically includes notice of violations, an administrative hearing, and an appeals process with an opportunity to remedy the conduct by the offensive party or parties.

Sometimes, the Association's nuisance provision won't be the panacea needed to cure the offensive behavior. Luckily, state law provides for criminal and civil penalties and causes of action to arrest this unwanted activity. Criminal nuisance laws only take effect, usually, once the offensive activity has risen to a level of "public nuisance," meaning that the conduct is offensive to such a degree as to warrant the intervention by municipal, county or state authorities. Local government officials are generally empowered to handle these types of violations, issue sanctions and enforce the criminal code for that municipality. City ordinances or county statutes provide explicit direction on the method of enforcement, procedures for notice and hearings, and ultimately, what remedies are available in the form of penalties, sanctions, and/or fines for the offending party or parties.

Civil litigation is typically the last resort when combating nuisances in the subdivision or from nearby properties. If the nuisance is between neighbors, the enforcement through civil remedies is difficult because the process inherently smacks of a "neighborly dispute" which the courts are loathe to address or get involved with. This does not mean that civil suit is a lost cause, but because of the temporary nature of most nuisance complaints (ie. loud music played at night), evidence is hard to gather, unless the offender repeats his conduct on a regular basis and video tapes can capture the activity for use in court proceedings. Otherwise, it becomes a "he said she said" argument in open court without concrete evidence of the violative conduct.

Now, if the nuisance activity originates from nearby properties or outside of the subdivision, then filing a civil suit may be the best, or only, alternative. Since the violation occurs outside the authority of the Association, restrictive covenants cannot protect the embattled homeowner. By filing suit, the homeowner and/or Association can seek civil and criminal sanctions and damages recovery in a court of law using the same statutory rights as prescribed above.

Remember that the nuisance legal standard is one of reasonableness: would a reasonable person find the conduct or activity so annoying such that the use or enjoyment of land(s) is substantially affected? What this means is that ultimately, it will be up to the judge or jury to decide whether the conduct met this standard, which determines whether or not the homeowner or Association is successful in its nuisance claim.

*special thanks to David J. Marmins, Melanie D. Becknell, "How Annoying?", Common Grounds, vol. XXXIII, no. 2, March/April 2007 from which this article was based upon.

Beware the D&O Policy Exclusion!

2007-03-05T11:45:00.000-08:00

Well folks, it's been awhile since I last posted and I wish I could say that it was owing to a fabulous winter vacation or some other recreational hiatus; the truth of the matter is that business has never been busier, which means that now I have an abundance of new issues and tips to bring to you, the interested public, regarding community and homeowner associations.

My latest article is inspired from a tale of one of my own clients, who suffered from a setback in Directors and Officers insurance coverage (the "D&O policy") based on some of the policy exclusions included in the insurance contract. Those exclusions, plus an excellent presentation at the CAI national legal seminar recently held in New Orleans, Louisiana got me to thinking that I need to draft an all-points-bulletin warning for those associations that might be struggling with their D&O policy coverage (or lack thereof).

In addition to the numerous policy provisions that potentially can defeat coverage, the D&O policy includes its own set of policy exclusions. Each insurance contract must be reviewed for its own specific policy exclusions, but the list below identifies the most common exclusions that the Association board needs to be leery of:

(1) Dishonest or Criminal Acts
(2) Bodily Injury and Property Damage*
(3) Pollution Claims
(4) Breach of Contract claims
(5) Personal Profit Claims

However, there are some less-restrictive D&O policies that include defenses for:

(1) Discrimination claims
(2) Suits involving insured vs. insured
(3) Removal or failure to procure and maintain adequate insurance (except for flood and earthquake and non-monetary damage claims)
(4) Defense for Employment Practices
(5) Personal Injury claims including claims for mental anguish

When examining the above-cited exclusions individually, the Property Damage exclusion presents the biggest headache for Associations because it creates a "gap" in coverage for boards of directors in their insurance protection umbrella. The Property Damage exclusion typically includes: (1) bodily injury, (2) sickness, (3) disease or death of any person, or (4) damage to or destruction of any tangible property including loss of use thereof.

When claims include the allegation of property damage, the D&O carrier denies coverage per its express exclusion. The trouble arises when, however, the Commercial General Liability carrier (the "CGL") also denies coverage because an "occurrence" has not been met, as defined by the policy. This is a tricky "dual-burden" to meet because not all acts of the directors and/or officers will meet the CGL's policy requirement for occurrences, even though by their conduct the property damage was a likely consequence.

A possible solution to this "gap" in coverage: draft the property damage exclusion to extend coverage for claims of property damage when "loss of use of tangible property that is not physically injured" is alleged. This coverage would fall outside of the reach of either D&O and CGL insurance contracts maintained by the association.

+a special thanks goes out to John Manougian, John Manougian Insurance Agency, Inc., Silver Spring, MD 20910, who authored "Directors and Officers Liability Insurance: A Minefield of Coverage Exclusions and Uncertainty" at the 2007 Community Association Law Seminar, New Orleans, LA, February 23-24, 2007 from which portions of this article were excerpted from.

PART TWO: How to Spot and Fix 15 Contractor Overbilling Errors

2006-11-17T10:31:00.000-08:00

Ok, so we've recovered from the first seven contractor overbilling errors as outlined last week, now as promised, I am filling out the list and telling you about errors # 8 through 15.

(8) Use of non-essential personnel. As a rule of thumb, you shouldn't have to pay for your contractor's on-the-job training of new hires, or for personnel that didn't directly affect your community's services or projects. Be sure and examine your contractor invoices for excessive labor charges and inquire as to who exactly was working, on what, and when. If trainees were used on a project, demand that a reduced rate be charged for their time since by default the trainees would not possess the same skills as that of a seasoned professional.

(9) "Rounding Up" the Hours. Be sure that invoices follow the correct procedure as detailed in the contract for billing hourly time, whether it be in hourly, quarter-hour, or other increments. Contractors may sometimes "round up" the time spent on a project both accidentally and purposefully. If your contract doesn't specify incremental billing, it would be a good idea to institute that change upon the next extension or modification of same.

(10) Overbilled Travel Time. Like for personnel, avoid rounding up of travel time, or excessive travel charges. Ask the contractor for schedules to show trip routes and/or mileage to prove or disprove any excessiveness on travel billables.

(11) "Past Due" Amounts already paid and/or non-existent. Make sure that any invoice alleging past due amounts is reviewed for accuracy. Sometimes, payments can get delayed in the mail, or the contractor's accounting system generated the bill before applying payment, etc, which might indicate a past-due when the condition doesn't really exist.

(12) Double-billing for back ordered items or work not yet performed. Some contractors as a strictly housekeeping issue and for accounting purposes, will enter charges in their system to bill you for parts that are backordered or for labor that is scheduled but not yet performed. Then, when the parts arrive, or the work is performed, the contractor makes another entry, whether by accident or otherwise. This double-billing can be costly if the contractor is not aware of its own internal accounting procedural mistake. Review invoices for any incidence of this billing error and discuss with your contractor.

(13) Late fees or penalties not in the contract. This is simple. Don't let your contractor bill you for items not enunciated or detailed in the services contract.

(14) Improper tax calculations. Some contractors may charge sales tax for items that are either non-taxable, or tax-exempt depending on the taxing regulations for your state or municipality. If you suspect that you are paying sales tax incorrectly, have your accountant or an auditor verify that the sales taxes assessed are proper.

and finally...

(15) Used vs. New parts. Be careful if a contractor is billing you for new parts but installing refurbished ones. This can become a big profit center for contractors by saving money on the purchase then marking up for "new" to their clients. Check invoicing for product identifiers and descriptions to ensure that the parts installed can be verified in the field.

*Thanks to the Insider's Guide to Managing Community Associations for excerpts used in creating this article.

How to Spot and Fix 15 Contractor Overbilling Errors

2006-11-06T07:41:00.000-08:00

No matter how hard we try to avoid them, accidents can and often DO happen. Just ask the stork. Or the auto-insurance adjuster. Or the IRS auditor. A community association is just as susceptible to these unwanted occurrences as any other person or organization. More importantly, since Associations tend to spend a considerable portion of their budgets on third-party contractor services, then it might be more likely that an erroneous or accidental overbilling occurs by these vendors. By examining and correcting invoicing errors by contractors, the Association can realize a monetary savings and prevent future errors from happening by keeping contractors on alert for similar circumstances.

The following list compiles PART ONE of 15 common invoicing errors and strategies for disputing, rectifying, or avoiding them altogether. [The remaining list will be distributed next week]:

(1) Invoice lacks description, or contains a vague work description. If you cannot determine exactly what was performed, then you cannot review whether or not the billing for these services was accurate. Instead, ask the contractor to re-submit a detailed invoice so that you can compare work order line items to billables. Beware of "miscellaneous" line item descriptors -- red flags for cost inflation and/or hidden charges -- and question these fees with your contractor directly.

(2) Work not authorized. Sometimes work will be performed without authorization or by a simple misunderstanding. Verify who gave authorization, if any, and correct any internal deficiencies in the chain-of-command for un-authorized work orders originating from the Association's staff or management company. If the contractor performed without authorization or under a mistaken assumption, then the Association will have to dispute that charge. The best way to proceed is for Associations to include a provision in their contracts stating that only authorized work will be compensated.

(3) Services not provided. Be careful for services billed, but not rendered. Be sure and question the contractor about any services that you feel may not have been completed or even attempted. You may not always win this argument if you cannot remember if the work was performed, or if there is no record of the work being done, but at least you put the contractor on notice that you are inspecting invoices closely for errors.

(4) Unnecessary work. Some working relationships allow for the contractor to make a determination of when and how work is to be performed on certain maintenance contracts. A better practice would be to include a clause in your contracts stipulating that written permission must be obtained prior to any cost-incurrence by the contractor so the Association can avoid paying for unnecessary work.

(5) Hours worked and/or number of workers not specified. Beware of padding on hours worked or number of laborers assigned to a project. The Association can keep an informal journal of hours worked and workers assigned and compare this with invoices to get a rough estimate on whether the billables are correct.

(6) Labor rate incorrect. Sometimes the invoice labor rate will be higher than quoted or negotiated. Be sure and dispute this rate with the contractor and justify your argument by citing the relevant provision in the services contract or bid proposal. Contracts should always specify the labor rate for services to be performed.

(7) Subcontractors billed, but not used. If the Association suspects that subcontracting work was billed but not performed, then question the contractor; get names and contact info for these sub-vendors and contact them directly to verify actual work performed, if any.

Stay tuned for next week's conclusion to this article and the remaining 8 overbilling errors that Associations should be aware of.

*Thanks to the Insider's Guide to Managing Community Associations for excerpts used in creating this article.

Painting the Town (Community Common Areas) Red

2006-09-25T10:55:00.000-07:00

Here are four simple tips to heed when it comes time to paint the common areas in your Community:

(1) Don't let the contractor supply the paint. The Association is much better off supplying the paint for a variety of reasons -- (i) no delays while waiting for paint to arrive on the jobsite; (ii) better control over where and how the paint is applied (and whether all the paint earmarked for your community gets USED in your community - not always a given); (iii) ensure paint quality.

(2) Don't agree to a "time and materials" approach to bidding the paint project. With a "time and materials" approach, costs can go spiraling out of control, leaving the Association with a bloated paint bill and a hole in its pocketbook. The bill will always be higher if you allow the contractor to charge for all hours spent on the job as well as every item procured. This method also fails to account for hidden costs and other potentially costly variables such as weather conditions or pre-paint preparation. Try securing a contractor via a fixed-price bid instead and avoid the money pit. A fixed-price bid also eliminates the need for heavy-handed monitoring of the contractor to ensure that the job is finished in a timely manner. With a fixed-price bid, the contractor is incentivized to finish in the shortest amount of time to maximize profit.

(3) Don't bite off more than you can chew (don't paint too much at one time.) If the Association plans on painting several buildings in the Community, try limiting active painting to three buildings or less at any one time. Expanding the scope of the job may cause lapses between the time a building is cleaned/prepped for painting and the actual paint job (this could lead to a less effective paint job if the buildings get dirty again.) Also, limiting the scope of the project minimizes resident inconvenience and reduces the incidence of complaints from members.

(4) Don't forget about waste disposal. Make sure that the Association and contractor agree upon who will be responsible for the cleanup and removal of waste generated throughout the painting project. Make sure that the contractor is well versed in the location of the Community's dumpsters and/or local laws regarding disposal that could get the Association in legal hot water if compliance is not observed.

*thanks to the Insider's Guide to Managing Community Associations for excerpts used in the compilation of this article

Crime-proofing Your Community's Landscaping

2006-09-21T13:24:00.000-07:00

Crime-proofing your Community's landscaping doesn't have to mean expensive overhauls to existing foliage or the uprooting of trees and hedges; rather, crime-proofing simply means that you take steps to eliminate those hiding places that criminal elements may use to their benefit when attempting to commit a crime within your community.

Why crime-proof at all? (1) Fewer crimes. By trimming trees and shrubs and flattening berms (mounds of earth) you can minimize areas that criminals could hide behind and also increase visibility from the street. (2) Reduced liability for the Association. The victim of a crime in your community may sue the Association for negligence if he or she believes that you didn't take reasonable precautions to mitigate the crime. "Safe" landscaping discourages criminal activity and can go a long way towards convincing a judge that the Association was reasonable in its efforts to prevent the crime. (3) Better Perception of Community Safety. A safe community is a coveted one. That is, residents want to feel that they live in an area that is free from criminal intrusions as do potential buyers seeking the same level of comfort.

Crime-proofing tips:
(1) Thorny-shrub barriers. They have barbs. They are sharp. And they hurt. Plant this type of shrubbery at barriers/perimeters of your common area parking lots and between your community and adjacent properties. A criminal is less likely to use this shrub as cover or to attempt to navigate through this shrub to get to an intended victim.

(2) Trim shrub height and width. Unkept shrubs in common areas (with the exception of the thorny shrubs above) provide an impediment to residents' line-of-sight and inhibit their ability to spot potential attackers. Eliminate any outcropping of shrubs/trees that would impair residents' vision such that a criminal could use this impairment to his advantage against an unsuspecting resident.

If purchasing new or replacement shrubs, try and select those that won't grow very tall or dense. As a practical matter, the shrubs should be "thinned" such that an observer can see through the foliage to what lies behind the plant.

(3) Don't forget the trees. Tree canopies with low-hanging branches can provide just as much obstruction for an enterprising criminal to get the jump on his intended victim. Trim any branches that impair line-of-sight or that could be used as camouflage for would-be assailants. Also, trim back taller branches that obscure common area lighting as this impairs residents' ability to see at night.

Most if not all of these suggestions can be implemented with little to no additional expense outside of the Community's normal landscaping budget. But with careful planning and analysis of potential hazards relating to unsafe landscaping, this potential Pandora's box of liability can be "nipped in the bud."

*Special thanks to the Insider's Guide to Managing Community Associations for excerpts used in this article.

Lifeguard Liability 101

2006-08-21T12:16:00.000-07:00

If your Community Association does not use a third-party Pool Management company but instead hires its own lifeguards, be careful for liability pitfalls that can put your summer swim season (and the community's legal status) in financial jeopardy.

When hiring lifeguards, the Association needs to ensure that it hires only those qualified individuals that possess a certain minimum level of skills and certifications necessary to provide competent supervision at the Association's pool facilities.

First and foremost, the owner of the pool facility (the Association in this case) is liable to those residents and/or guests that are injured if the lifeguard's lack of training was one of the factors leading to the injury or if proper training could have mitigated the extent of the injury.

Next, check state and local laws for minimum standards and qualifications that a lifeguard must possess. Most regulations establish baseline certifications in areas such as lifeguarding, first aid, and CPR. Get PROOF of the certifications that a lifeguard holds and make sure those certifications are CURRENT. For instance, lifeguarding skills may include: strong swimming aptitude, ability to prevent, detect, and respond to pool emergencies, perform equipment-based rescues, etc. Also look for recognized leaders in lifeguard training, like the American Red Cross, on your lifeguard's pedigree. An American Red Cross certification lasts for three years. In contrast, CPR certifications only last for one year and must be renewed annually (because CPR skills can get stale if not used ).

The Association can also look for additional beneficial skills possessed by its lifeguard candidates -- a move that can demonstrate that the Association has performed its due diligence regarding hiring practices for such a critical safety-based position. Two of these additional skillsets/certifications are Water safety instructor and Pool operator. Water safety instructors are qualified to give swimming lessons and swimming tests to Association members. Testing is important because it identifies weak swimmers who can then be monitored to prevent possible injury or worse. Pool operators are trained to monitor and test the pool's chemistry, thus making the lifeguard a first responder to deal promptly with water problems. Most Associations use a third-party company to treat the water on a routine basis, but having a lifeguard trained in this certification can still mitigate issues with water clarity before they become a full-scale disaster. Associations can be sued if people get sick or even drown because of cloudy or contaminated pool water.

Finally, be sure and verify the lifeguard candidate's work experience and qualifications. Try and seek those candidates who have had several years of experience under their belts, and contact previous employers to get feedback on prior performance.

*Thanks to the Insider's Complete Guide To Managing Community Associations for excerpts used in making this article.

Don't Serve a "Liability Cocktail" at Your Next Association Social Activity

2006-08-02T12:54:00.000-07:00

Pool parties, cookouts, and holiday gatherings are all a part of the summer landscape for most community associations. These events often bring the membership together and serve a beneficial purpose: to foster and reinforce the power of community. However, if alcohol is served at any of these community functions, it can be a recipe for liability if proper precautions aren't taken first.

One guess who's getting sued if a member, guest or Association employee drinks too much and gets into an accident. Time's up.

The simplest way to avoid liability for alcohol-related accidents is to avoid serving alcohol at any social events the Association sponsors. But, if you do decide to serve alcohol, at the Community's annual poker night for instance, you can minimize the Association's possible exposure to liability.

(1) Keep covered! Make sure that the Association's general liability insurance policy has a clause granting a "limited liquor liability" or "host liquor liability" coverage. This type of coverage protects the Association if folks are involved in accidents after consuming liquor served by the Association. Better yet, if the Association knows when an alcohol-related event will occur, it can plan for such by insuring the singular event, versus paying a much larger premium for annual coverage.

(2) The Association is not a BAR, so don't charge like one. If the Association charges for the alcohol it serves, or charges a cover/entrance fee for the event, then it can multiply liability and defeat the "limited liquor liability" coverage cited above. The Association may be liable for (i) causation or contribution to the intoxication of any person, (ii) furnishing alcohol to minors, (iii) furnishing alcohol to an intoxicated person, or (iv) violation of state and local ordinances regarding the serving of alcohol. The "limited liquor liability" coverage wasn't designed to protect entities that are in the business of "selling, serving, or providing" alcohol. By abstaining from charging either per drink or per entrance fee, the Association can assert that it was not in the "business" of "selling, serving, or providing" alcohol to its members and their guests.

(3) Let the Pros take care of the bartending. Subcontracting the delivery and serving of alcohol at Association events can be an attractive alternative to any of the scenarios listed above. The vendor is more likely better-trained to spot minors and people that have consumed too much. Plus, the vendor's liquor liability insurance will protect itself and possibly the Association too, if you insist that the vendor list the Association as an "additional insured" on the policy.

*thanks to the Vendome Group, LLC, for excerpts from the Insider's Guide to Managing Community Associations

Group Re-Lamping: A "Lights Out" Way for Your Association to Save on Maintenance Costs

2006-07-14T11:55:00.000-07:00

Group Re-Lamping refers to the practice of replacing all the bulbs or "lamps" in the Community's common areas on a scheduled basis. Since most light bulbs have a reasonably accurate life expectancy, it should be fairly easy for the Association's Maintenance Superintendent to create a replacement schedule based on this benchmark. Bulb manufacturers can be consulted regarding their products to determine what the life cycle of each bulb should be.

So how does the Association save money by implementing this program? Changing bulbs costs money. And time. And labor. Most Associations replace bulbs as they burn out on an as-needed basis. However, this approach is inherently wasteful and inefficient because it requires the issuance and administration of more work orders and interruptions in labor scheduling. Instead, try leveraging the cost of replacement over several bulb fixtures and amortize that cost across all installations for the community. The Association will save money by purchasing the bulbs in bulk as they are needed for the specific area scheduled for replacement, and labor will be more efficiently managed because of the planned outages. As a beneficial side-effect, the property will enjoy better overall lighting which promotes a safer environment for its residents.

*special thanks to the Vendome Group, LLC, Insider's Guide to Managing Community Associations.

Is Your Association Wilting from High Utility Bills? then AUDIT them!

2006-06-23T14:36:00.000-07:00

It's mid-June in Houston and the thermometers here already have heatstroke (just wait until August!) But enough waxing poetic about our weather woes here in the Bayou City, what I wanted to shed some light on during these overheated times is this: a Community Association needs to be wary of overcharging on their utility bills especially during times of high usage (like the summer months).

Utility companies routinely overcharge their clients, whether by accident, oversight, or policy. Utility bills and ratings can be complex. These bills are composed of meter readings, rate charges, usage adjustments, and other variable and hidden factors unknown to the client. Errors can be hard to detect on a utility bill, and thus, the opportunity for a Community Association (or any client) to recoup any of these charges diminishes over time. Sometimes there may not be anything wrong with the charges per se, but you're just paying a higher rate (even if you're qualified to pay at a lower one!)

So how can a Community Association locate and eliminate these utility billing errors? Hire a Utility Auditor ("Auditor") (or see if your Property Management Firm can perform audits as well.) Auditors can dissect your utility bills down to their base elements and review each item for correctness. Then the Auditor can "reconstruct" the bill and determine if the client is paying too much based on component-level billing, versus the all-in-one pricing that most of us see on the "amount owed" line each month.

But is there a downside to using an Auditor? Yes and No. You will have to PAY for this service in most cases. The standard fee for a utility auditor can approach or exceed 50% of prior overcharges collected on behalf of the client. Seems kind of steep right? Not really. Any monies recovered on the strength of that utility audit are a bonus of sorts for the client since the client didn't know that it was overpaying in the first place. Plus, the audit bestows future benefit upon the client because now all subsequent bills will issue at the correct rate, thus resulting in continued savings for the Community Association.

*thanks to Insider's Guide to Managing Community Associations for excerpts relating to this article

Here Comes the Sun... Remember Sports Court Rules to Avoid Summer (legal) Heat

2006-05-22T13:26:00.000-07:00

Summer is fast approaching, so I thought it pertinent to discuss some rules regarding sports court usage and management.

Most Communities have a common area with some type of sports court -- whether it be for tennis, basketball, volleyball, or something else -- that prove to be a source of value and recreation for its membership. However, these amenities can also lead to problems if ground rules aren't established governing their usage. For instance, members may argue about length of time spent on the court, sharing of privileges with others, or even possible injury by debris or trash left by departing players.

Smart Associations can avoid these potential pitfalls by establishing and publishing a set of sports court rules for the membership to abide by. Post these rules on a sign at the courts and periodically distribute them via the community newsletter.

These sports court rules should accomplish the following:
(1) Require Adult Supervision. You can't ban kids from using the facilities, but you can mandate parental/adult supervision. A good cutoff age for requiring this supervision is 14 (any older and you may have to justify your limit with sound reasoning.) Safety & liability are the focus with this rule.

(2) Members (or their guests) Only! You don't want people unassociated with your Community crowding your sports courts or harassing your members. Nor do you want a guest using the court unless the member or resident is in attendance also. You may also want to look at "usage limits" so that one member or group can't commandeer the court for an entire day at the exclusion of others.

(3) Dress Code Enforced. Members should wear proper athletic attire when using the sports court. This includes a shirt and shoes (the last one more for safety than decorum reasons.) [and besides, no one wants to see that tattoo of Mom displayed on your shoulder in all of its faded glory]

(4) Hours of Operation. Nobody wants to hear you scream in frustration at the crack of dawn as your fifth consecutive forehand slice bounces meekly into the net. OR the thunderous cheers of the crowd (all three of 'em) when you finally hit that improbable three-pointer from the sideline at midnight. This rule is more for neighborly courtesy than anything else.

(5) Set Usage Time Limits. Tailor this rule to fit the sport. For example, volleyball players can be rotated in if they are waiting on the sidelines; tennis matches can be held to 1 hour each; for basketball, you could try a "winner stays" system whereby the winning team gets the privilege of staying on the court to be challenged by the next team up, and so on.

(6) Ban Food & Drinks ON the Courts. Abandoned food can lead to a rodent problem, and empty food and beverage containers can create an injury hazard for other players. Life-sustaining drinks like water or sports drinks can be kept on the sideline & consumed during play as a measure against dehydration.

(7) Misconduct will Not be Tolerated. Some communities include bans on profane language, shouting, roughhousing, shoving, and fighting on their courts.

(8) Ban Skates, Skateboards, Bikes, and Trikes. Wheels from these vehicles/devices can damage the surface of the court, not to mention, that collision is likely if several skate-clad members are recreating on the court, or members are having to dodge their orbits around the court as they play.

(9) No Pets on the Court. They can stay on the sidelines and watch like everybody else. Pets can be a hazard and/or distraction to others using the court, and could even pose a bite hazard to other members in such a public setting.

(10) Play At Your Own Risk. Members assume the liability for their actions and usage of the sports court. It should be communicated clearly that the Association nor its management company will be responsible for injuries suffered by members during usage of the sports court.

(11) Reserve the Right to Suspend the Usage Privilege. The sport court should be operated as a privilege, and not a right; thus, violators of the sport court's rules will be subject to suspension or even banishment for the summer season if conduct warrants it.

*special thanks to Vendome Group, Insider's Guide to Managing Community Associations

How Can the Association Force You To Comply With Your Community's Rules?

2006-04-13T12:40:00.000-07:00

It's simple. You GAVE the Association that right when you signed the contract for deed on your humble abode. Under Texas statutory law, as well as the Declarations on file for a community, Homeowner Associations typically have the right to restrict use of lands that fall under their scrutiny and assess penalties and other curative measures to ensure that deed restrictions are enforced. So what is the procedure for enforcing deed restriction violations in the community, you ask? Follow me.

(1) Notice, Notice, Notice! Whether the Association is self-managed or operates under the guidance of a property management company (PM), alleged deed restriction violators must: (a) receive notice that there is a violation on their lot, and (b) be allowed the opportunity to cure the alleged violation in a reasonable time. It's called Due Process and nobody, not even criminals, are spared this luxury. It's one of the fringe benefits of being American.

The Association or PM must send notice (or multiple notices) to the violator that action must be taken to remedy the situation. The violator can respond in kind and request a hearing to dispute the violation, or s/he can give notice that the violation has been cured. This process can sometimes involve numerous iterations of notice and response, with each instance requiring a minimum number of days (usually 10 days from date of notice) for a proper reply. In accordance with Texas law though, the violator typically has up to 30 days within which to request a hearing to dispute and/or resolve the alleged violation. Yes, it's a time-consuming process, but it's meant to protect the rights of property owners - a fundamental right and principal motivation for landowners since before Texas was a republic.

(2) Notices Don't scare Me, Bring On the Lawyers. As the caption opines, some folks are simply too darn stubborn for their own good. Or maybe they have a really good reason that the Maytag is in the front yard and the weeds are taller than Yao Ming in platform shoes. For these obstinate types, the Association or PM has to involve the services of your friendly neighborhood attorney. The attorney will then send a deed restriction violation letter to the offending party with a time-specific window within which to respond. The violator will then either (a) cure the violation and report such, (b) dispute the violation, or (c) ignore it (my favorite.)

This letter is followed up with an inquiry to the Association/PM to determine if the violation has been cured, or to report that the homeowner is disputing the claim. No more violation, no more attorney intervention. If the violation continues, the attorney will send a final deed restriction demand letter, including a notice that further inaction will result in the filing of a lawsuit and temporary injunction against the homeowner. Again, the violator has the option of ending the fun by curing the violation and "calling off hounds", so to speak. The homeowner always controls his level of discomfort in this process.

(3) Congratulations, You've Just Won a Brand New LAWSUIT. For those violators who choose to ignore/avoid fixing the violation, they get to experience that great American past-time known as the lawsuit. The attorney prepares a petition, gathers affidavits of fact from the Association or PM, then files suit at the local courthouse. At the Association's request, the attorney will then prepare a statement of legal fees to be forwarded to the homeowner for collections. Hint: mow your yard before things escalate to this stage, because it's much cheaper to keep your mower in fine cutting shape than paying for the lawyer's bills.

Note: for special situations, like when the neighbor is building that 500-ft spire dedicated to the moon god Luna, and time is of the essence, the attorney can send a cease-and-desist letter coupled with an immediate filing with the court seeking an injunctive-type remedy.

As you can see, the entire deed restriction enforcement process can be cumbersome and long (except for "repeat offenders" who don't enjoy the same notice privileges that other would - see Chapter 209.007 below) -- however, it ensures that no one is unfairly prosecuted for a violation that is alleged in error and/or that the violator is given adequate time to remedy the condition.

Relevant Code Sections from Chapter 209, Texas Property Code:

§ 209.006. Notice Required Before Enforcement Action
(a) Before a property owners' association may suspend an owner's right to use a common area, file a suit against an owner other than a suit to collect a regular or special assessment or foreclose under an association's lien, charge an owner for property damage, or levy a fine for a violation of the restrictions or bylaws or rules of the association, the association or its agent must give written notice to the owner by certified mail, return receipt requested.

(b) The notice must:
(1) describe the violation or property damage that is the basis for the suspension action, charge, or fine and state any amount due the association from the owner; and

(2) inform the owner that the owner:
(A) is entitled to a reasonable period to cure the violation and avoid the fine or suspension unless the owner was given notice and a reasonable opportunity to cure a similar violation within the preceding six months; and
(B) may request a hearing under Section 209.007 on or before the 30th day after the date the owner receives the notice.

§ 209.007. Hearing Before Board; Alternative Dispute Resolution

(a) If the owner is entitled to an opportunity to cure the violation, the owner has the right to submit a written request for a hearing to discuss and verify facts and resolve the matter in issue before a committee appointed by the board of the property owners' association or before the board if the board does not appoint a committee.

(b) If a hearing is to be held before a committee, the notice prescribed by Section 209.006 must state that the owner has the right to appeal the committee's decision to the board by written notice to the board.

(c) The association shall hold a hearing under this section not later than the 30th day after the date the board receives the owner's request for a hearing and shall notify the owner of the date, time, and place of the hearing not later than the 10th day before the date of the hearing. The board or the owner may request a postponement, and, if requested, a postponement shall be granted for a period of not more than 10 days. Additional postponements may be granted by agreement of the parties. The owner or the association may make an audio recording of the meeting.

(d) The notice and hearing provisions of Section 209.006 and this section do not apply if the association files a suit seeking a temporary restraining order or temporary injunctive relief or files a suit that includes foreclosure as a cause of action. If a suit is filed relating to a matter to which those sections apply, a party to the suit may file a motion to compel mediation. The notice and hearing provisions of Section 209.006 and this section do not apply to a temporary suspension of a person's right to use common areas if the temporary suspension is the result of a violation that occurred in a common area and involved a significant and immediate risk of harm to others in the subdivision. The temporary suspension is effective until the board makes a final determination on the suspension action after following the procedures prescribed by this section.

(e) An owner or property owners' association may use alternative dispute resolution services.

To Warn or Not To Warn...

2006-03-20T14:01:00.000-08:00

That is the question that should be haunting board members as more publicity is aimed at the identity and locale of registered sex offenders that may reside in your own community.

Does an Association have the duty to notify its residents that a sex offender lives among them? Current caselaw says no, but, this fact doesn't completely render the Association immune from liability. There are still claims of negligence which can be levied against the Association for criminal acts causing injury to third-parties which were foreseeable. Given this tricky predicament, what should the Association do to minimize its exposure to tort claims by injured parties (not only the potential victims of sex offenders but the sex offenders themselves), while maintaining residents' rights and safeguarding the community (as much as is required by the Board's fiduciary duties)?

If the Association decides to disseminate information to its residents about sex offenders, it risks increasing the scope of liability because of its actions. To wit: (1) once the information is distributed, the Association may be assuming that duty ad infinitum, particularly if residents come to expect this info or rely on it in some fashion; (2) the Association must be responsible and reasonable in its distribution of this information, meaning that sex offender registries must be checked early and often, while avoiding any omissions or reporting errors inherit in the delivery of 3rd-party/2nd-hand data; (3) robust disclaimers must be attached to these information bulletins lest the Association assume even more liability than it already has bargained for; (4) this information could constitute a violation of state privacy laws, as well as invite civil charges of defamation, harassment, civil rights infractions against the Association; and (5) fearful residents could be spurred to vigilantism and self-help against the sex offenders who are 'outed', bringing more civil and possible criminal sanctions against the actors and the Association. Perhaps the Association's best course of action is to thoroughly inform its residents how they can obtain sex offender registry information themselves.

However, if an Association chooses to inform the membership that a sex offender lives within the community, it must be careful regarding the manner and detail that such announcements are administered under. For example, a letter sent to residents should not identify the sex offender directly, but should instruct the reader to learn more by visiting the appropriate resource (local enforcement office, website, etc).

Now, if a sexual assault or some other related crime occurs within the neighborhood, the Association will have a duty to warn the residents that a sex offender lives among them because a future attack may seem reasonably foreseeable -- a legal predicate that could assign liability to the Association for failing to mitigate known recurring criminal activity against its residents.

*Special thanks to Robert M.Meisner, Esq., "Dangerous Residents and Other Security Issues: Protecting Members While Preserving Rights", 27th Annual CAI Law Seminar, January 27, 2006.

A 'March Madness' of a Different Kind

2006-03-13T07:49:00.000-08:00

Ok, so I'm not talking about the upcoming basketball tournament, but rather, a "madness" (tongue-firmly-in-cheek) of a different sort -- that time honored tradition of volunteering for your homeowners association. Why do I mention this now? Well, since many Associations will be holding their annual meetings in the coming months, we need to be reminded why people volunteer in the first place, and to use those motivations to the Community's advantage so that participation levels in much-needed neighborhood projects maintain sustainable levels. Spend a few moments at your Association's meeting to remind the membership why their efforts are vital to the success of the organization as a whole.

The following are just some of the reasons that people volunteer:

(1) Discontent. People tend to get upset when they encounter something that jostles their status quo. Or from a perceived injustice or malady that can be corrected by participation on the Board or in other committee work.

(2) Self-Interest. Volunteering is mostly altruistic, but not an altogether selfless act. Everyone has intrinsic motivations that power their resolve. These motivations can be a desire to protect property values (their own) or maintain a quality of life within the community.

(3) Social Benefits. As crazy as it sounds, some people actually enjoy interacting with others. Volunteering is a great way to meet neighbors, make friends, and exchange ideas. Besides, isolation and loneliness are highly overrated.

(4) Idealism. Or "Ye Ol' Social Conscience." Yes, it still exists because these folks are committed to social improvement and community duty. What better way to satisfy the need to contribute than by volunteering for the benefit of your fellow residents?

(5) Pay It Forward. One good turn deserves another and all of us have benefited from the kind acts of others at some point in our lives. Some people volunteer to "repay" that debt to society.

(6) Education, Personal Expression, Recognition. Some people might volunteer because they want to learn how an activity is performed, or to fulfill a desire for creative expression through community beautification, or just to receive plain-old validation and an "attaboy" for a job well done.

While the aforementioned motivators represent the more common reasons that people might seek volunteer opportunities, this list is by no means exclusive. Communicate with your fellow homeowners (at the next annual meeting or event, as soon as possible really) and seek to discover the hidden motivations of your homeowners and reap the rewards of their volunteering efforts.

*thanks to the Community Associations Institute, Editor Debra Lewin, "Volunteers: How Community Associations Thrive" for excerpts used in the body of this article