Is cutting professional management services to save money for our association a good idea?

By August 19, 2012Articles, News

Q. Our board is starting to review next year’s budget and the issue of management is being debated. The board would like to cut the costs and fees associated with professional management and are considering a part-time on-site manager or even self-management. Do you see any legal issues involved with this decision?T.R.

A. This is more of a business decision, and not legal, but there a few things to consider. We are in favor of hiring a professional management company because most associations significantly benefit from the services, technology and infrastructure these companies can provide. The right management company will provide the board members with the resources, vendors and information they need to make the best decisions for its members. However, the hiring of a professional management firm is not legally required and may not be the best fit for some associations. Many associations are self-managed, which can mean several things. Many associations, including homeowners associations and condominiums, hire a full-time licensed manager and other staff members who are association employees. Your association is the sole focus of these employees, which can be a great thing if this overhead is in the budget. Other self-managed associations are literally managed by the board members themselves. This is the least preferred alternative and often results in greater personal exposure for the board members. Managing a community association is a full-time job and should be done by a licensed professional if at all possible. You will need certain expertise that a licensed manager can provide. Before the board considers taking on this responsibility without a professional manager, the board should consider making sacrifices in other portions of the budget and make a good-faith effort to raise funds to hire a qualified manager.

Q. Our homeowners association foreclosed on a home and has been renting the home. The home still remains subject to a large first mortgage and the former owner recently asked for a payoff in connection with a short sale. We told the owner that he no longer has title and that we were not sure he could still sell the home. Are we correct? Is this something we should consider? – N.P.

A. You are technically correct, but a short sale is still possible with cooperation between the former owner, association and lender and should be considered. Since the association now has legal title to the unit, the owner cannot complete a short sale without the association’s involvement. The association can use this as an opportunity to recover all or a significant portion of the past due balance owed on the unit, which was the association’s goal from the start. You also mentioned that your association has been renting the home, which is another hot topic in the community association world. On a daily basis, we answer questions on the risks associated with renting and the proper treatment of rental income. Our firm is partnering with a certified public accountant firm to provide a series of seminars addressing this important topic. More information on dates and locations will appear in a future column.

Q. Our condo complex was built with iron gates at the entrance and also a lift arm gate. The iron gates installed by the developer are in disrepair and they are expensive to fix. Due to delinquencies, our board has not been able to budget funds to repair the gates but the lift arm is still functioning and vehicles still need to have a transponder to open the lift arm. Recently we have had some late night incidents and some residents are demanding that the association fix the iron gates. However, our board has no data or other reason to believe that the security breaches are directly related to the lift arm being inadequate. Do you think that our board is obligated to spend the funds necessary to fix the gates? – A.M.

A. Your board is probably not obligated to repair the gates if it lacks the funds, but this decision requires further investigation before a final decision is made. First, your association’s legal counsel should review the condominium documents and other development agreements to confirm that the maintenance of the original iron gates is not required. If the board decides to effectively replace the iron gates with a lift arm gate, that could be considered a material alteration to the common elements that requires a membership vote. However, if the board intends to repair the gate in the future, the decision whether to pass a special assessment and spend the money now falls within the board’s business judgment. The duty of the board is to make decisions in the best interest of the association members. If the board lacks video footage, police reports or other security records indicating that the gates are necessary and would have prevented these incidents, the board members need to weigh any negative impacts of a special assessment against the possible risks of not maintaining the gates and make the best decision possible. The board should certainly seek the advice of its legal counsel and professional manager before making this decision.

Q. An owner in our condominium now owns two units. Her original unit is under water on the mortgage and she has told neighbors that she is going to let it go back to the bank. She inherited the new unit, which has equity. She is going to move into the new unit and pay maintenance fees on it. We believe she will stop paying maintenance fees on the original unit when it goes into foreclosure. Can we lien the new unit? If not, are there any ways to prevent her strategy? – S.G.

A. We cannot fully answer your question without reviewing your condominium documents, but our guess is that your documents probably do not allow the association to place a lien on a unit that is current on maintenance fees. The association will be able to lien the delinquent unit, in addition to imposing suspensions on the unit owner’s rights if she becomes delinquent. A better strategy in this case might be to obtain a money judgment against the owner with respect to the delinquent unit. That judgment could become a lien against the other assets of this owner, including the new unit with equity. Depending on whether the new unit qualifies as the owner’s homestead, this judgment lien could result in significant pressure and force the owner to consider other alternatives such as a payment plan or short sale for the original unit.Attorney John C. Goede is a founding partner at Goede & Adamczyk, PLLC. Visit the website at www.floridacommunitylaw.com or ask questions about your issues for future columns by sending an inquiry to: info@flcommunitylaw.com. Goede & Adamczyk, PLLC is a full-service law firm with a focus on condominium and homeowner association law, real estate law, litigation, estate planning and business law. With offices in Naples and Miami, the firm represents community associations throughout Florida. The information provided herein is for informational purposes only and should not be construed as legal advice. The publication of this article does not create an attorney-client relationship between the reader and Goede & Adamczyk, PLLC or any of our attorneys. Readers should not act or refrain from acting based upon the information contained in this article without first contacting an attorney, if you have questions about any of the issues raised herein. The hiring of an attorney is a decision that should not be based solely on advertisements or this column.