As committees become an established part of the culture of the community, it will be easier to identify and recruit board members from the committee “farm team.”  Able and dedicated committee volunteers make the board work easier as the board concerns itself more with reviewing recommendations of the committees rather than doing the work of the committee.  Another benefit is the cost savings that can be realized by reducing the work load of your manager and therefore the fees that the management company charges.  Keep in mind that committees can also increase the work load of the manager if committee members are not willing to do the often time consuming work defined by its charter.

When productive committee members are doing meaningful work that benefit their community, interest in board membership is a natural next step.

Tom Simon is the Managing Member of WestGate Properties LLC and is a Certified Professional Community Association Manager® (PCAM®)

> Listen to Tom Simon on “All Things Real Estate.”

Rey Post is Associate Broker with Sotheby’s International Realty and host of All Things Real Estate, a weekly interactive radio program that ”answers all of your real estate questions.”  Tom Simon is Qualifyting Broker of WestGate Properties LCC and a Professional Manager of Community Associations as well as commercial property manager.  All Things Real Estate is aired live on Sunday’s from noon to 1 PM on Talk 1260 Radio.  It is also streamed worldwide at http://www.santafe.com/stream/?station=talk1260.

The Form 1120-H is a relatively simple form to complete.  60% of the association’s gross income for the tax year must be “exempt function income” and 90% of the expenses must be to “acquire, build, manage, maintain or care for its property.”  Non-exempt income is taxed at a flat rate of 30% after the first $100.00.  In the lovely terminology of the IRS, non-exempt income is any income that is not exempt function income.  Examples include bank interest, income from concessions or from rental of common facilities.

Like other commercial entities, the form is generally due to be filed by the 15^th of the 3^rd month after the end of the tax year.  Remember that many associations operate on a tax year other than a calendar year.

Note that the rules require that 90% of the exempt function income must be to “acquire, build, manage, maintain or care for the property.”  What about the income that is not used that year but saved for projects in future years?  In order to avoid being taxed on this income, you must segregate the funds into a Reserve Fund to use in future years.   Most CPA’s recommend that this be documented in case you need to prove that such segregation of funds was authorized.  Either there should be a Board Resolution that states that the funds shall be segregated or your budget should reflect that the funds are to be segregated.

These tips are meant as a reminder that there is tax work to be done for your association and are not to be relied upon to file your tax return.  The right thing for your community is to consult a tax professional for advice on your specific situation.

Tom Simon is the Managing Member of WestGate Properties LLC and is a Professional Community Association Manager (P-CAM) certified by the Community Association Institute

There is also a quorum requirement which, if it is not met, official business cannot be conducted.
The New Mexico Condominium Act holds that “unless the bylaws otherwise provide, a quorum is present throughout any meeting of the association if persons entitled to cast twenty percent of the votes which may be cast for election of the executive board are present in person or by proxy at the beginning of the meeting.”  So, if there was a quorum at the beginning of the meeting then there will be a quorum
throughout the meeting regardless of how many people leave.

In a condominium association, the board typically provides a copy of the budget at least 14 days and not more than 30 days before the meeting called to consider the budget, which is usually the annual
meeting.  The method by which budgets are ratified in a condominium is one of the more difficult concepts for many condominium owners to understand.  The New Mexico Condominium Act holds that “unless at that meeting a majority of all the unit owners or any larger vote specified in the declaration reject the
budget, the budget is ratified, whether or not a quorum is present.”  In other words, so long as proper notice is given, any number of owners can show up at the meeting and the budget will be
ratified unless rejected by a majority of all unit owners, not just those at the meeting.

Most community associations are structured to provide the board with most of the authority and responsibility for making decisions on behalf of unit owners.  It is important to attend your annual meeting and take the process of board elections seriously because decisions made by the board will have a direct effect on your life and finances.

Tom Simon is the Managing Member of WestGate Properties LLC, specializing in multi-tenant commercial and community association management.

A property manager is responsible for finding tenants for commercial or residential properties and for maintaining the property to a high standard of care.  The Association Manager is responsible for a scope of work that includes: Facilities Management, Association Communications, Community Leadership, Community Governance, Risk Management and Financial Management.  The Professional Community Association Manager (P-CAM) requires a minimum of 5 years management experience, course study in
all of the topics mentioned, culminating in a 2 day intensive inspection of a community association, followed by written responses to 10 questions about the community that results in a 80 to 100 page case study analysis that will, by most accounts, take more than 100 hours to complete over the 30 day period
allowed following the property inspection.

The value to a community association of hiring an experienced credentialed professional association manager is to reduce delinquencies, improve the appearance of the property through better maintenance decisions, reduce board burn-out, improve financial management and perhaps most valuable, establish “best practices” that will reduce conflicts between unit owners and board members, improve the quality of decision making and reduce management errors that inevitably lead to lawsuits, higher insurance
costs and community malaise.   Hiring a credentialed professional will improve the quality of life and real estate values.  The sage said that “you can’t buy happiness.”  You can invest in the happiness
and peace of mind of a community by hiring the right credentialed professional to run it.

Tom Simon owns WestGate Properties LLC, is a credentialed professional association manager, currently spending 3 ½ hours per day writing his P-CAM Case Study.  Deadline: Midnight, 11/15/2011

A committee member felt strongly that the dues should have been raised more and circulated a letter to all unit owners titled “Reality Check” that recommended a 10% increase and that anyone who can’t afford this should consider selling their unit and moving elsewhere. He felt strongly about his position, argued it forcefully in the committee but when he lost the debate he brought his argument “to the people” hoping to shape the final board decision.

The board terminated his committee membership and established a set of Rules for Service that all future committee and board members must agree to prior to serving. Among other things it requires members to support the decision of the group once a decision is made.

Community associations exercise democracy at its most fundamental level and it’s important that board and committee members understand how to work together as a decision making body. The need to leave your self interest out of it is obvious to most. The more common problem is how to reconcile competing views of what it means to serve in the best interest of the whole community.

Consolidating different points of view into a final decision is the essence of leadership and the reason that a decision making process exists using rules of order and specialized board roles.

Future columns will address how these responsibilities are allocated, how the members work together to serve the best interests of the community and how a board works with a management company to implement its decisions.

Recent changes the eligibility rules make it more difficult and even unlikely that a condominium will be eligible for FHA financing.  Here are some of the new requirements:

• FHA requires that at least 50% of condos must be used as primary or secondary residence.
• Vacation rentals are no longer considered a secondary residence.  Now a secondary
  residence is defined as a dwelling where the mortgagor maintains a part time
  place of abode which is not a vacation home and a person may have only one such
  secondary residence.
• New rules regarding fidelity insurance will add significant expenses to the budgets of the association
  who will pay for their own plus the management company insurance through costs passed
  onto the association directly or through increased fees.
• A Certification is required, signed by an association representative, that states, in part, that the project meets all state and local condominium laws and all FHA condominium approval requirements, whether there are circumstances that may have an adverse effect on the project or cause a mortgage to become delinquent, including but not limited to construction defects, substantial disputes or dissatisfaction among unit owners about the operation of the project or the owner’s association; and disputes concerning unit owner’s rights, privileges, and obligations.  The submitter must also agree to inform HUD of any material changes after approval.

The penalties for knowingly and willfully making false statements or entries in a HUD application
is a fine of not more than $1,000,000.00 and/or imprisonment for not more than
30 years making the stakes very high for any misstatements.

Contact me for a copy of the new eligibility requirements and an FHA/FNMA/FHLMC matrix.

Tom Simon, CMCA, AMS

Be kind and respectful. A little common courtesy makes a big difference. Keep your music and television at reasonable levels, do your vacuuming before bedtime, and before remodeling, check with the manager about acceptable hours and days of the week that work can be done. If you put in hardwood or tile flooring, use a sound-reducing underlayment. Move your noisy appliance away from walls and put sound-absorbing material underneath before your neighbors complain.

Keep a log. If you’re disturbed by a noise problem, note the times and the nature of the noise. Ask the manager to listen and verify the noise as well. There may be a pattern in the noise that can be adjusted.

Visit your neighbor. If your neighbor is the source of the noise, try a friendly chat. Sometimes people just don’t realize how noise is affecting others. People are usually considerate once they realize they’re disturbing others. And, if your neighbor knocks on your door, listen politely and be willing to made changes to reduce your own noise.

Contact the manager. If a polite request doesn’t change your neighbor’s noisiness, it may be time to ask the manager for help.  Have your noise log ready, including attempts to solve the problem yourself.

Reducing noise sounds like a good idea. A quiet, peaceful community, relatively speaking, is a happy community.

The New Mexico Non-Profit Corporation Act states that a director shall not be personally liable for any damages resulting from actions taken unless the director has breached or failed to perform the duties of his office and the breach or failure constitutes willful misconduct or recklessness. (Paraphrased from 53-7A-3.F) Unfortunately, this doesn’t stop people from suing directors, thus the need for Directors & Officers Insurance.

The director also owes a duty of undivided loyalty and honesty, which is why a prudent one avoids conflicts of interest as much as possible. Avoiding a conflict of interest altogether is impossible because the director is also a member of the association and is affected by budgetary and other decisions it makes. However, if a director relies on the recommendations of its manager and other experts, it goes a long way to avoiding the risk of being accused of acting in its own interest.

If prudence and rational decision making results in a threat of a lawsuit, you or your manager should contact your association attorney and directors and officers insurance carrier so they can assist you in managing a prudent reply.

Learn more about these and other topics at WestGate’s HOA/CONDO Seminar, which starts at 11:30 AM on Sunday, June 26th at Quail Run on 3101 Old Pecos Trail. Contact Tom Simon to be added to the mailing list: tom@westgatepm.com. Tom is a Certified Manager of Community Associations and Association Management Specialist and owner of WestGate Properties LLC. 

1. Use existing reserves.
2. Approve a Special Assessment.
3. Borrow the funds from a bank.

Option 3 is the subject of this article.

First, determine if the association can borrow money by reading the Bylaws and Declaration, which will often cap what the board can borrow unless they get permission from the membership. Seek legal counsel in your review so you are certain of the process.

The banks will require a legal opinion anyway so you might as well start early as the attorney will need to verify that the loan was duly authorized and process followed to the letter. If the documents don’t allow for borrowing funds in the amount necessary then you will need to modify the documents, which is a subject for another article.

Certain banks specialize in association banking, loans and investments, though none are in New Mexico.

The loan is made to the association and collateralized with dues assessments. Interest rates are in line with commercial loan rates; the term is typically 5 to 10 years. The association delinquency rate must be below a certain % and in some cases the bank requires that the association invest some of its own funds for the project. This can be accomplished by allowing owners who can afford it to pay their portion of the assessment in full and those who can’t, to participate in the loan program.

For more information contact Tom Simon, CMCA, AMS for a consultation. tom@westgatepm.com.