CAI Annual Conference

I attended the Community Associations Institute annual conference held in Arlington Heights with two other board members; we also attended the conference last year. This post will include my observations and insights. Let me also state that this is not intended to be a line by line report; the educational sessions we attended spanned about 4 hours, and there were additional one on one conversations with experts and professionals. So it is not possible to reproduce the content here.

I suggest interested parties attend next year's sessions. Doing so could be a useful investment by an owner or potential owner. Particularly if there are concerns about condominiums and how associations deal with the issues. This also affords an opportunity to talk to the experts during educational sessions, or simply meet some of the professional vendors out there who are servicing associations, including a few of our vendors.

Another resource available is ACTHA. There is info available at their website. Clicking will open a New Window> ACTHA Website

The CAI conference had two parts. One includes several hundred exhibits staffed by vendors who can provide everything from mold remediation to reserve studies. This is useful, but was not the big draw for me. However, in the "giving credit where it is due" department, if it weren't for these vendors, who each pay a fee and are sponsors of, and speakers during, the educational sessions, there probably wouldn't be any. So I say "thank you" to each of the vendors.

The second part was the“Education Session Tracks” which are educational sessions oriented toward homeowners, boards and managers. This is where training and education is available. We attended three "Education Session Tracks" last year, and so I was interested in attending again.

This year, we attended these educational sessions:

1. Homeowner Forum: Ask Questions to a Panel of Experts. “The panel of experts is prepared to answer all of your most pressing questions. With years of combined experience in all facets of community management and living, you are assured to leave with answers.”
2. Property Values and Paying Assessments: "The presentation shall have a four part discussion which addresses legal, building insurance and landscaping issues. Learn: How to effectively budget for your association and oversee contracts and expenditures; ways to avoid special assessments by proactively detecting potential repairs; insurance protection for delinquent association assessments; and how landscaping adds financial value to your real estate investment."
3. Legal Update: "The Legal Update provides updates on association case law, recent local legislation, and more."

There were other sessions available, but it's impossible to attend them all. I was interested in the legal aspects. I mean, when it seems everyone is gunning for a piece of the pie, it becomes essential to become more aware of the issues, the possible motivations, consequences, and the methods to deal with them. 

The topics in the sessions sometimes overlapped. For example, legal issues were discussed in all of the sessions I attended. I suspect based on questions from the audience, that legal and financial issues are at the top of most associations' lists of concerns.

Listening to the experts, the questions posed by the audiences, and the exchange of ideas, problems and issues, gave me a lot to think and reflect about.

Overall, the legal discussions were somewhat discouraging. It seems that prevention is the operative word, but damage control is what everyone is practicing. On the other hand, if an association has no delinquencies, no foreclosures and is involved in no lawsuits, then finances and legal questions are not a concern. At BLMH, we are not so fortunate. 

Homeowner's Forum

I found this to be very interesting. I attended because I wanted to see the "issues" homeowners and boards at other associations are dealing with.

I know the problems here at BLMH, and I am aware of the position of a very few owners. But I attended the "Homeowners Forum" to get a dose of reality from the rest of the HOA world. During the conference sessions it became apparent that some of the problems other associations are facing are extremely daunting. I was struck by how engaged in the process some of these board members are. I also realized how easy we, as owners, actually have it. 

Discussions and observations made during the Forum included finances, dealing with owners, dealing with boards, etc. There was, for example, a discussion about a board that apparently wants financial compensation. That's not allowed under the Illinois Condominium Act. There were also questions about the new licensing requirement for managers. 

Another serious issue was getting all owners to pay their assessments so that necessary maintenance can be done. The "panel of experts" stated "Don't people normally pay their bills?" It seems that as stated in the audience, some of us don't. One member of the audience made an interesting statement about their association, in which some owners are so opposed to the payment of fees that the association could not pay its bills!

As expressed by a member of one association during the Homeowner's Forum, even an inability to pay for necessary services wasn't enough to get owners to meet their obligations. Listening to that board member, I was struck by how boards are to be fiduciaries, but owners have no such requirement. Boards are supposed to make it all work, but owners can play games, hire lawyers and avoid their financial responsibilities.

During the session, the question was raised about using professional collection agencies. I can imagine the uproar that might cause if it were implemented at BLMH! The bottom line for collections is 1) Associations cannot operate without income, 2) Use standardized procedures, 3) Be consistent in their application, 4) Treat all owners fairly. The last is difficult if some owners are of the belief that they are "special," or have the belief that their circumstances warrants special treatments. However, boards must try, while honoring their role as fiduciaries and as representatives for ALL of the owners.

There were also questions about boards which operate out of view of the unit owners, and associations which have problems with financial records, as in "no financial records." The discussions during this and other sessions included delinquencies, uncooperative owners, uncooperative boards, demands and requirements of elderly, handicapped residents, etc. The expert panel provided insights into how boards and associations can deal with these problems in a reasonable way.

Property Values and Paying Assessments

This session had several components, as can be seen in the synopsis above. It consisted of four presentations by experts and then a "question and answer" session. I gather that there is pressure on boards to improve their collection procedures, and there is also pressure to cut back on spending; only collected funds can be spent. This is something that has been discussed here at BLMH. You know, an "austerity program."

There was a presentation and discussion about a new insurance product, which is designed to deal with delinquencies. It's fairly complex, but if I understood it correctly it works as follows. After an owner lapses by a specific period of time, the collection is turned over to the insurer, and their professionals including lawyers, deal with the delinquent owner(s). At that time, the insurance will pay the association an amount to replace the uncollected fees. Actual fees collected by the insurance company are retained by the insurance company, including legal fees. There is an annual premium, based upon the total fees of the association.  These premiums are of course, an added expense to the association. The benefit seems to be a guarantee that delinquent fees will never escalate beyond a certain amount per unit. The presenter admitted this product might not be desirable for every association. Some association have standardized methods, and have legal procedures in place. The question each association needs to ask is "Would the benefits derived be sufficient to offset the cost of the insurance?" I concluded there may be an additional benefit with an automatic program using professionals. It relieves the board which has difficulty making these decisions. 

In various expert moderated discussions during the CAI education sessions including those last year, it was reiterated that boards are required to maintain the association; there is some latitude in accomplishing this, and to keep the board on track it is essential to rely on expert advice. Methods of avoiding current financial pain was included in various sessions of the past two years, and that included association borrowing. A banker was present last year and he went over the issues quite thoroughly. Borrowing raises the costs to owners; the borrowing fees and interest are added to the loan, and that loan with the bundled interest and fees is repaid by owner assessments. It was pointed out last year that not every association qualifies for loans and there are stringent requirements.

An architectural presentation was made this year in which is was stated "Water is THE problem." Hear Hear! The presentation included numerous slides and photos in which this was amplified and explained via real case histories and examples. This was a most interesting presentation.

A presentation was made about the value of landscaping to enhance property. The discussion centered on a long term approach, with annual improvements spanning years and perhaps a decade. It was stated that the "shotgun" approach is to be avoided. It was noted that all of those plantings must be maintained, with ongoing and annual costs. Yes, landscaping may increase costs but it also contributes to property values. The issue of budgeting for this was also discussed. I gathered that it's best to come up with an overall property plan, and then implement it in phases. That seems reasonable. 

I concluded a couple of years ago that it's simply too bad that BLMH isn't town homes with private lawns. Then owners could spend their personal time and money to their hearts content, and if their gardens, lawns and trees weren't impeccably maintained, it would be THEIR problem. 

The attendees to these CAI sessions seemed to understand all of this. 

Landscaping is, to my knowledge, one of the reasons people purchase at BLMH. This general point was made during the session and applies to all HOAs. Our challenge at BLMH is a mature grounds with many ornamental trees at or near the end of their useful life span. I have never gotten a coherent answer to the question "At what point is it better to replace than to maintain?" That's not the fault of the experts. It's a question which has a complex answer. Replacement includes cost of removal and the cost of new plantings. Those new trees will be much smaller, with a smaller profile and less shade.  

Legal Update

This session dealt specifically with case law, updates to the Illinois Condominium Act and the similar act which applies to other types of HOAs. There was a discussion about the new licensing requirement for managers. Realtors will be treated somewhat differently. I concluded that they have better representation in Springfield. 

There were legal questions posed from the audience during all three of the educational sessions I attended. So I gather that legal issues have moved up on the list for many HOAs. Discussions ranged from delinquencies and the collection of fees, FHA, the special needs and demands of the elderly and handicapped, etc.  

For example, one of the experts observed that it seems there is a trend to move into an HOA as a means to avoid the cost of elderly care. However, HOAs for the most part, are not physically designed nor do they provide the amenities of such elder care facilities. Owners or relatives of the elderly may see only a financial incentive. HOA's are substantially less costly to live in, and some services are provided; however, those services are not for the benefit of individuals. They are for the maintenance and operation of the association. All owners in HOAs have specific duties and responsibilities, and even other residents must keep the rules. Not all may be amenable to this. The position of the experts seemed to be that is is essential that all approach this from the perspective of "reasonableness" and fairness to all owners.

Personal Observations
In an interview independent of the CAI conference, Thomas M. Skiba, chief executive officer of the Community Associations Institute stated that "Nationwide, non-payment of HOA fees is among the top problems facing condo, single-family, and other planned development associations today."

Many associations are dealing with this and are asking the same questions. I've had the opportunity to reflect on the conference, and put our association under the spot light.

When delinquencies occur, they have to be made up by other owners. Many owners in associations look at the annual budget and fail to realize that the "bottom line" is split into two areas "Operations and Maintenance" (or O&M) and "Reserves." Each and every month at BLMH the association expects to receive a specific amount from owners. A portion goes to O&M which pays for snow plowing and the lights, etc. Another portion goes to Reserves, which pays for roofs, driveways and streets, etc. When owners are delinquent, the association doesn't receive that money. So then what? If an association has savings, as we do, we can dip into the savings account and pay all the bills. However, at the end of the year, if we haven't collected as much as we budgeted, then what happens? We find that we have actually taken a loan from Reserves, and at the end of the year the association writes a check to transfer funds from the O&M budget to the reserves. In other words, we then get to pay that back. Ultimately, if we don't collect 100% of fees, we find that we cannot properly fund our budgets. It's wonderful to have a reserve study, but that study assumes a specific cash "flow". If we don't receive 100% then we have to raise fees to cover the shortfall.

Ultimately, the fees of the other owners may be a bit higher because of delinquencies. In addition, if delinquencies rise to 15% past due 30 days or more, Fannie Mae, for example, will not guarantee loans in those condominiums. Some associations now place liens on units that are 60 days past due. Payment plans are an option, but many experts recommend "6 to 12 month payment plans." In other words, the association and our neighbors aren't a bank and delinquencies should be handled quickly.

For any association that has allowed things to "get out of control" there are few acceptable options. Remember, everyone in an association is an equal. So allowing 36 or 48 month payment plans sounds good to an owner in trouble. But every owner should then be afforded the same opportunity. If this or any association made the statement "there will be no late or legal fees" for owners who are delinquent, what would then happen? Why would anyone pay their fees on time? Why not use it for personal purposes and then, when the spirit moves us, send a check to the association? What happens when a significant number of owners fall many months behind? That's when the lights go out, the streets aren't plowed in winter, and the lawn becomes a weed bed. It's also when property values really plummet. People think things are difficult now? They think that property values are low? Wait until an association stops all maintenance. That's when sales and values really plummet!

If an association allows long term payment plans, why would ANY owner send money to that association? Wouldn't an owner be better off paying down high interest credit card debt? Every "financial debt counselor" I've ever listened to has advocated paying off the "high interest debt" first. So is it any wonder that some HOAs find themselves as the last debtor in line? But I suppose some of us are in better financial condition than others. In that case, the argument is "let the wealthy" pay more!

Returning to reality and leaving the politicians behind, here at BLMH, we have 336 units and about that many owners. That's good, if a few of us find ourselves in a situation in which we do not pay our monthly fees; the association may not like it, but it doesn't mean we have to pass the hat each month to the rest of the owners so we can keep the street lights "on." At BLMH the "pain" is more broadly distributed, and may not be as obvious. However, there has been a commentary about "fairness" in our association since 2008. I don't quite know what that means or who such conversation is intended to benefit. I look at it this way. We are all "equals." We benefit equally from our ownership. We each will get a new roof when the time comes, even if an owner in our building is delinquent, or if a building includes an owner in foreclosure. We each will reap the rewards of our investment when we decide to sell our unit. So shouldn't we equally pay our share to maintain the property each and every month? Why shouldn't each and every one of us? I have yet to get a rational, legal answer to that question, and until I do, that's the position I will take as a fiduciary.

To those who choose not to pay their fees, I have to ask this question; Is it "fair" to the rest of the owners who do pay each month? In these difficult economic times, I am of the opinion that each owner at BLMH has a budget, and has felt the sting of high gasoline prices, or reduced wage increases or reduced SS "COLA" annual increases. Is it "fair" that those who make the difficult choices are expected to pay their fees in a timely manner while others do not?  After listening to the audience at the CAI event, I guess it could be said that in some associations, a few owners would prefer to pay an attorney to "champion" their personal agenda, and in the process, stiff the neighbors! Boards in those HOAs find themselves to be the "bad guys" and become bill collectors!  Yes, it's difficult to be straight with people at times. My advice? Tell the "bleeding hearts" to empty their wallets into the hat that you are passing. If they don't or won't then I conclude they have indeed voted with their wallets, and that vote is "we aren't willing to walk the talk." I wonder how many owners would be willing to pay a $25 monthly fee to assist other owners who are in trouble? I have NEVER heard anyone, and that includes the "bleeding hearts" advocate this. It was always and remains an issue of spending the money of others.

Moving on to legal suits, it seems these may be a negotiating ploy, but they can only be dealt with in the courts and in that case the motives may be complex. They may also be simply profit and greed. Any well run association has deep pockets, and we publish our finances on the web. It is my opinion that an association may become a target, and BLMH is no exception. According to an article at Yahoo Finance about HOA's, "When in Doubt, We Sue." According to that article, law suits at HOAs happen all the time, and experts in California estimate that 75% of the homeowners associations are embroiled in a legal tangle of some kind. It goes on to state that Chicago attorney Mark Pearlstein, who represents associations, figures that "60% of all condo boards and homeowners associations in Illinois are involved in some kind of legal suit."

Attending the CAI educational sessions gave a few insights. Is it possible for associations to avoid litigation, greedy people and owners who don't want to pay their bills? What do you think? I am of the opinion that this is human nature we are dealing with, so the best we can do is limit the damage. Suing an association might be a more successful money making approach than buying a "Powerball" lottery ticket, and it can make up for deficiencies in retirement planning. Certainly the odds of collecting something are much, much better than purchasing that lottery ticket.

Anyone who has attended association meetings at BLMH for a period of years is aware that some owners feel that their life is oh, so very difficult at BLMH. Issues raised include benches, better grounds and even how  "the fees are lower" at other associations. Frankly I'm beyond bored when that statement is made by anyone about BLMH. According the the U.S. Census Bureau, the annual HOA fees average $2,400 for condominiums. The "average" condominium does not have 40 acres, hundreds of trees, 15 acres of turf, a mile or so of "paved walking paths," three streams including decks and gazebos and a captive lake! However, I do realize some owners would like a fitness center, spa, pool, concierge desk, and a library and, for good measure, a "party center." Yes, all for about $300 per month! Wouldn't that be wonderful! Yes it would. So would Real Estate taxes in Wheaton of $0 per year.

It's always implied that the grass is greener on the other side of the hill, both literally and figuratively. Of course I have to ask, and I do, "Do those associations have any hills?" We do! I am of the opinion that the associations that have fewer problems may be those that don't have delinquencies, foreclosures, etc. It makes me wonder if it has nothing to do with fees or fee levels. Perhaps it has a lot to do with the nature of the owners and other residents. No one seems to ask "How much time and talent is spent dealing with the financial problems of an HOA?" A few years ago, I didn't hear much about delinquencies, foreclosures and rule violations. I assume the boards of HOAs were free to spend their time running the association rather than as debt collectors or policemen. That is no longer true.

As owners, we do have to budget to maintain our units; that includes the furnace and hot water heater. The association deals with the big stuff; roofs, garages, driveways, streets, landscaping and even the water and sewage piping and snow removal! All in all, I had the insight that as an owner, I've really got it pretty good. If there is a problem, pick up the phone or get on the internet and leave an email. I also had the thought that it seems some of these owners, and that might include those of us who can't apparently deal with our personal finances, nevertheless have a belief system that we could run the association, and do it better than the management, other professionals, the board and so on. Now that's interesting!

Could it be easier for all of us? If we all paid our bills, there would be no delinquencies. One member of the audience made an interesting statement about their association, in which some owners are so opposed to the payment of fees that the association could not pay its bills! As I recall, I had a concern that we were headed down that track a few years ago. In 2008 there was a focus on parties, and we had a sufficiently large piggy bank that our fees were supposedly excessive.

It seems for a few there is the belief is that associations should only collect when the piggy bank is empty. But I also recall, BLMH is an association where a 3% fee increase is supposedly difficult for some owners to manage, budget and deal with.

During an educational session, the question was raised about using professional collection agencies. Can you imagine the uproar that might cause if it were implemented at BLMH! There would be a few marching in the street about "board repression." But the rest of the owners can and are to pay their bills completely and in a timely manner! That group, "the rest of us" can keep the funds flowing into the reserves, cover the operating and maintenance budgets, and so on. Is this fair? Others at BLMH have stated it isn't. But as long as some owners make financial mistakes or get into financial "hot water" and as long as there are lawyers available to represent them against their association, this will continue. I have no answer for this dilemma. I do not understand how an owner can afford to pay legal fees instead of paying their association fees. Our treasurer has stated repeatedly during association meetings for anyone attending, and also in the association newsletter, that these legal fees can be as much as one-half of the total amount owed to the association. Does that make financial sense? I don't think so. But then, paying late fees to credit card companies, interest and other additional fees, doesn't make sense either. But in the US there are a lot of people who do this each and every month, according to financial experts.

One can always get an attorney for the purpose of delaying or to attempt to avoid the payment of fees. Of course, paying attorney's fees is an expensive proposition.  Or is it for bragging rights? I have no idea.

I concluded that in these unusual times, the board is sometimes the "bad guy." Of course, being on a board isn't supposed to be a popularity contest. However, some owners don't understand that. I am writing from personal experience and observations at BLMH during the most recent 5 years.

If we suspended the collection of fees, an association would have no choice but to suspend services and curtailing projects. Would that work? I wonder how owners at BLMH would feel if they each got an extra bill from the City of Wheaton for water and sewer, or from ComEd to cover the street lights? How long would it be before the lights went out? Or we stopped mowing the lawn or clearing the streets of snow? Based on the situation described by another association, it is apparent that some HOA owners would allow that to happen.

The issue with reducing fees is, as we have also discussed at length here at BLMH, a question of maintaining the property and paying the bills. I once posed the question: Who is to be told "Sorry, you're number 35 on the list for new roofs, but, with the installation of roof #34, we've spent all of the money and we no longer have sufficient funds to do YOUR roof?" I do think we've had owners and board members who were inclined to "kick the can down the road" and pass the hat to future owners. However, we're required to maintain the property today, maintain reserves, and so on.

Regarding maintenance and water issue, here at BLMH we are in the midst of a multi-year roofing project, we've replaced garage floors and corrected foundation cracks which admitted water into the cavity under the garage, we have added gutters and downspouts and relocated some, which moved water in new and interesting ways, and we've had to make numerous drainage improvements to handle this re-directed water. We've had owners complain about the standing water on a new driveway, which could only be dealt with by installing new drainage systems. We've had a complaint about mosquitoes, and of course, there are the occasional water main breaks! Our neighbor, the College of DuPage has only partially completed a new drainage and water retention system. We now view a very large muddy hill, a muddy hole and well, even more mud, dirt and sand piles on the other side of the the property line. Yes, we are dealing with water issues!

Using BLMH as a landscaping example, if a decision were made to spend $5,000 on entrance plantings, I suppose the question would be "how to apply such plantings throughout the property, so the general appearance is uniform?" The second question would be "How much would this cost, in total?" The board at BLMH has had that discussion. It has been pointed out to owners that 1) We have landscaping; we don't have gardens. 2) Adding flowers, gardening, etc. to the common areas places an additional burden on association finances, and that ultimately means on owner fees. 3) Owners cannot use the common areas for their exclusive benefit. Plantings must be coordinated with the landscaper and be maintainable by the association. 

Returning to the presentation and using $5,000 per BLMH entrance as an example, with 84 entrances, we could spend $420,000 doing enhanced or improved landscaping! My, where would that money come from? Some owners want gardens, some have stated they want benches, and others want fee reductions; some want all of these and more! Some want to extend their domain into the common areas, the maintenance of which all owners contribute their fees.

But "it is what it is" and we are a condominium association. When I've listened to owner arguments for private gardens, I've often wondered how a first floor owner would feel if a second floor owner decided they too had a right to do what they want on the grounds? Where would they put their private garden? Probably outside a first floor owners patio. How would that turn out? I suspect it would get ugly. How about a vegetable garden? A few corn and cabbages in a garden staked out beyond my neighbor's patios? Can you see how unworkable this would be? All owners have equal use of the grounds. So where and at what convenience should second floor owners, which are half of the owners at BLMH, supposed to plant their personal gardens on the grounds? That's a consequence if the board allows such gardens, or sand boxes or benches or whatever. I think this has been one of the problems the board has had to deal with. This spring, it may again resurrect it's head, either overtly or with covert plantings. We'll see?

Of course, one of the impediments to long term programs is board turnover. Get a "revolution" and a new board, and it's a new ball game. It can be a "reset" and we can start over, plans can be shelved, and we can pursue new initiatives. Once the novelty wears off, we can go on to do other things. I'm speaking from experience at BLMH. Who knows, perhaps in the fall of 2012 we can start over again. It's reminiscent of that movie "Groundhog Day" and the association will get to go over the same ground over, and over, and over "ad nauseam."

The fact is, we all know how to minimize costs in the short term. Don't spend money! Don't do maintenance! Of course, at some point, perhaps two or three years, this will and does catch up. Reality has a way of intervening. I have the proof, right here at BLMH. I am also of the opinion that not everyone will like that; in particular long term or new owners who will be stuck with the bills, or, as I am fond of saying "stuck with cleaning up the mess."

Owners do have the right to elect whomever they wish. But once elected the board is a fiduciary body. How does one get around that? However, it seems that it has been tried at various HOAs via a politically motivated board. Would the entire association go downhill? Not necessarily. A politically inspired board could continue to take care of the "friends of the board." It is not all that difficult to achieve if an association is complacent. All that is required is the appropriate diversions and the right incentives. A campaign to "throw out the repressive board" and a few free donuts, etc. could work, couldn't it? Chicago is nearby as an example, and so we all know "Something for nothing" is the universal grease. Any costs transferred to the association is something an individual owner doesn't have to pay for. I am of the opinion that there is a real incentive for some owners. The most powerful forces in human beings, it has been said, is "fear and greed." A board comprised of fiduciaries is a unit owners last line of defense. Certainly all of our owners at BLMH know that!

Conclusion

I found the educational sessions, the observations of the experts and the questions posed by the audiences to be extremely interesting. I also concluded that the issues we face at BLMH are not at all unusual. That's one of the benefits of attending the CAI educational sessions.