Your Unit Is Not Your Castle - Part I

The association issued an urgent safety bulletin to unit owners. The bulletin was prompted by a disastrous fire at a nearby condominium association, which is believed to have started in the fireplace, firebox, or flue.

Our condominium is similar in design and construction to that which experienced the fire, and is about 35 years of age. Some of our units have a gas fired fireplace. Not all do; this was a $1,500 option back in 1978. Doesn't seem like much money by today's standards, but it's helpful to remember that a decent home (3 BR, 1 bath, 2-car garage, 0.33 acres) could be purchased in Wheaton for as little at $52,000 back then. I know, because I did! On the other hand, wages were lower too, and $25,000 a year was a very good wage. That's inflation!

The bulletin has resulted in some owner comments. I understand that some have stated they have no issue with this, and in fact, are very willing to comply. I also understand a few have questioned the necessity to have the fireplace inspected. One has refused and stated "I'm going to use my fireplace as-is."

That's an interesting perspective. The issue is very simple. Our management has advised us that they observed the damage and is very involved in the coordination of the cleanup, etc. It is with their guidance that BLMH has issued the statement to unit owners. According to management, there was no indication that the unit owner did anything improper in the fireplace. It's reasonable to assume this fireplace had been used many times in the past. However, this year, it failed, and when it did, it did major fire damage to the building.

The goal of the inspection, which includes a brief list of guidelines, is to assure that your fireplace, firebox, flue and chimney are intact, and safe to use.

To complicate this further, during the November association meeting, an elderly couple took the opportunity to make a statement about their concerns about safety at BLMH. This was prompted, they said, by the recent "fire" at the 1731 building. That "fire" was a near miss, with very minimal damage. What's minimal? Probably $2,000 or so, including a damaged window. That meeting was about 12 days prior to the serious fire at the nearby community.

So, what is the real issue here? In an association with families and singles, in 336 units, with ages from their 20s to their 90s, what is the appropriate action? And why the resistance by some unit owners to an "Urgent Fireplace Safety Warning?"

Living in a condominium association, we give up some personal freedoms. That's the way it is in a "Common Interest Development" or CID. I suspect a few of us don't know that, or have forgotten.

I'm going to quote an attorney who specializes in these matters. “People have this idea that they have a deed to this particular property and this is their castle,” however, he often has to remind people “your home is not your castle; your home is part of everyone’s castle.”

According to this article from which I quote the attorney, developments such as BLMH are attractive to buyers because "they are low maintenance, and city planners like them because they make better use of increasingly scarce areas for development. However, those homes come with a complex set of rules and regulations. It might be something as banal, yet frequently irksome, as how many pets you can have, or even what constitutes a pet."

“As a result,” he says, “many people have a hard time adjusting to life in a common interest development.”

“For the most part, the general public is not aware of what their rights and obligations are in these kinds of arrangements...Buying into a CID means you have elected to live together and be bound to each other, not just physically, not just by party walls or common lot lines, but to be bound together by a set of covenants, conditions and restrictions (CC & Rs) that are difficult to change.”

“The problem is the people who live in these units don’t understand what they have bought into,” says Richardson, “and the homeowner associations that run them do not always strike the right balance between a harmonious community and a viable business operation.”

It's my opinion that taking strong steps to protect the inhabitants of BLMH is an appropriate balance between being harmonious and a business. If your neighbor due to simple error, or accident, burns down the building you live in, that will certainly be an inharmonious event!

What we each do with the information that is provided to us, is our personal business. However, the failure of something in our unit can have serious consequences not only for ourselves, but also for our neighbors. Some examples include the dishwasher which springs a serious leak, a failure in our fireplace, or a fire in the clothes dryer, the utility fan, whatever. At times we will be inconvenienced by requests or rules of the association. Which is preferred, occasional inconvenience or disruption by serious events?

It's my opinion that how safe this association is, meaning how safe we are as owners and dwellers, is in part determined by our individual actions. I think it's useful to remember that we are, in fact, "bound together" and how we act as individuals does affect others in this community.

Comments, Corrections, Omissions, References

Note 1. Here's a link to the original article, from which I have quoted attorney Kelly Richardson. 

Kelly-Richardson-lawyer-interview.html

Note 2. The board or its members are not immune from making the same mistakes as owners. Recent boards, for example, have attempted to satisfy or placate each and every owner who comes before them with a problem or a complaint. In attempting to do so, at some point, a board will compromise some owners for the benefit of one or another. So how to make a good decision? Be familiar with the governing documents, and make decisions for the association as a whole, rather than for specific individuals, is probably a good start. 

Note 3. The bulletin was an association action, coordinated by the board and management. Management read and approved the notice, which was prepared by the board. This post is my personal opinion.

Should Unit Owners Be Concerned?

That’s a good question, and one that seems to be on the minds of some of the owners here at BLMH. Upon reading the candidates’ forms, it’s difficult to determine in which direction the board will go. From the perspective of a lack of knowledge about their business agenda, we’ll have to wait and see. Here are a couple of thoughts.

Some unit owners ask “how quickly can our association disintegrate” and others ask “just how bad can it get?”

Our newly elected board members now have fiduciary duties. It is immaterial if they are even aware of that. They are legally accountable for their actions. To Quote Sima L. Kirsch of the Law office of Sima L. Kirsch P.C. in Chicago “"Being a fiduciary means that you have an obligation to take off your hat as a homeowner and put on your hat as an officer of a corporate board and use your best business judgment." About using business judgment he goes on to state "That's the judgment that best applies to the facts you're dealing with and protects the fiscal and structural security of the building and the association and the well-being of its inhabitants." (Reference 1).

Michael S. Hunter, an attorney and partner at Horack Talley, which represents “more than 500 community associations” adds "When you're acting as a fiduciary, you're serving in a representative capacity, and you must put the interest of the association's homeowners collectively first….You must also exercise sound business judgment and a healthy dose of common sense." (Reference 1). For more information and examples of breach of fiduciary duties, go to the link for Reference 1, at the end of this post.

As for the finances of the association, we have historical information for this association, which provides a possible glimpse into the future. Using that information may answer the question: "Can the board wreak havoc with the finances of our association?" The simplest answer is "not easily". First, our current professional managers would have to be fired and replaced with someone less capable. That would create the possibility of a sudden "step" change. Alternately, the board could repeatedly vote for much lower fee increases for a period of years. In that case, it is possible for our finances to degrade.

I suggest we use the historical data for this association to see how board actions, over long periods of time, have affected our finances.  You may then draw your own conclusions regarding the future.

Financially, for a period of about 15 years our reserves were underfunded because fees were too low to support the association. At the time, this may not have been readily apparent; I wasn't present during association meetings at that time and so I can't comment on what pressure unit owners brought to bear on the board. However, we do have the data and an analysis to substantiate my statement was posted earlier this year.

To further substantiate this, I’ve attended several association meetings in which our professional managers have stated several times, in response to unit owner questions about why the fees have been increasing at the rate they have been and why (in the opinion of the unit owner asking the question) our fees are higher than some “comparable” associations in the area.

In each case, the manager stated that this association is “playing catch up” and that our fees are about 5 to 7% higher than associations offering comparable amenities. It was also stated that when making fee comparisons, unit owners need to remember that this association is a PUD and that we own 40 acres and all streets, buildings and grounds.

It would seem that some unit owners refuse to believe that. Our official communications, which is our newsletter, also avoids this subject. From this and what does appear in our newsletter, it seems some on the board also refuse to accept this.  I suggest this is an example of allowing personal viewpoint to overrule fiduciary duties. Unit owners can take any perspective they wish, but Board members may not.

During the November, 2008 association meeting, our professional manager stated that our "assessments are stabilizing and reaching equilibrium". I assume by “equilibrium” it was meant that the funding of reserves had reached a point that expenditures would be satisfied by receipts and the funds in the reserves.

Using this information and additional historical data, I draw a few conclusions, which may help up in discerning the future and answer the question "How bad can it get" and also determine how quickly things might change.

The chart above shows the erosion of our finances which occurred during the period 1983 to 1998. It shows a gradual and continuous accumulation of a shortfall, which reached $1,472,168 in 1998 and peaked at about $1,600,000. This is derived from the data in my post of March 26, 2009. How did this association accomplish this? The simple answer is that unit owner fees from 1983 to 1998 were, on average, about $25 per month too low. It doesn’t take very much over long periods to create serious financial problems! What does $25 per month buy a unit owner? Well, it’s just about enough for a new roof every 20 years. If you need one in 15 years, well, too bad! That would require a special assessment!

In a post dated September 7, 2008, I noted that I had been “alarmed” when I reviewed the finances of this association while considering a purchase in 2001. As I stated in the post “We were alarmed by the state of the cash reserves, which were only $297 per unit!” Unit owners who were present when garage doors were replaced in 1997 or so, may recall that the price of each door, which was levied in the only special assessment I am aware of here at BLMH, was $300 per unit. So if unit owners don’t want to fund reserves, the implication is that they want special assessments.

Of course, you could retort that "fees can't be so high as to place an unusual burden" on unit owners, and that is true. However, it is important to remember those definitions of "fiduciary duties" as posted above and in other posts on this website. I'm not making any of this up. Our board has a legal responsibility to protect the finances of this association, and that includes our investment here. They must maintain buildings and driveways. If they don't there are legal remedies for unit owners. Being a board member of an HOA "carries legal consequences if you—even unknowingly—breach that [fiduciary] duty" (Reference 1).

Should we be “alarmed” today? I don’t know. The information I have indicates that it would take time to again erode our finances, if there are no unforeseen or unusual expenditures. That does not mean that we should sit back and assume it will all turn out. Nor should we lie awake at night in our beds, worrying about the roofs over our heads. Here is another chart, from the same data used for my post of March 26, 2009:

As you can see, this indicates that in 2000 the shortfall stopped increasing, and for the next nine years, it steadily decreased. This corresponds to the change from "low" assessment increases, for example, 3% each in 1997 and 1998, to "high" assessment increases of 11% each in 1999 and 2000, which have steadily decreased in the years since. By 2009 the shortfall was eliminated. The fees collected have been spent on projects to date and saved in our “reserves” for funding roofs, driveways and so on. To provide some perspective to the chart above, in 1999 we were in arrears about $1,600,000. How could that be? Well, for example, if there is no item in our “reserves” for roofs, that is money that is not being collected and saved for the day that our roofs will need replacement.

That’s a lot of money, but how much is it really? $1,600,000 distributed among 336 unit owners is about $4,762 per unit owner. How much “extra” have we paid each month to accumulate that? Over 10 years, we each paid on the average $39.68 per month additional, to accumulate this amount. Comment: So it would seem that all of this complaining has been about $40 per month!

Of course, it may come to pass that we will be paying slightly higher fees AND special assessments. That possibility would occur if our board of managers is not prudent in managing this association. However, I see no possible excuse for this. We are well funded at present and there is absolutely no valid reason or excuse for our projects not to be completed in a timely and effective manner and with the funds and fees available. Based upon statements made by our professional managers in November 2008 and during several association meetings thereafter, the rate of fee increases should abate and we should still have the financial resources to accomplish all that is required at BLMH. My independent analysis substantiates this.

A recent, posted comment stated "Unfortunately, many people in this complex want everything under the sun, and don't want to pay for it." That may be true. However, it would seem that in fulfilling their fiduciary duties, our board is required to maintain our property.

In conclusion, I suggest that concerned unit owners compare financial reports from month to month. If projects are not underway then reserves should be accumulating and increasing. Also attend association meetings and observe the operation of the board. Finally, read this blog and post your comments.

References:

Posts about reserves:

http://briarcliffelakes.blogspot.com/search/label/Financial%20Reserves

Post about Comparing our Fees and Reserves 1983 – 2008:

http://briarcliffelakes.blogspot.com/2009/03/method-for-arriving-at-assessment.html

Reference 1: Living Up to Your Fiduciary Duty as an HOA Board Member: http://www.hoaleader.com/public/206.cfm

Note: Some clarifications added Oct 6, per comment.

Frightened by Reviews???

In a comment to one of my posts, "Anonymous" wanted to know if I have an opinion on the property management company. They said "I've very new to BLMH....I know a lot of this blog is about the board of directors, but I was hoping you could respond to this comment with a quick summary of the HOA company".

Of course I do have an opinion. Everybody has an opinion on just about everything! But posting all of my opinions here poses a problem. The WWW is an open and largely un-moderated place. People post their opinions, which frequently support their hidden agendas, all the time. Some of what is posted is true and some is not. It is my goal to post items here that are accurate, verifiable and are consistent with my stated purpose for this blog. I have posted letters and my interaction with candidates for the board and with the management company. I always advocate the use of letters for anything other than an emergency.

I provide a lot of data in my posts, to substantiate what I am saying. Data includes numbers, dates, places, background information and stuff that people would normally call substantiable “facts”. The WWW has no rules about that. So a lot of what we read, especially that which is written by “anonymous” writers or does not includes names, dates and places must be questioned. If I report on a meeting, you can also attend meetings and compare what I post to what you observed at the meetings. I flag my “comments” so that the reader knows when I have crossed from “facts” to something else.

If you are a concerned unit owner, then I suggest that you attend board meetings.

When I go to public web sites where anyone can say anything about anybody, I know I have crossed into the “Twilight Zone”, that place which, according to Rod Serling, “is the middle ground between light and shadow, between science and superstition. And, it lies between the pit of man's fears and the summit of his knowledge”. So it is with the un-moderated world wide web. Statements made by unit owners at board meetings sometimes fall into the same category. It’s my word against your word, my opinion versus your opinion. We might as well have two TV sets running and facing each other! It would be naive to assume that everyone who uses the web and posts there, does so with altruism. There is ample evidence to the contrary. Ditto for board meetings. Not everything that everyone says is truthful or can be substantiated. That is the nature of certain debates!

I also must point out that while you say that you are “very new to BLMH”, you could be anything but. You could be merely an interested bystander, or a board member. You could also be someone at another homeowners association with an agenda. Who knows?

As a unit owner, I certainly have a bias. I have something at stake at BLMH. Only you can tell me your bias.

Regarding our “board of directors”. These people are the ones who are willing to put their time and personal agendas aside, and be “of service” to our association, or so they have stated. For that I have the utmost respect. However, human beings are also motivated by powerful forces which include fear and greed. "Anonymous", you posted because you say you are "frightened", which could be some proof of what I say. Only you know your true motivation.

I cannot state what motivates each member of our board. But actions do, it is said, "speak louder than words". That is why attending board meetings is of value to unit owners. So that we can see the various members of the board, and other unit owners, at the meeting and observe their actions, interactions, biases and so on. The board is definitely of more interest to me than the management company. Why is that, you might ask? In reply, it is the board that decides what is to be done by whom at BLMH. They hire and fire and they ultimately determine our rules and rule changes, our annual budgets, determine our assessments and determine how our assessments are spent. So the board has a lot of power at BLMH, and my interests rest with those who have the ultimate power, and I am interested in determining if they are acting for the good of the association or not. I have published data which suggests that boards do not always act for the good of the association. They can be and are pressured by unit owners. They can have good intentions and make mistakes. Long term underfunding of reserves was just such a mistake, voted by past boards. The current management company and recent boards were, I understand, instrumental in turning that around. I have written about that elsewhere on this site.

I have observed that some unit owners prefer to ignore the reserve problem as cause for our recent assessment increases. Some also ignore their complicity in the problem; I suppose they would say "the board did it". When a unit owner comes to the board meeting and begins complaining and making statements about "rights", "privileges" and demands for "service" I do have to wonder where they were 15, 20 and 25 years ago. That was a time when the board was awarding negative assessments (giving money back to unit owners) rather than saving for our roof repairs. Now there are those who would have me believe that the recent financial problems are all due to the recent boards and our current management company. The data doesn't support that view.

Currently, there are unit owners who are very unhappy about our assessments. I am certain they are doing all that they can to influence our board and other unit owners. Our board members are also unit owners. They have the same concerns all of us do, but as board members they are to operate to a higher standard and act "for the good of the association". It is unfortunate however, that ethical standards vary greatly. It is also true that one of the best ways to promote a personal agenda is to be elected to the board.

My Initial Thoughts on the Response from the ROC Representative

I'm glad I did get a lengthy response. Of course I have more questions. When I composed my letter, I designed it with some "baiting" questions and statements. I focused on assessment issues because there has been at least one "stormy" meeting with the board about this. However, reading the response of the ROC representative, I am of the opinion that they don't think it's the major issue. On the other hand, in that response it was pointed out that during "last year's budget meeting when outraged residents demanded a reduction of the proposed 8% increase....that was when ROC was formed.."

The fact that the budget meeting was the catalyst for the formation of the "Residents of Change" seems to validate my opinion that assessments were and probably are the major issue for this group. If the existing board is being opaque about the budgeting process, that would rankle owners who are upset about assessment increases.

Communication and community. Sounds good. So does advocating change. But to what purpose?

I particularly like the comment that "there can be no website unless the board allows one." Well, I guess this blog doesn't exist then! Of course, I do understand that an officially sanctioned website with details of budgeting, etc. cannot exist without board approval and the release of certain documents.

I also noted that in the response letter, the ROC representative obliquely responded to my questioning of their statement that they represent the "majority" of residents. This leads me to believe that they do not.

From what I have received to date, I am of the opinion that, for this group, there is a lot of mistrust of the board. To be honest, at present I have more trust of the current board than I do of this group. What is really lacking for the ROC group is a comprehensive "mission statement" or direction for BLMH. Of course, that's a "chicken or the egg" question. We can't have an official mission statement unless it is formulated by the board. Or can we?

I'd like to see an inquiry of "Where do we want this "community" to be in 20 years"? If there were such a comprehensive statement of that type, then "we" the unit owners could determine if the actions of this group were consistent with that "mission statement". The ROC seems most concerned with changing the board. I can understand that; they can't do anything to affect the changes they want unless they are on the board. However, I'm concerned about the possible consequences of anarchy. What happens if the board is reformulated for a small but loud group of dissatisfied unit owners? Will the majority be represented, or that group of dissatisfied unit owners?

I am grateful for the response. However, I must note here that since this is the first time I have been made aware of the FAQ and Questionaire, and because they were not released with the original letter from the ROC that I received last week, there is a possibility that these documents did not exist prior to the response I received.

That does not invalidate this group.

I'm still formulating a formal response to the ROC response and when I have finished, I'll post that complete response here!