Fraud and Embezzlement in Your Association-How to Spot It & How to Avoid It

We aren’t the only ones that have seen this in the news week after week! It has happened; there are funds missing from the checking account. Figures do not line up and you cannot get in touch with anyone. The board always sees a financial statement at each board meeting, so what went wrong? Any organization that believes it is immune from the fraudulent use of funds is destined to become a victim.

Mulcahy Law Firm, P.C. encourages boards of directors to identify potential risks and implement steps and actions to correct any risk.

What should you look for? Examples of ways that funds are misappropriated include:
Theft of cash
Fake expenses
Extraneous employees included on payroll
Inappropriate transfers of funds
Use of association funds for personal collateral
False reporting of non-existent financial assets

A perpetrator will have studied the association’s approach to management of records and money. Therefore, proper accounting practices must be followed with complete reviews of financial records at the board meetings to help ensure that attempted fraud would be discovered in a timely manner. Additionally, pay attention to the details, listen to the financial report, everyone on the board must be aware of and be skeptical of any discrepancy that is noticed during the monthly financial review.

Finally, don’t forget that Arizona law (A.R.S. 33-1810 and A.R.S. 33-1243(J)) requires an audit, review or compilation of the association financials every year. Doing this could help prevent or curb fraudulent actions against the association.

For more information, please refer to our Cheat Sheet called Tips for Preventing Theft and Fraud of Association Funds.

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Electric Cars in Community Associations – An Emerging Trend

What is an “electric car”?  “An electric car is an automobile with one or more electric motors that uses electrical energy stored in rechargeable batteries or another energy storage device. Electric cars are around three times as efficient as cars with a normal internal combustion engine.” (Wikipedia) You’ve probably heard of the Tesla S or X or the Chevrolet Spark CV/Bolt EV electric cars.  However, did you know that there are also 30 other highway capable electric cars commercially available today?  By 2023, it is estimated that there will be millions of highway capable electric cars on our roadways!

Electric cars need charging stations.  In response to the increase in demand, electric charging stations are starting to pop up everywhere – hotels, shopping malls, freeways, airports, and, yes, community associations!  According to a White House Statement in July 2016, the number of electric vehicle charging stations was 500 in 2008 and was more than 16,000 in 2016—a 40 fold increase.   States like California and Oregon have already enacted laws related to the installation and use of charging stations for electric cars. However, Arizona has not yet enacted a law pertaining to the installation of charging stations.

Due to the cost, I don’t foresee planned community boards installing free electric car charging stations for its residents on common areas in the next five years.  However, I do foresee condominium boards being approached by owners asking what the procedure is for an owner to install an electric car charging station where they park their electric vehicle in the condominium.  Condominium boards should anticipate this question now and consult with our law firm to plan ahead so it isn’t stressful for everyone when this question is raised.  Failure to allow the installation of a charging station for a condominium owner could lead to bad publicity or a lawsuit against your Association.

Set forth below are some things for a board to consider regarding electric cars:

  • There are different charging levels for electric cars. The various charging levels will require different equipment.
    • Level 1 charging allows the vehicle to be plugged into an ordinary electrical outlet. Therefore, a homeowner would likely be able to plug the vehicle into the outlet in his/her garage without a need for Association involvement.
    • Level 2 charging decreases the time it takes to charge a vehicle and increases the charge power. A level 2 charging station will require that a special circuit be installed. Homeowners can install the equipment in his/her garage, however, they will likely need to hire an electrician to ensure the Association’s electrical system can handle the new circuit.
    • Level 3 charging is the fastest vehicle charging method. It can charge a vehicle is as little as 30 minutes. The Level 3 stations can cost approximately $50,000. This type of station is usually found along interstate highways, in order to charge several cars. As such, this type of charging statement would likely have to be located on the Association’s common areas. The Association would need to ensure the Association’s electric system could handle this electric capacity.
  • Where will the charging station will be installed? Does the charging station need to be installed on common area?
  • If the charging station is installed on common areas, can all homeowners use it or just the owner requesting it?
  • Can the association’s current electric system handle the electric capacity of the charging station? The Association should ask an expert whether the current system can handle the installation of the charging station.
  • Who will pay for the installation costs and the electricity for the charging station? Is there a way to split the meter or charge only the members who use the charging station?
  • Who will be responsible for the maintenance of the charging station?
  • Will the association be responsible for insurance on the charging station? The Association should approach its insurance agent regarding necessary insurance coverage.
  • Is the charging station aesthetically pleasing within the community?

Many of the foregoing considerations will depend on which type of charging station is installed, where the device is installed and who is using the device. Because there are so many variables regarding electric charging stations, our firm recommends that a board speak with our firm prior to establishing rules and regulations or guidelines on charging electric cars within the association. Further, it may be necessary to hire an expert to evaluate the association’s current electric capacity and to evaluate any proposed electric stations or technology in relation to the association’s capacity.

Please feel free to contact our firm with any questions you may have on electric vehicle charging stations in your association or to have our firm create a board policy on electric vehicle charging stations in your association.

 

Sources:

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Community Associations’ Roles in Battling the Opioid Epidemic

The statistics are devastating: more than 100 Americans die each day from an opioid overdose.[1]  The rate of death from opioid addiction has skyrocketed over the last two decades, and drug overdoses now kill more people than gun homicides and car crashes combined.[2]   The statistics regarding opioid addiction are no less startling – in 2014, an estimated 2 million Americans were addicted to opioids.[3]  Without serious intervention on the national, state and local levels, these figures are sure to grow.

Many states have issued emergency declarations over the epidemic, attempting to highlight the issue and provide more resources to help communities address this fast-growing problem.  In June 2017, Governor Doug Ducey followed suit, declaring a state-wide health emergency in Arizona.  The governor’s declaration seeks increased reporting on opioid-related deaths, increased availability of the overdose-reversing drug naloxone, and faster access to treatment.

Given these staggering figures, it’s highly likely that someone in your community has been touched by opioid addiction.  What can a community association do?

First, associations can provide education to residents about the opioid crisis and its effects.  Whether in the form of a specially-held seminar or an agenda item at an regular Board meeting, associations can bring in local experts to discuss the epidemic.

Associations can become involved in fundraising and advocacy efforts, as well.  They can offer their meeting spaces or recreational areas to groups looking to raise awareness of the issue – or looking to raise funds to tackle the crisis.  Community members who are particularly passionate about the issue may want to join forces to lobby local, state and federal lawmakers for additional resources to battle the opioid crisis.

Finally, with the push at all levels of government to make the drug naloxone more readily available, associations should monitor the trend and examine the legal issues related to having naloxone available in the community – just as an association may have an automated external defibrillator (AED) in its clubhouse.  Through these, and other interventions, community associations can be good neighbors in helping to battle the opioid epidemic.

[1] https://www.cdc.gov/drugoverdose/epidemic/index.html

[2] https://www.whitehouse.gov/sites/whitehouse.gov/files/ondcp/commission-interim-report.pdf

[3] https://www.cdc.gov/drugoverdose/opioids/index.html

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BRIDGING THE GENERATIONAL GAP

If you’re a Baby Boomer serving on your community association’s board of directors, you may have already begun noticing a shift in the characteristics and tendencies of your neighbors (and maybe even your fellow board members).  Don’t call me, just email or text.  Can I pay those assessments online?  Our community needs to “go green”!  Do we have a Facebook page?

These are just a few of the comments and questions you may have heard from the younger generation of Millennials within your community.

Defining the Generations (all age ranges and numbers are estimates)

  • Baby Boomers are the demographic born roughly between the mid 1940s thru the mid 1960s and make up approximately 76 million or 24% of the U.S. population. One of the defining characteristics of Baby Boomers is a strong work ethic.
  • Generation X are the demographic born roughly between the mid 1960s thru the late 1970s and make up approximately 41 million or 13% of the U.S. population. One of the defining characteristics of Gen Xers is entrepreneurship.
  • Millennials are the demographic born roughly between the late 1970s and mid 1990s and make up approximately 71 million or 22% of the U.S. population. One of the defining characteristics of Millennials is an affinity for technology.

Whether you’re ready or not, community associations need to start preparing for a generational shift.  Over the next 10 years, Millennials will likely overtake Baby Boomers in terms of home ownership percentage.  As a result, community associations will begin to change to reflect the attitudes/wants/needs/personalities of their members.  So how can your community association “Bridge the Generational Gap”?

The following list, although far from exhaustive, are a few useful tips to help your community bridge the gap:

  • The literal “bridge” between the Baby Boomers and the Millennials is Generation X. Gen X’ers within your association may prove a useful resource in relating to the both younger and older community members.
  • Seek input and participation from representatives of each group. Even if your board does not include a particular generational representative, make an effort to include members of each group in community activities and the community decision making process.
  • The “Notice” conundrum. Many of our clients, especially those with younger board members, are eager to shift towards electronic notices, voting, etc.  Although this can be convenient for most, the Association needs to careful that (1) they are complying with the Governing Documents and applicable Arizona law; and (2) that the minority (those who do not use computers or email) are still accounted for, i.e. hard copies are not yet a thing of the past.
  • Plan Ahead. For larger initiatives that appeal to Millennials, such as “Green” initiatives or electric car parking, the community will need to take a longer term approach to ensure that such initiatives have the support of the community and are budgeted for appropriately.
  • Delegate Wisely. If members of the community are eager for a stronger online presence, appoint a computer savvy Millennial to head a social medial campaign.
  • Understand and embrace the generational differences in your community. A “my way or the highway” attitude will almost never result in a positive outcome.
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FAILING TO PAY TAXES ON COMMON AREAS CAN HAVE DIRE CONSEQUENCES

A recent article in the Washington Post chronicled the plight of an upscale San Francisco community, which failed to pay its common area property taxes, and the savvy investors who took advantage (https://www.washingtonpost.com/news/morning-mix/wp/2017/08/08/residents-of-an-exclusive-san-francisco-street-didnt-pay-their-taxes-so-someone-bought-their-street/?utm_term=.f35a82ccda43).

 

We are aware of Arizona communities who have faced similar issues.  All property owners in Arizona (including individual parcel owners and community associations who own common areas) who are subject to property taxes, could potentially lose their property pursuant to a tax lien foreclosure if they fail to keep the property taxes current.  This can be a very costly and time consuming oversight to correct. 

 

Similar to the San Francisco community referenced in the article, the most common reasons we see for failing to pay taxes is a lack of awareness that the taxes are owed and/or that the taxes are past due.  Take the following steps to ensure that your community does not fall victim to tax lien problems: (1) ensure that your community’s mailing address on file with the County Treasurer (http://treasurer.maricopa.gov/) and County Assessor (https://mcassessor.maricopa.gov/assessor/assessor.php) is up to date (if the tax bill is being sent to the incorrect address, you are far more likely to fall behind); (2) regularly check the tax status of your common area parcels with the County Treasurer; and (3) if you are unsure of the tax status of your common area parcels, immediately contact your community association attorney for assistance.

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Becoming a Champion Board

How can your Board of Directors become the Golden State Warriors of community associations?  While it might seem silly to compare multi-millionaire athletes playing professional sports to volunteer board members of a non-profit corporation, there are a number of similar underlying keys to success.

  • Teamwork: the Warriors are known for playing unselfish, “team” basketball. In much the same way, your Board can achieve success by acting as a team, prioritizing the interests of the community ahead of the interest of any individuals, and playing to the strengths of each individual Board Member.
  • Leadership & Determination: the Warriors lost the 2016 NBA Finals, but used that loss as a road map to avoid similar mistakes and to fuel their 2017 NBA Championship. Similarly, your Board should learn from its mistakes, or mistakes made by prior Boards, to improve future performance.  Furthermore, if your community endures difficult times, the Board will be relied upon for guidance and leadership.
  • Practice Makes Perfect: the Warriors credit much of their incredible play to hard work and practice. Board Members can “practice” by familiarizing themselves with the community’s governing documents and applicable Arizona laws, being prepared for Board Meeting and Meetings of the Members, and committing to a Code of Conduct.

Although performing at an elite level on your Board may not earn you fame and fortune, you will be doing a great service to yourself and your community.  Please visit www.mulcahylawfirm.com/publications for more helpful information on becoming a championship Board Member!

 

Posted in Annual Meetings, Board Meetings, Board of Directors, Community Association Law, Homeowner Associations, HOA, Community Association Management, Education, Volunteers | Leave a comment

New Federal Drone Restrictions

Did you know that in April 2017 the Federal Aviation Administration (FAA) established air space regulations over 133 military locations in the United States? Pursuant to 14 CFR 99.7, through an agreement with the Department of Defense, the FAA has the authority to establish special security instructions for the operation of drones in order to protect the nation’s security. The recent air space regulations prohibit drones up to 400 feet within the boundaries of 133 specific military facilities. The air space regulations apply 24 hours a day, 7 days a week. There are only a few exceptions for these restrictions, and in order to get an exception, the drone operator will need to seek approval from a specific point of contact at the designated military facility. Drone operators who violate these air space restrictions can face both civil penalties and criminal charges.

There are several other federal air space restrictions on drone flights within the United States that you may not be aware of. If you are considering flying a drone, make sure you review all of the federal air space restrictions.  Some of the federal air space restrictions include the following areas:

  • There are Temporary Flight Restrictions that may be active on any given day, in any area of the country, due to a temporary hazardous condition in that area of the country, for example a chemical spill or wild fire. To see a list of active Temporary Flight Restrictions please visit:  http://tfr.faa.gov/tfr2/list.html.
  • There is a “No Drone Zone” in the airspace around Washington D.C. It is the most restricted air space in the country. For more information on            the “No Drone Zone” please visit: https://www.faa.gov/uas/where_to_fly/no_drone_zone/.
  • Drones are prohibited within a radius of three nautical miles of the venue/arena/stadium, one hour before and one hour after any Major League Baseball events, National Football League events, NCAA Division One Football events, or any NASCAR Sprint Cup, Indy Car, and Champ Series races. For more information on the air restrictions for these events please visit:             https://www.faa.gov/uas/where_to_fly/airspace_restrictions/media/Sports_TFR-UAS_Handout.pdf.
  • There are also airspace restrictions for drones around airports. Drone operators should not fly the drone within a 5 mile radius of any towered airport without first notifying the airport and airport control tower. For more information on restrictions in relation to Phoenix Sky Harbor International Airport please visit: https://skyharbor.com/Business/RulesAndRegulations/drones.

For more detailed information on Federal Airspace Restrictions for drones please visit: https://www.faa.gov/uas/where_to_fly/airspace_restrictions/.

Our firm will continue tracking federal regulations on drone usage and those regulations’ impact on community associations. Stay tuned!

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HOAs Turned Police

How far should a homeowners association go to enforce speeding, traffic violations and reckless driving within their community? What should a Board of Directors do when a homeowner or resident speeds or endangers the safety of others in the association with their driving?  In some states around the United States, including Illinois and Florida, there is a growing trend among homeowners associations to issue traffic citations for speeding and reckless driving. A Board in Illinois hired a security department to use radar, lights, and recording devices to issues citations, with established fines in their community.  The security officers also wore special uniforms and badges.[1] Is this taking it too far? Should traffic violations be left to law enforcement?

Arizona does not have a law that specifically allows a homeowners association, through either the Board or other committee, to issue traffic citations. However, under Arizona law, a homeowners association has a duty to protect the safety of its members against foreseeable activities that create a danger or pose a threat. Further, many CC&Rs and Bylaws give boards broad rule making authority to adopt rules and regulations. The CC&Rs and rules and regulations often contain provisions that prohibit an owner from creating a nuisance or threatening the safety of other members. Further, under Arizona law, a homeowners association is allowed to impose reasonable monetary penalties for violations of the governing documents.

So, if your homeowners association is having these traffic issues, what should you do? Our firm has put together some suggestions to reduce speeding and reckless driving in your association.

  1. Talk to local law enforcement about the issue and check with your municipality on whether they have additional support for speed awareness or a speed reduction program.
  2. If your streets are public streets, talk to your local law enforcement about the issue immediately.
  3. If your streets are private streets, post signs in the community and amend your governing documents to include restrictions on speeding and reckless driving. Post speed limit signs and use speedbumps and/or a radar tracking device.
  4. Use the Association’s newsletter, website and bulletin boards to communicate the importance of a safe community.
  5. If your streets are private, and the speed limits are incorporated into the governing documents, write a violation letter and allow for notice and an opportunity to be heard. After the notice and opportunity to be heard, fine owners for the reckless behavior.

If you have questions regarding a reckless driver within your community, call your local police enforcement or an attorney to better understand your enforcement rights and remedies.

 

[1] If you would like more information about a specific case in Illinois where the Supreme Court of Illinois upheld the association’s ability to enforce its rules for speeding violations in the community, please see the case cited below. The court held that the association could stop members for traffic violations and issue citations, with associated fines for the violations. Poris v. Lake Holiday Property Owners Ass’n, 983 N.E. 2d 993 (2013).

Posted in Board Meetings, Board of Directors, Community Association Law, Homeowner Associations, HOA, Education, Enforcement, Fair Housing, Nuisance Issues, Safety in Associations, Social Aspects | Leave a comment

No Lifeguard on Duty? HOA Members and Neighbors on Duty

Summer is officially here.  A few years ago, I witnessed the heroic efforts of a bystander revive a young child that nearly drowned at a community pool. Needless to say, as a mother to two young children, I was rattled to the core by the events of that day. Pool safety is something we all need to keep an eye on.   

The American Red Cross has a complete list of safety guidelines.  If you have a community pool, I encourage you to download this Red Cross Manual on Swimming and Water Safety and provide to members at your next board meeting. Below are some tips that I think are important for associations to consider:

  • If you have the option and the finances to hire a lifeguard, seriously consider doing that for the months/times the pool is open
  • Pool rules should be clearly posted
  • Encourage pool users to swim with a buddy; never swim alone
  • Never take your eyes off a young child at the pool
  • Use non-slip materials on surfaces such as pool decks, diving boards and ladders to prevent pool-goers from falling/slipping
  • A fence of at least six feet (or whatever your city or county code requires) should surround all side of the pool with a locked gate
  • Check (or have a vendor check) the pool often for cleanliness and upkeep
  • Have a sign posted on the pool deck which provides the address of the pool (in case a pool-user needs to provide address of pool to 9-1-1 dispatcher). If your pool has a phone, this sign should be posted near the phone.
  • Have a sign posted that provides CPR instructions
  • Make sure that any railings to be used to get in and out of the pool are properly insulated from heat so that no one burns themselves when they climb in or out of the pool.
  • Prohibit alcohol in the pool area

Does your association have a resident or vendor who likes to “prop open” the pool gate for convenience purposes? For safety and liability reasons, your board should take a proactive stance regarding the improper propping open of a gate/fence. First, the board should consider adopting and enforcing a rule stating that propping open the pool gate/fence at any time is prohibited. The association should also notify homeowners and all vendors (i.e. pool companies/landscapers who might prop a gate open) of rules/policies prohibiting propping open of a gate/fence in writing (i.e. letters, newsletters, etc.). Our firm also suggests that a board post sign(s) at all pool gates and in the pool areas stating the safety rules including the rule that propping open the pool gate/fence at any time is prohibited; also state that these rule(s) were enacted to protect the health and safety of all residents/guests; and that violators will be fined after notice and an opportunity to be heard for a violation.  Additionally, we suggest that the board research an alternative to deter owners from propping open the pool gate. An effective method is to install a gate alarm. When attached to the gate, the alarm creates a loud beeping noise if the gate is propped open. This can be an annoyance to owners living near the pool so the board will need to weigh the pros and cons of a gate alarm vs how serious this issue is at your association.

If the association’s CC&Rs allow the board to revoke residents’ common area pool privileges for violations of the pool rules and regulations, our firm suggests that the board revoke pool privileges for violations of pool safety rule(s).  Have a great summer and be safe in and out of the water!

Posted in Annual Meetings, Board Meetings, Community Association Law, Homeowner Associations, HOA, Community Association Management, Education, Enforcement, Maintenance, Nuisance Issues, Safety in Associations, Social Aspects | Tagged , | Leave a comment

THE FUTURE OF GOING SOLAR?

Arizona law favors the use of solar energy devices by homeowners within community associations. In fact, pursuant to A.R.S. Section 33-439(A), “[a]ny covenant, restriction or condition contained in any deed, contract, security agreement or other instrument affecting the transfer or sale of, or any interest in, real property which effectively prohibits the installation or use of a solar energy device as defined in section 44-1761 is void and unenforceable.”

A common issue in Planned Communities is the location of solar roof panels.  Although Planned Communities are permitted to adopt certain rules and regulations regarding the placement of solar roof panels, those rules shall not effectively prohibit installation or adversely impact the functioning, cost or efficiency of the device. Oftentimes the Board’s desire to limit the aesthetic impact of the solar roof panels is at odds with the homeowners’ statutory right to place the solar panels in a location where they will function properly.  Has Tesla created the perfect compromise?

The Tesla solar roof utilizes solar panels that also act as, and mimic the aesthetic appearance, of roof tiles.  In other words, the roof tiles are the solar energy device.  For more information and details, please visit https://www.tesla.com/solarroof.

Although these types of roofs may not become common immediately, we can certainly expect homeowners who are interested in solar energy to consider it as an option moving forward.  Furthermore, an Association interested in a solar initiative may consider the Tesla solar roof on common areas.

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