I just received notification that an owner has filed bankruptcy. What should our HOA know about bankruptcy?

 

First off, flag the account – “BANKRUPTCY FILE”!

If you have received notice of the bankruptcy this more than likely means that the association has been included in the debtor’s (owner or former owner) bankruptcy as a creditor.

The bankruptcy filing initiates an automatic stay in place, which means the association cannot proceed with collection against a debtor. It is really important that the association is aware of the automatic stay and abides by the law. The association could potentially face strict and costly penalties if the automatic stay is violated. Play it safe!

The two most common types of bankruptcies we see in our office are Chapter 7 and Chapter 13 bankruptcies.

Chapter 7 Bankruptcy

Most Chapter 7 bankruptcies are “no asset”. This means the debtor likely has no available assets. Unfortunately, it is unlikely for the association to get paid pre-petition (any amounts owed prior to the date the debtor/owner filed for bankruptcy)  amounts owed in Chapter 7 bankruptcies. If the debtor owes delinquent assessments, the association should file a Notice of Appearance to assure that the association receives all notices from the Court regarding the bankruptcy. If the debtor receives a DISCHARGE of their Chapter 7 Bankruptcy, the debtor is no longer personally liable to the association for any pre-petition amounts owed to the association. However, if the debtor is still an owner within the association, the association is still a secured creditor of the debtor; therefore, the association still has a valid lien against the debtor’s lot/unit (note: lien is only valid for 3 years from the date the debt became due and owing).

Chapter 13 Bankruptcy

This is typically called a “wage earners” bankruptcy due to the fact the debtor typically has an income when a Chapter 13 bankruptcy is filed. In fact, there’s actually a “means test” in which an owner must pass to qualify for a Chapter 13 filing. In a Chapter 13 bankruptcy, it is possible the association may get paid for the pre-petition amounts owed through the debtor’s Chapter 13 plan. If a debtor files Chapter 13, the association should file a Notice of Appearance and a Proof of Claim in the case. The Proof of Claim should include the pre-petition debt and attorney fees incurred and anticipated in the bankruptcy.

For more information on bankruptcies, check out our Cheat Sheet: http://mulcahylawfirm.com/news/Trustee%20Sales%20%26%20Bankruptcy.pdf

Contact our firm if you’re a recipient of a bankruptcy notice and you need help interpreting it all… we know it can be complicated and we are here to help!

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Pokémon GO(ers) in your HOA?

Pokemon Go is a location-based, augmented reality game where users on mobile devices attempt to locate virtual Pokemon, which appear on the screen of the mobile device, in real-world locations.  The game’s increasing popularity and associated controversy has (or should) catch the attention of community associations.  Due to the nature of the game, users are led to a variety of locations, which can include association common areas and even private yards.  In addition to the obvious issue of a possible trespass, users who are immersed in the game are also less likely to be paying attention to their surroundings.

So how can your community association address Pokemon users who are entering common areas and private yards?  If the number and frequency of Pokemon related issues is limited, community outreach and awareness may be sufficient.  Circulating a newsletter and/or discussing the issue at a board meeting will raise awareness in dealing with this issue.  The Board can also consider adopting rules and regulations for Pokemon users on common areas.  If the problem becomes more serious, a community association can submit a request to the game’s developer, Niantic, to remove all coordinates located within the community.  Finally, if homeowners are concerned about any suspicious activity, feel endangered and/or witness any type of personal or property damage, we recommend contacting the local authorities.

 

 

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“A Breath of Fresh Air”

Dear Cyber Followers:

April 18, 2017 was the 100th day that the Arizona Legislature has been in session. Our firm is closely monitoring 14 community association-related bills at this time. For a copy of our weekly legislative update summary, please click here:

This week’s Legislative Update 

It has been a slow year for community associations so far in the Arizona legislature. One technical correction bill was passed with minimal impact to community associations (SB1060). Governor Ducey vetoed a bill that would prohibit cumulative voting in community associations (HB2321) and his veto letter indicated that he didn’t think that the government’s role was to regulate how homeowners associations vote. After years of regulation of community associations by the Arizona Legislature, this was a breath of fresh air! For a copy of the Governor’s Veto letter, please click here:

https://apps.azleg.gov/BillStatus/GetDocumentPdf/452277

Our firm is closely monitoring HB2411 (further regulating open meetings in a community association) which will likely move to the Governor in the next week or so. A copy of the fact sheet on this bill (updated on 4/181/7) is below:

http://www.azleg.gov/legtext/53leg/1R/summary/H.HB2411_04-13-17_SENATEENGROSSED.DOCX.htm

We will continue to update you on any developments in the coming weeks. Not only is it getting hot outside – it is also starting to heat up in the Arizona Legislature! Stay tuned!

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Quiet Legislative Year for HOAs

Happy Easter and Passover to everyone!

As you may know, our firm posts an update to any bills pending in the Arizona legislature every  week while in session.  I haven’t been blogging too much about what is going on at the Arizona Legislature since it has been a quiet legislative year for community associations (thank goodness).  Right now, the legislature is “knee-deep” in budget negotiations and until the budget is resolved things will be quiet for community associations.  Here is a quick recap of what is going on to date in the Arizona Legislature:

The Arizona Legislature opened the Fifty-Fourth First Regular Session on Monday, January 9, 2017.  As of April 10, 2017, 2,550 bills have been introduced in the House and 1,550 bills in the Senate.   Our firm is closely monitoring 14 community association bills as outlined below:

Check out this week’s summary by clicking this link!

As you can see from our summary, one community association technical correction bill has already signed by the Governor:

SB1060 HOA/Condo Dispute Process

This is a technical correction bill that formally moves the administrative hearings dispute process for members of a condominium or a planned community from the dissolved Department of Fire, Building and Life Safety (DFBLS) to the Arizona Department of Real Estate Department (ADRE).   Note:  Effective last Summer, hearings were being held at the ADRE, this is just to formalize this change.

Applies to Planned Communities and Condominiums.

And, interestingly, one bill which would have banned cumulative voting once and for all was vetoed by the Governor on March 31, 2017 (so this bill is dead):

HB2321 Homeowners’ Associations; Cumulative Voting; Prohibition

This bill prohibits cumulative voting.

Applies to Planned Communities and Condominiums.

Our firm is closely watching one bill that had movement last week:

HB2411 Homeowners’ Associations; Open Meetings

This bill changes some of the requirements of the open meeting law.  Boards can no longer require advance notice of audio or video-taping open board meetings.  If the board audio or video-tapes an open board meeting, and makes it available to owners on request, the board can prohibit audio or video-taping of open board meetings. The notice of any annual, special or regular meeting of owners must state the purpose for which the meeting is called. Before entering executive session, the board shall identify the section that authorized the board to close the meeting.  At any emergency meeting called by the Board, the Board may only act on emergency matters.

Applies to both condominiums and planned communities.

 

Passed House; Transmitted to Senate, 1st and 2nd read completed, in Committee; Passed Government Committee 2/28/17

Not active since 3/1/17; Majority and Minority Caucuses voted yes on 4/4/17

 

If you would like to be involved in the legislative process, please go to the Arizona Legislature website, www.azleg.gov, to find lists of legislators, phone numbers and calendars regarding Committee work. Or, please feel free to contact me at any time with questions regarding the status of bills or the legislative process (office:  602.241.1093).

Please stay tuned for legislative developments over the next few months!

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What are an Association’s Responsibilities Regarding Record Requests by Owners?

By Beth Mulcahy Esq.

Question: Our association has an owner who requests to review records on a monthly basis. This is starting to become a pain and it requires a lot of time. What are our responsibilities under Arizona law to provide these records to this owner?

Pursuant to A.R.S. 33-1805 (Planned Community)/ A.R.S. 33-1258 (Condo), all financial and other records of the association shall be made reasonably available for examination by any member or any person designated by the member in writing as the member’s representative.
Books and records kept by or on behalf of the association and the board may be withheld from disclosure to the extent that the portion withheld relates to any of the following:
1. Privileged communication between an attorney for the association and the association;
2. Pending litigation;
3. Meeting minutes or other records of a session of an executive session board meeting;
4. Personal, health or financial records of an individual member of the association, an individual employee of the association or an individual employee of a contractor for the association; and
5. Records relating to the job performance of, compensation of, health records of or specific complaints against an individual employee of the association or an individual employee of a contractor of the association who works under the direction of the association. Legislation enacted in 2006 entitles owners to see association books and records pertaining to “contemplated” litigation.

It is important to note that an association cannot charge a member for making books and records available for review. However, the association can charge 15 cents per page for copies of records. An association has ten (10) business days from submittal of a written request by an owner or an owner’s designated agent to make records or copies of the requested records available.

Inspection limitations could include: 1. Inspection and copying of records is limited to regular business hours at the association’s principal office; 2. Membership lists or any part may not be used for any purpose other than a member’s interest as a member; and 3. Membership lists cannot be used for solicitation or sold.

If you are unsure what records can and cannot be released to association members please contact Beth Mulcahy, Esq.

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Is your Association Prepared?

By: Beth Mulcahy, Esq.

We are lucky to live in a place where we don’t have to worry about extreme weather due to winter storms like other places in the country are experiencing.  But, come summertime, you never know when a big dust storm or heavy monsoon may hit! Is your Association prepared? Now is a good time to put a plan in place for your Association if you don’t have one, or to review your plan if you haven’t done so in a while.

How can YOUR community association plan for a natural event?

The board of directors, with the assistance of a committee, may want to look at the possibilities of a disaster and what it might do to the community.

What should your association emergency plan look like? The Red Cross is a valuable resource and can help with an assessment to determine the risks the association might face, how to prepare for them and what to do following a natural disaster. Find information at: http://www.redcross.org/find-help. Additionally, the federal government has information on how to plan for emergencies at Ready.gov.

If it is determined that a disaster plan is necessary, the next step is to fully develop the plan and put it in writing. Include association members, local police and ask for information from first responders in the processes to develop the plan. With community buy-in the plan is more likely to be viable and succeed, should it become necessary to implement.

When the plan is developed and in writing, it is important to communicate with the members of the association. Use the association’s website, newsletters and bulletin boards to post the plan, and be sure that all association members receive a copy. The association may want to draw attention to the plan each year at the annual meeting.

With luck, your association will not need to implement a disaster plan. However, being prepared should something happen gives the board of directors and association members direction and a sense of peace.

If you require assistance regarding emergencies in community associations, please contact Mulcahy Law Firm, P.C.

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New Year Purging: 5 Tips to help Board Members figure out what Community Association documents need to be kept and what to toss

By: Beth Mulcahy, Esq.

Happy New Year! The new year often brings the desire to get organized and clean things out to start fresh! As a Board Member, how do you figure out what can go and what needs to be kept? It is a big decision, but don’t be discouraged, here are a few tips you should keep in mind as you sort through the pile of papers.

Remember, associations are recognized as legal entities, so certain records must be preserved for the proper period of time.

  1. Retain financial records permanently

Accounting statements documenting the association’s history should be retained permanently. Tax forms and supporting documentation must be retained for at least seven years. Banking records for the past four or more years should be kept.

  1. Your governing documents provide the corporate history

The articles of incorporation, bylaws, deeds, easements, contracts, rules and regulations and architectural guidelines are examples of the various records that must be retained throughout the existence of the community association. As updates are made, previous versions should be retained.

  1. Association records should be maintained seven years

All of the documents that contain information concerning the activities of the association should be retained for at least seven years. Details concerning the actions taken are essential when questions arise.

Employment records

Expired contracts

Expired leases

Insurance documents

Accident reports and settled claims

 

  1. The business of the association should be retained permanently

These records should be properly organized so that information is easily found.

Board meeting minutes

Board actions

Homeowner complaints

Email history

  1. Unit-ownership history should be retained in separate files

All documents for each unit must be retained in separate files. This historical record is important for the new owners when the unit transfers ownership.

General correspondence with homeowners

Work orders

Complaints and violation notices

Architectural modification requests

 

It is important to keep and retain records organized for easy retrieval, in a safe storage environment and in accordance with Arizona law. All of my firm’s (Mulcahy Law Firm, P.C.) attorneys are available to answer questions regarding records retention.

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How Should Planned Communities Handle Requests for Solar Panels by Owners… Very Carefully!

 

Beth Mulcahy, Esq.

A very common question that I receive from planned community boards is: “can we prohibit owners from installing solar panels on their Lot?” The short answer is “no”.

Arizona law, specifically, Arizona Revised Statute Section 33-1816 of the Planned Community Act, addresses installation of solar panels or solar energy devises in a planned community and sets forth as follows:

“A. Notwithstanding any provision in the community documents, an association shall not prohibit the installation or use of a solar energy device as defined in section 44-1761.

  1. An association may adopt reasonable rules regarding the placement of a solar energy device if those rules do not prevent the installation, impair the functioning of the device or restrict its use or adversely affect the cost or efficiency of the device.
  2. Notwithstanding any provision of the community documents, the court shall award reasonable attorney fees and costs to any party who substantially prevails in an action against the board of directors of the association for a violation of this section.”

As such, a planned community association may not prohibit the installation or use of a solar energy device (e.g. solar panels) on an owner’s single family residence. The Association may adopt reasonable rules regarding the placement of a solar energy device on the single family residence so long as the rules do not prevent the installation, impair the functioning of the device or restrict its use or adversely affect the cost or efficiency of the device. Please note that the limitations on the Association’s authority to implement a Rule regarding the solar panels are very broad.

Additionally, pursuant to A.R.S. Section 33-439, which applies to both condominiums and planned communities, an association’s Declaration, or other association documents (such as architectural review committee guidelines and rules and regulations, etc.) cannot “effectively prohibit” the installation or use of a solar energy device.

Finally, on February 25, 2003, the Arizona Court of Appeals, Division One, issued an opinion in Garden Lakes Community Association, Inc. v. Madigan/Speak (393 Ariz. Adv. Rep. 9) that interprets A.R.S. Section 33-439. In that case, the Court held that whether or not restrictions in association documents (such as CC&Rs, architectural review committee guidelines, rules and regulations, et.) “effectively prohibit” solar energy devices is a question of fact to be decided on a case-by-case basis. Further, the Court held that the burden of proof is on the homeowners in these cases to prove that the association’s documents “effectively prohibit” the homeowner from installing and using a solar energy device.

In their opinion, the Court provided general guidelines to trial courts and parties involved in or anticipating litigation over restrictions affecting solar energy devices. The Court stated that in determining whether a deed restriction effectively prohibits the installation or use of a solar energy device numerous factors may be relevant:

  • The content and language of an association’s Declaration, restrictions or guidelines;
  • The conduct of the homeowners association in interpreting and applying the restrictions;
  • Whether the architectural requirements are too restrictive to allow solar energy devices as a practical matter;
  • Whether feasible alternatives utilizing solar energy are available;
  • Whether any alternative design will be comparable in cost and performance;
  • The feasibility of making the required modifications;
  • The extent to which the property at issue is amenable to the required changes;
  • Whether decisions previously made by the homeowner or a prior owner are responsible for limiting and precluding the installation of solar energy devices rather than the restrictions themselves;
  • The location, type of housing, and value of the homes in the community; and
  • Whether the restrictions impose too great a cost in relation to what typical homeowners in the community are willing to spend (however, the Court emphasized that cost alone should not be dispositive).

 

In summary, A.R.S. Section 33-439 and the ruling in the Garden Lakes case does not eliminate the power of a homeowners association to impose aesthetic and architectural restrictions on the installation and use of solar energy devices. However, solar energy devices may not be “explicitly prohibited” or “effectively prohibited” by the guidelines of an association or by an association’s interpretation and application of its guidelines.

 

Please contact the Mulcahy Law Firm, P.C. if you need assistance with solar panels.

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

Budgeting and Reserve Funding for Your Association is a must!

By: Beth Mulcahy, Esq.

Here are our Quick Tips for the Annual Budgeting Process that will make sure your board is assessing the current and future needs of the association.

  1. In a planned community, the budget must be approved by the board, but there is no requirement that the budget be approved by the membership prior to the start of the fiscal year (unless the governing documents require this, which in my experience would be unusual).
  2. The Arizona Condominium Act has detailed procedures regarding budget ratification. Pursuant to A.R.S. Section 33-1243, except as provided in the declaration, within thirty days after adoption of any proposed budget for the condominium, the board of directors shall provide a summary of the budget to all the unit owners. Unless the board of directors is expressly authorized in the declaration to adopt and amend budgets from time to time, any budget or amendment shall be ratified by the unit owners in accordance with the procedures set forth in this subsection. If ratification is required, the board of directors shall set a date for a meeting of the unit owners to consider ratification of the budget not fewer than fourteen nor more than thirty days after mailing of the summary. Unless at that meeting a majority of all the unit owners or any larger vote specified in the declaration rejects the budget, the budget is ratified, whether or not a quorum is present. If the proposed budget is rejected, the periodic budget last ratified by the unit owners shall be continued until such time as the unit owners ratify a subsequent budget proposed by the board of directors .
  3. Review last year’s budget and records and compare the differences between what was budgeted and what was actually spent.
  4. Evaluate the needs of the community for the upcoming year.
  5. Assess the needs of the community for the future.
  6. Ask questions of the association’s vendors.
  7. Review and analyze the association’s contracts for possible changes in services.
  8. Receive and analyze information from the vendors with regards to the budget.
  9. Plan for the unexpected.
  10. Budget the line item amount taking all research and information gathered into account.
  11. Prepare for the budget presentation to the board and homeowners.
  12. Present the budget to the board of directors for adoption and the homeowners for approval.

Also, associations should review our Cheat Sheet on Reserves 411.  Proper reserve funding allows an association to provide for the repair, maintenance and replacement of the association’s assets as the community ages.

http://mulcahylawfirm.com/news/Reserve%20Fund%20411.pdf

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

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

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. http://mulcahylawfirm.com/news/Tips%20for%20Preventing%20Theft%20and%20Fraud%20of%20Association%20Funds.pdf

By:  Beth Mulcahy, Mulcahy Law Firm, P.C.

Posted in Board of Directors, Community Association Law, Homeowner Associations, HOA, Enforcement, Finances, Financial | Leave a comment