The Risk of Failing to Reserve

Our Latest seminar, titled, The Risk of Failing to Reserve was held on Tuesday, August 20.  Fifteen Board Members were in attendance and the comments collected were very encouraging.  If you were unable to attend, I have pulled out some of the highlights and we have also posted the power point presentation from this Seminar for your review. 

Seminar Highlights: 

Reserves are a function of developing a budget.  As an association, we need to ask ourselves, do we want to budget for the amount of fees we assess or do we want to budget based upon the needs of our communities.  The needs of our communities include replacing general common elements (GCE) once their effective life is over.  To determine what those GCE’s are and their current replacement cost is a major component to developing a reserve study.  The rest of the study is a mathematical exercise that is easily attained.

We are at the budget time of year for most communities.  Approximately 70—80% of your budget should be easily determined based on fixed expenses outlined in your governing documents.  The cost of sewer and water, electricity and insurance can easily be determined by examining your budget worksheet provided by your site manager or at one of our budget workshops.  The balance of your budget needs can be completed by talking with your Board about maintenance needs routinely provided by your community.  The reserve allocation must be addressed based upon the current status of your GCE and the current cost for construction labor and materials.  Your managing representative can provide the name of reputable companies who can produce a professional reserve study for your communities’ use.

Funding reserves takes nerves of steel, a resolve to address tomorrows concern and a choice to raise today’s fees a minor amount to avoid large additional assessments in the future.  The choice is yours and the implications impact your entire community.

For the full presentation, please click here

Haste Makes Waste, and Lots of Water

Just before the Holidays, I made a  fateful error involving water and my condo unit.  While attempting to accomplish several  household tasks at once, I inserted the plug in my laundry soaking tub and turned on the hot water.  I am given to not being very patient and have physical and psychological needs to multitask.  The solitary task of watching water run and slowly fill a sink drives me crazy so I automatically looked  around to see what else I could accomplish. I loaded the washing machine, emptied the dryer and carried the laundry basket into our bedroom to begin folding and sorting items. Feeling satisfied that I had completed this mundane household task, I turned on the television and promptly fell into a deep slumber which was interrupted at 2:00 AM when the ceiling tiles in the basement began  crashing to the floor. There is an old saying in the construction world that “water always wins”. Believe it.  The companion mantra we have in the management world is, “insurance is the most important facet we deal with for our associations”. My minor error in multitasking has taken nearly 3 months to rectify but with the help of a great insurance company and repair and reconstruction company, the end is in sight.

My issue and many more will be discussed and evaluated in light of the master insurance coverage at our Tuesday, April 9, 2012 evening seminar.  Plan to come to the Taylor Rd. office to work together on this most important topic.  We are also going to cover issues of fraud, fidelity bonds and management tools to control theft.  It looks to be a busy evening.  Hope to see you in attendance.

Keeping Up With Restrictions

Happy Valentine’s!  As I am working my way through this blog posting, I am alternating between the computer and the laundry room because tomorrow is moving day.  Our vacation is ending in Florida and we have to prepare this condo for visiting guests.  In addition to making sure the unit is sparkling clean and linens folded, I remember  the necessity of  insuring  that our guests know the rules of this community.

In Florida, the governing documents are referred to as Declarations and they are as bulky and uninteresting to read as our well known Master Deed and Bylaw.  Failure to heed some traditional restrictions could ruin an otherwise great vacation.  The draping of a beach towel over the deck rail is guaranteed to produce a visit from a concerned Board member and parking in the incorrect spot will insure towing.  So to reduce the risk of problems, I will print off the “hot topics” and leave them for our friends and visitors to read. 

On our daily walk this morning, my husband and I discussed “hot topics” for associations we represent for Cummings.  We have agreed that annually there are 4-5 issues that we need to focus on for most associations.  To keep those topics first and foremost in the mind of our Directors, we plan to list those goals in the body of each meeting agenda.  That way we will be able to review the goals with every Director and adjust expectations monthly rather than falling short of time as the year progresses.  My husbands’ concern for monthly contributions to the community reserve funds will be #1 for his associations.

Your Board of Directors should collectively have the same goals for minimizing risk as well as enforcing restrictions. Make it a point to discuss with your manager what the hot topics are in your Association. Your fellow homeowners will often call our office without hesitation to share a concern about a possible "violation" in your community. Make sure that infomration is being shared with the board on a regular basis so you know exactly what your membership expects. 

With the winter half over, I hope you have found the time to rest and recharge.  Plan to make a goal for 2013 to meet with us and your fellow comrades in condominium directorship at one or more of our training sessions.  Together we learn so much!

Failure to Plan is a Plan to Fail

It is January and my husband and I are spending time at our winter residence.  These are the days we relax and redefine our lives.  Each year we use this time to review what has happened over the past 12 months, analyze the things that haven’t worked out so well, and make plans for the coming months.    One of our interesting experiences in January is to participate in our association’s annual meeting.  To say the least, it is unsettling to be on the other side of the room listening to, rather than presenting the financial data.  Florida Condominium rules are extremely different than Michigan regarding handling finances.  Reserve funds are assigned to specific categories and are voted on annually by the membership.  Since we are creatures of habit, our building’s membership annually votes to fund the reserves at the lowest allowable minimum.  Our finalized budget carries an ominous warning that says  we have chosen to under fund the reserves, and that we acknowledge the need for future large additional assessments to repair the pool, re-roof and to repaint the building.  Great! 

It is definitely easier planning other people’s monies than it is to be the recipient of bad financial decisions made by ill-advised Directors.  To offset our potential future financial risk, we are discussing setting up the Rick and Kay Florida reserve account so we have the funds on hand when the repairs are contracted.  Forewarned is forearmed. 

This is the same philosophy we adhere to at Cummings Management  by forewarning Directors of the inherent risks associated with community management  and  exploring ways to assume and assimilate all risks.  To this goal, we have scheduled the first two seminars for 2013 and hope to see every Director taking advantage of one or more of our seminars.  We hope our topics are of interest and we encourage  you to join us  at an upcoming Seminar.

How The Budget Is Prepared

Each year you receive a draft of the proposed budget for review and comment. A lot of work goes into preparing the budget. It’s a complex activity that has to start early so the budget can be finalized and approved prior to the beginning of the new fiscal year. Here’s how we do it:

• The board appoints a budget committee to help with some or all of the following tasks.

• The board and manager work together to gather all financial information we’ll need to project expenses for the coming year. This could be a reserve analysis, bids for contracts, projections for utility or service increases, comparisons of past years’ budget trends and many other details.

• The board also examines all sources of income—assessments, interest on investments, proceeds from concession or club operation and other types of miscellaneous income.

• The board creates a working draft by adjusting the expenses and income until they balance. This may be accomplished by foregoing certain expenses to avoid raising assessments. Or it may be necessary to raise assessments to cover increased expenses such as utilities that the board cannot control.

•  When the board has developed the best possible draft budget, the association sends it to every member for review and comment. One of the reasons we start the process early is to allow you plenty of time to study the budget, ask questions and offer comments.

• Based on member comments, the board revises the draft budget as needed.

Are You Adequately Insured?

Condominium owners sometimes assume that the association’s master insurance policy is all the coverage they need. The master policy actually only covers the building, not your personal belongings, or any upgrades you’ve made to your unit. For example upgraded flooring, new cabinets or appliances, or renovations are generally not covered by the master policy. Neither does it cover parts of the building that are used only by you—like the balcony or the pipes that feed into your unit from the main pipes.

All residents need their own insurance for the insides of their units, their belongings, and any damage that might be caused by something within your unit (such as a leaking toilet). In a few rare cases where coverage is provided under the master policy, you will still be responsible for the deductible. To have your personal belongings and any deductibles covered, you need to invest in a condominium owner’s insurance policy, available from most carriers. These policies generally cost only a few dollars each month and are well worth it! Be sure to ask about water or sewer backup coverage. Sewer backups are not unheard of, and a standard policy won’t cover the damage to your unit without a sewer backup rider.

If you have any questions regarding what type of coverage you need, please contact your insurance agent. The association’s agent is also very familiar with the type of coverage condominium owners need and can help you avoid double coverage or gaps in coverage between you personal insurance and the association’s master policy.

Here are some tips from the NAIC (National Association of Insurance Commissioners ) to help you prepare for disasters:


Take an inventory of your valuables and belongings. This should include taking photographs or a video of each room. This documentation will provide your insurance company with proof of your belongings and help to process claims more quickly in the event of disaster. 

To enable filing claims more quickly, keep sales receipts and canceled checks. Also note the model and serial numbers of the items in your home inventory. As you acquire more valuables such as jewelry or antiques, consider purchasing an additional floater or rider to your policy to cover these special items. These types of items typically are not covered by a basic homeowner’s or renter's insurance policy.

 Remember to include in your home inventory those items you rarely use such as holiday decorations, sports equipment and tools.

 Store copies of all your insurance policies in a safe location away from your home that is easily accessible in case of disaster. You may want to store your policies and inventory in a waterproof, fireproof box or in a safe location such as a bank safe deposit box.

 Consider leaving a copy of your inventory with relatives, friends or your insurance provider and store digital pictures in your e-mail or on a website for easy retrieval.

 Know what is and is not covered by your insurance policy. You might need additional protection depending on where you live. Make sure your policies are up to date. Contact your insurance provider annually to review and update your insurance policy.

 Keep a readily available list of 24-hour contact information for each of your insurance providers.

 Find out if your possessions are insured for the actual cash value or the replacement cost. Actual cash value is the amount it would take to repair or replace your home and possessions after depreciation, while replacement cost is the amount it would take to repair or replace your home or possessions without deducting for depreciation. Speak with your insurance provider to determine whether purchasing replacement coverage is worth the cost.

 Speak with your insurance provider to find out if your policy covers additional living expenses for a temporary residence if you are unable to live in your home due to damage from a disaster.

 Appraise your home periodically to make sure your insurance policy reflects home improvements or renovations. Contact your insurance provider to update your policy.

For more information, visit www.InsureUonline.org

Avoiding the Rental Pitfalls in Your COndo Association

Approximately four in 10 homes in suburban America are occupied by renters. If your unit is one of those homes—or about to become one—here are a few tips that will help you, your renters, and the association.

If you are an owner who leases your unit, your Association would like to make the leasing experience successful and positive for everyone by informing you of your responsibilities. This will help preserve your property value specifically and maintain the association’s property value in general.

Your tenants may not be familiar with common-interest community living. Please take a few minutes to explain to them that living in a community association is very different from living in a rental apartment community. Specifically, your tenants, like all residents, are subject to the rules and regulations of the association, and it’s up to you to educate them and see that they comply. The association will assist you in this area, but the responsibility lies with you. We recommend you provide your tenants with written copies of all policies and rules and advise them on the proper use of the association’s facilities. You can obtain copies of these and other useful documents from the manager.

Follow these simple steps and you, the tenants and the association will all have a positive community association living experience:

• Talk to the Manager

The association manager can give you important information about what the association requires of owners and renters and tips about the rental process that will be very helpful, especially if you’re leasing for the first time. The manager has sample leases you can use and copies of the association rules to give to your tenants.

• Check the Documents

Make sure you comply with the association’s governing documents—the bylaws and CC&Rs. They may contain special requirements for nonresident owners who lease their units.

• Educate Prospective Tenants

Be sure to inform prospective renters about the special considerations of living in a community association before they sign a lease. The association will be happy to give you a copy of the rules to pass along. If the tenant does not correct a violation, the association will contact you and expect you to remedy the violation using the recourse available to you through your lease agreement. If you are unable to correct the violation, the association may pursue appropriate legal action against the tenant, and possibly against you.

• Use a Lease Addendum

No doubt you’ll have your renters sign a lease. Please attach an addendum to your lease that covers the specifics of the community association and require renters to adhere to association rules. This is very important because it gives you and the association a means of enforcement. A good lease or lease addendum should support the community by-

• Requiring the tenant to obey the bylaws, rules, and regulations of the association. (Attach copies!)
• Requiring the tenant to pay fines for association rule violations.
• Requiring the tenant to vacate if community association regulations are repeatedly violated.

• Keep the Association Informed

The association asks that you provide the manager with the names and contact information of your tenants. The association will add your tenants to its mailing list, and they will receive the newsletter, invitations to participate on committees, notices of social activities and general association-related information. This information will also be used in case of emergency. Once the lease is signed, give a copy to the association manager or a board member. The more information you provide about your renters, the more successful they will be in our community. Please provide the following information to the association:

• Renter’s name (and children or roommates) and phone number.
• Renter’s email address, employer, or other pertinent details.
  
• Renter’s vehicle description and license plate numbers. This will allow us to provide parking information.
• The number and type of pets, if any.
• Your forwarding address and phone numbers.

• Encourage Tenants to Participate in the Association

Be an advocate for your tenants with the association. Make sure they have access to the recreational and parking areas and that they have the keys and passes they need. Please give them the name and phone number of our association manager.

Even though tenants have no vote on association matters, they are an important part of our community. Make them feel welcome, provide information that will familiarize them with the association, and encourage them to participate in community activities whenever possible. Today’s renters may be tomorrow’s owners—or even board members. The more we all do to promote a sense of belonging for renters, the more positive and successful the leasing experience will be for everyone.