By Nicole Stone, LMI Colorado
Water efficiency is not a buzzword anymore, it is a term that is here to stay and a term that everyone in the green industry is paying lots of attention to. Today, irrigation systems have shifted from a supplemental water system to a lifeline keeping landscaping healthy and turf green. As we become more reliant on irrigation systems, we also increase our dependency on the mechanics of these systems.
Today’s landscape irrigation systems have greatly advanced in technology. Products range from Netafim, MP Rotators, MPR nozzles, mini-click sensors, pressure regulating heads, ET Water, Two-Wire systems, Weathermatic clocks, and the list keeps going as these all are all designed to help conserve water.
From the controller, heads, fittings, pipe, and other components of an irrigation system; wear and tear and maintenance become critical to the system's lifespan and the efficiency of the system being installed or even upgraded. Whether it is installing a new irrigation system or upgrading an older irrigation system, water efficiency needs to be the priority when discussing design, renovation, or upgrades. However, incorporating these new products into an aging system takes proper planning and proper implementation.
The first step toward implementing water-wise irrigation components into an existing system would be to have an audit done. The good news is even though a system is older does not immediately imply the system can’t be upgraded or retrofitted to become more efficient. Once you have completed the audit the next will be to replace, maintain, or upgrade which will depend on many factors.
Start by reviewing the repairs, downtime, and costs for the annual repairs along with looking at the type of repairs. Consistent breakdowns can be a sign of an improper original installation, root pinches from aging plant material, and wear and tear on parts. Next, the efficiency of a system becomes critical as the reliability has shifted greatly on our irrigation systems to keep our landscape lush. As you look around the property have bed lines changed, has the original intent of the irrigation been shifted to meet the changing landscape design? All of these factors will play a role in the longevity and efficiency of an irrigation system.
Once you have your irrigation system running efficiently routine maintenance becomes a critical aspect. Just like a tune-up or oil change on a car maintenance is required to keep your irrigation system functioning to the best of its capabilities. Routine maintenance can include checking heads, raising and lowering heads, inspecting the valves and solenoids, and the master valve. Incorporating into your maintenance programs weekly/bi-weekly system checks can assist in keeping your irrigation system functioning with the least amount of downtime.
Today we have lots of new waterwise irrigation technology, remember it is about finding the best solution for your situation. When installing, upgrading, or retrofitting Colorado irrigation systems is also good to remember the climate cycle. Colorado has a harsh freeze/thaw climate cycle that can weaken fittings, pipes, and heads has been directly correlated to lessening the life cycle of these components. After reviewing all the elements and determining the best efficiency technologies for your irrigation system you can start planning your implementation process and start your journey to a waterwise and tech-savvy irrigation system.
Nicole Stone, VP of Business Development for LMI Colorado is originally from Nebraska but a Coloradan at heart, has been working in the Green Industry for over two decades. She is experienced in construction, estimating, irrigation, and all facets of landscape maintenance.
By Russell Munz, Community Financials
This article expands on the 2024 Insurance and Ethics issue article about the pros and cons of outsourcing in community management. It explores new trends and offers practical advice on how communities can benefit from outsourcing various functions.
Overview of Outsourcing in Community Management
Outsourcing has been a common practice for communities, involving specialized services such as Reserve Studies, Insurance, Legal Counsel, Structural Engineering, Construction Project Management, and Tax and Audit work. Communities have also outsourced tasks like mailing and payroll. Recently, there’s been a shift towards outsourcing additional functions to streamline operations and manage costs effectively.
Emerging Trends
1. Monthly Accounting
Self-managed boards are increasingly hiring external accountants for monthly dues collections, bill payments, and financial reporting. This approach reduces the workload on volunteer board members and can make the Treasurer’s position more appealing. Outsourcing accounting can lower fixed costs, provide backup staff for continuity, and improve system efficiency. Some boards are even separating accounting from managerial roles for better checks and balances or choosing to outsource accounting to avoid the need for in-house staff.
2. Software and Systems as Part of Outsourcing
Modern software solutions are also part of the outsourcing trend. Tools like AP automation and bank lockbox check scanning help automate payment collections and streamline data management. These systems can be integrated into comprehensive community management software, reducing manual data entry and minimizing errors. This integration improves overall efficiency and saves time. Outsourcing election services can alleviate the stress of handling elections for volunteers and managers. Services that manage online and paper voting, along with meeting support, help ensure a smooth electoral process. Communities that are self-managed may outsource resale and refinance paperwork to reduce the risk of delays or errors, which could otherwise jeopardize sales. This also saves valuable volunteer time. Minute-taking is another task often outsourced to allow board members and managers to concentrate on more critical meeting activities. Specialized services ensure accurate and efficient documentation.
3. Additional Outsourcing Areas
Elections
Resale and Refinance Paperwork
Meeting Minutes
Legal Considerations
When outsourcing, it’s crucial to address several legal aspects. Contracts with service providers should clearly outline the scope of services, responsibilities, and liabilities. Include performance metrics and dispute resolution procedures to manage expectations and address issues effectively. Data protection and privacy are also essential, especially when handling sensitive information. Ensure compliance with relevant data protection laws and implement measures to safeguard community data.
Cost-Benefit Analysis
A financial analysis can help communities evaluate the costs versus benefits of outsourcing. Compare the expenses of maintaining in-house management versus outsourcing to identify potential savings and improvements. This analysis can provide a clearer picture of how outsourcing might impact your community’s budget and operations.
Best Practices
To successfully implement outsourcing, select service providers carefully and manage contracts effectively. Regularly monitor the performance of outsourced services to ensure they meet your community’s needs. Establishing clear communication channels with service providers can also help address any issues promptly and maintain service quality.
Potential Challenges
Outsourcing can present challenges, such as ensuring the quality of service and integrating new systems with existing processes. Address these challenges by developing strategies for effective oversight and managing service provider relationships. Additionally, you’ll want to see reviews or references say that communication with the company meets expectations. This will help ensure that outsourcing arrangements align with community goals and expectations.
Future Trends
Stay informed about emerging trends and technologies in outsourcing. Advancements in software and service models can impact community management practices. Understanding these trends can help communities stay competitive and take advantage of new opportunities to enhance their operations.
Evaluating Outsourcing Opportunities
Examine your community’s current practices and assess whether outsourcing could provide benefits. Are you getting the value you expect from current services? Is your board focused on high-value tasks? Research the market, obtain proposals, and consider whether outsourcing could improve efficiency and effectiveness. Taking these steps can help you make informed decisions about outsourcing and optimize your community management strategies.
Russell Munz, CMCA is a licensed CAM in 6 states and founder of Community Financials, a remote monthly accounting service for HOAs and condos nationwide. They provide systems and services to make accounting and operating communities easier. You can learn more about Russell at Community Financials website or LinkedIn.
By Gabrielle Fuerst, CAP Management
Sustainability is no longer just a buzzword in today’s real estate market. It has become a key factor significantly influencing property buying decisions. Understanding how sustainability initiatives impact property values has never been more crucial. Encouraging associations to pursue sustainability projects is not only ‘the right thing to do’, but is provides material financial benefits that result from energy - and water -saving projects. This allows HOAs to spend their money more wisely on preventative maintenance and other capital improvement projects, rather than excess energy costs. Additionally, projects associated with resource conservation tend to have short payback periods, often less than 10 years, especially if the association takes advantage of federal tax credits such as the Federal Investment Tax Credit for solar. As a result of the Inflation Reduction Act, this tax credit and many others are now available as direct payments to HOAs, whereas before, HOAs were not eligible.
A second, more intangible financial benefit can be found in the increased property value from these building improvements. Energy efficiency and renewable energy technologies may be expensive to purchase and install up-front, but they reap continuous benefits for the entire useful life of the equipment. These additions thereby offer added value to the resident, who will benefit from decreased energy costs and rebates for electricity production for years to come. These improvements prepare communities for the future and enhance their resilience in the face of an increasingly unpredictable climate. What do these increases in property values amount to?
The Value of Going Green
A property can see a 3%–4% boost in value with the addition of solar panels. This means that the value of a $300,000 home will increase by $9,000 - $12,000. Denver, with its ample sunshine and supportive incentives, is particularly well-positioned to benefit from solar energy. According to the National Renewable Energy Laboratory (NREL), solar installations not only lower reliance on traditional energy sources and provide long-term cost savings on energy bills, but they also make properties more attractive to environmentally-conscious buyers.
Upgrades such as high-efficiency HVAC systems, new windows, and advanced insulation can boost property values by 1% to 5%. Practically, this means an average home can see added value of $8,000 - $20,000. Cities that have strong energy efficiency programs like Denver report significant benefits from these improvements. Energy-efficient homes are not only more appealing but also promise lower utility costs—a major selling point for potential buyers (ENERGY STAR) (Energy.gov).
In Denver, LEED-certified properties can experience an 8% to 10% boost in value, as a result of the growing demand for sustainable and energy-efficient buildings. These properties often command higher rents and resale values, reflecting their enhanced marketability and reduced operating costs (Vert Energy Group) (Sysconverge) (ULI Colorado) (Rocky Mountain Institute).
Electrification measures, such as modern electric heating and cooking systems, can increase property values by 2% to 6%. In cities with advanced electrification programs like Denver, this impact is even more pronounced. By converting fossil fuel-burning appliances to electric power, homeowners can enjoy reduced utility bills and cleaner, more efficient energy use. This shift aligns with broader trends toward energy efficiency and sustainability, further supporting property value increase (Schneider Electric Blog) (Rocky Mountain Institute).
Why It Matters for HOAs in Denver
With these sustainability initiatives, HOAs can capitalize on the growing demand for green homes, improve marketability, and reduce operating costs through available incentives.
Sustainability is not just a trend but a strategic advantage in the real estate market. By investing in solar panels, energy efficiency upgrades, green certifications, and electrification measures, property owners and HOAs in Denver can significantly enhance property values while contributing to a more sustainable future. Stay informed about local market trends and available incentives to make the most of these opportunities.
Gabrielle Fuerst is the Chief Sustainability Officer of CAP Management and helps CAP’s properties navigate relevant legislation and implement resource-saving projects. Merihan Ahmed is an Impact MBA Fellow with Colorado State University’s Impact MBA program, which focuses on using the private sector for social good and proving the business case for sustainability.
By Rob Kabza and Nate Skrdla, ASR
Fire safety is a critical aspect of building design and construction. Understanding fire ratings for building materials and adhering to best practices can significantly reduce the risk of fire-related incidents and enhance occupant safety.
Fire Ratings for Building Materials
Fire ratings are a measure of a material's ability to withstand fire and limit its spread. These ratings are essential for ensuring that buildings can resist fire long enough to allow safe evacuation and to minimize structural damage. Key fire ratings include:
Best Practices for Fire Safety
Implementing best practices in fire safety involves a combination of proper material selection, design considerations, and maintenance procedures. Here are some essential practices:
Conclusion
Fire safety is a multifaceted discipline that requires careful consideration of building materials, design, and maintenance. By understanding fire ratings and adhering to best practices, building owners and occupants can significantly reduce the risk of fire-related incidents, ensuring a safer environment for everyone.
About Rob Kabza, President of ASR Companies – Rob has over 30 years of construction management experience in Colorado, with a primary focus on project management, construction operations and reconstruction projects. He oversees production and quality management, and provides leadership for all projects from the preparatory planning phase through the construction completion. Rob received his B.S. in Construction Management from Colorado State University.
About Nate Skrdla, Director of Construction at ASR Companies – Nate has over 25 years of Construction Management in Project Planning, Project Management and Purchasing experience. His focus is on Trade Partner, Vendor and Supplier relations. He supports the production team in meeting project goals, timelines, and budgets. Nate received his B.S in Construction Management from the University of Nebraska at Kearney.
By Greg Kelly, Senroc Technologies
In an era where our personal and work lives are more connected to digital technology than ever, it is crucial to establish a strong first line of defense to protect our virtual worlds. Fortunately, you have access to tools that make learning the basics of cybersecurity easy and effective.
Cybersecurity is the implementation of safeguards to protect our digital assets, including ourcomputers,networks,anddatafromcyberattacksaimedataccessing,altering,ordestroying sensitive information. Picture a scenario where a property manager receives an email requesting payment from a well-trusted security vendor for a homeowners’ association in their portfolio. Unbeknownst to this property manager, the email account of the security vendor has been compromised and a threat actor is sending invoices with wire transfer information to their own bank account. Without safeguards to assist in verifying the authenticity of the email, there is a higher chance this property manager could inadvertently send funds to the threat actor resulting in financial losses for the HOA. With proper cybersecurity practices and tools in place, this scenario is avoidable!
The Importance of Cybersecurity for HOA Property Managers
For HOA management companies and their property managers, implementing a cybersecurity plan is not just a “should do”, but a “must do”. It is their fiduciary duty to their clients to take the steps necessary to protect the client’s interests. Property managers are highly trusted professionals who require an elevated level of access to perform everyday functions for their customers. With this high level of access comes a high level of responsibility. The consequences of a failed security effort can be devastating for a management company as well as their clients. Potential consequences can range from access to HOA bank information, unauthorized approval of money movements such as wire transfers as well as submittal and approval to pay invoices.
The Importance of Cybersecurity for Board Members
Board members are the lifeblood of an HOA and provide important decision making to ensure the health and financial vitality of their community. With this influence, they also take on a level of risk and face potential consequences when not taking steps to improve their cybersecurity stance.The most common result of a poor cybersecurity stance is a compromised identity. Once a threat actor has access to an email account, they are now the digital representation of you. For typical HOA tasks such as submittal and approval of invoices or check signatory authority, a compromised account could lead to money being stolen from the HOA through seemingly normal means.
Some Simple Ways to Implement Cybersecurity
The first step is to grasp how essential cybersecurity is. Check!
The next steps are to implement practical protective measures that can greatly diminish the threat of being the next victim of cybercriminals. Here are a few useful tips everyone should use.
Practice recognizing phishing
Phishing is an attempt to steal personal information or break into online accounts using deceptive emails, messages, ads, or sites that look like sites you already use. Threat actors will use your trust with reputable companies, friends, or acquaintances, to get you to access fraudulent websites, or files, designed to capture your sensitive data. These attempts can be difficult to spot, but taking some extra time can help identify potential scams. Here are a few quick points of things to pay attention to:
Take steps to secure your accounts
All of us are probably guilty of using some variation of the same password across many of our accounts. While it is convenient, it can also be an easy way for threat actors to gain access to one or more of your accounts. If they know you login to your email account with one password, they can try that same combination of email address and password for other common accounts (ex. banks, shopping websites, etc.). For this reason, it is a good idea to use strong and unique passwords for each service you use. Since it can be daunting to have so many different passwords, you can use a trusted password manager to help you keep track of passwords across different services. In addition, you should always take advantage of multi-factor authentication (MFA) whenever a service offers it. It’s an easy way to help keep a threat actor out of your account even if they have gained access to your password.
Verify with a call
This one almost seems too easy, but simply making a call when questioning the validity of something can be the most effective way of thwarting a fraud attempt. Some threat actors are smart to put a phone number on their medium of choice, so if you are looking for a phone number for a provider use known good sources such as a company website or your own known contacts to ensure you have a real phone number.
So, there you have it! Ensuring the safety of data and information is a collective duty that needs constant watchfulness and proactive security measures. Those in charge of managing and governing HOAs must take this obligation seriously so those living in their community can thrive. The very nature of the HOA industry in the digital age makes property managers and board members a prime target. Takingtheproperstepstoestablish a strong cybersecurity stance ensures you fulfill your fiduciary responsibilities of HOA communities you lead.
Greg Kelly is the founder of Senroc Technologies, a Managed IT Services company in the Denver area since 2013. With over 13 years of experience working within the HOA Management industry, he brings a unique perspective to marrying the HOA and IT worlds.
By April Ahrendsen, First Citizens Bank
As a homeowner, making sure your dues are paid on time is crucial. Timely payments ensure everything runs smoothly and you avoid late fees or penalties. But with so many payment options available, how do you choose the best one? In this article, we'll dive into four popular methods: mailing a check, using an eCheck, setting up an ACH transfer, and paying with a credit card. We'll break down the pros and cons of each for homeowners, and even touch on how Positive Pay can help prevent fraud for HOAs with a business account.
Let’s get started!
Primary Methods for Paying Homeowner Dues
When it’s time to pay your homeowner dues, you have several options. Here’s a quick look at each:
- Mailing a Check: The traditional way of sending payments.
- eCheck: A digital version of the paper check.
- ACH Transfer: Direct bank-to-bank transfers.
- Credit Card: Quick and easy payments.
Now, let's take a closer look at each method, starting with the good old-fashioned check.
Paying Dues by Mailing a Check
Pros
1. Familiar Method: Sometimes, the old ways are the best ways. Mailing a check is familiar and straightforward, especially if you’re not too keen on digital payments.
2. Record Keeping: Physical checks give you a tangible record of your payment, which can be handy for personal accounting.
3. No Additional Fees: Generally, there are no extra fees when you send a check. It's a cost-effective method as long as you have checks and stamps.
Cons
1. Time-Consuming: Writing and mailing checks can take time. Plus, there’s the wait for the check to be delivered and processed.
2. Risk of Loss or Theft: Checks can get lost or stolen in the mail, potentially delaying your payment and exposing you to fraud.
3. Delayed Processing: Mail delays can push your payment date, and the recipient might take a while to process the check.
4. Lack of Tracking: There’s no way to know exactly where your check is or if it will arrive on time, adding some uncertainty to the process.
Mailing a check is like sending a letter — it has its charms but also its risks. Let’s see how eChecks stack up in comparison.
Paying Dues via eCheck
1. Convenience: eChecks can be issued online, so you don’t need to worry about writing or mailing physical checks.
2. Lower Fees: Typically, eCheck transactions come with lower fees compared to credit card payments.
3. Security: eChecks are processed through secure online platforms, reducing the risk of loss or theft.
4. Efficiency: eChecks are generally processed faster than mailed physical checks, with funds often transferred within a day or two.
5. Control: eCheck payments offer greater control since you can schedule payments and manage them easily online compared to ACH.
1. Setup Required: Similar to ACH, setting up eCheck payments means you’ll need to provide your bank account information, which can be a concern for some people.
2. Processing Time: While faster than mailing checks, eCheck processing can still take a day or two, which might not be quick enough for urgent payments.
3. Bank Charges: Some banks might charge for eCheck transactions, although these fees are usually lower than credit card fees.
eChecks offer a convenient middle ground between traditional checks and more modern digital payments. But what about ACH transfers?
Paying Dues via ACH
1. Low to No Fees: ACH transfers typically have lower fees compared to credit card payments.
2. Automated Payments: Can be set up for automatic withdrawals, ensuring timely payments and avoiding late fees.
3. Security: ACH payments are securely processed, minimizing the risk of loss or theft associated with mailing checks.
4. Direct Transactions: Money is directly transferred between bank accounts, making it a straightforward option.
1. Setup Process: Setting up ACH payments may require providing sensitive banking information to your management company, which can be a concern for some.
2. Processing Time: ACH transactions may take a few days to process, which can be an issue if immediate payment confirmation is needed. The homeowner does not get to choose the payment date.
3. Potential for Overdrafts: Automated withdrawals can lead to overdrafts if the account balance is insufficient.
4. Availability: As restrictions and regulations increase more management companies are opting not to offer ACH as a payment option. In addition, there is the task of receiving and securing the payment information from cybertheft.
ACH transfers are secure and low-cost, but setting them up requires a bit of preparation. Let’s explore how credit cards compare.
Paying Dues via Credit Card
1. Convenience: Just type, click, and you’re done! This method saves the time and effort needed to write and mail checks.
2. Rewards and Cashback: Many credit cards offer rewards points or cashback for purchases, which can add up over time.
3. Immediate Confirmation: Transactions are processed quickly, giving you immediate confirmation of your payment.
4. Payment Tracking: It’s easy to track and manage payments through monthly statements or online accounts.
5. Safety: Credit card transactions are generally secure, and many cards offer fraud protection that can help resolve unauthorized charges quickly.
1. Fees: Some service providers charge a convenience fee for credit card payments, which can add up.
2. Interest Charges: If you don’t pay the balance in full each month, interest charges can accrue, leading to higher overall costs.
Using a credit card for payments is fast and convenient, but it’s important to be aware of potential fees and interest charges.
Positive Pay for Homeowners Associations
Positive Pay: This is a fraud prevention service that many banks offer to businesses and HOAs.
Here’s how it works: You provide your bank with a list of the checks you've issued, including details like check numbers and amounts. When a check is presented for payment, the bank compares it against your list. If the details match, the check is cleared. If not, the bank flags it for review. This way, only checks you’ve authorized get processed, helping to prevent fraud
Choosing the Best Payment Method
Choosing your payment method depends on your priorities.
- Convenience: If this is your top priority, credit card payments or eChecks might be your best bet.
- Cost: If you're looking to save on fees, ACH transfers or mailing a check are generally cheaper.
- Security: For the highest security, consider eChecks or ACH transfers.
- Speed: Need quick processing? Credit card payments are usually the fastest, followed by eChecks.
- Control: Want to keep tight control over your payments? eChecks and credit card payments offer excellent tracking and management options.
Ultimately, the best method is the one that fits your lifestyle and needs. Evaluate the pros and cons, and choose the option that gives you peace of mind.
Paying and managing homeowner dues doesn’t have to be a hassle. Whether you prefer the traditional method of mailing a check, the convenience of a credit card, the security of an eCheck, or the reliability of an ACH transfer, there’s an option that’s right for you. And with tools like Positive Pay, your HOA can add an extra layer of security to your payments. Choose the method that best suits your needs, and stay on top of your dues with ease.
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.
April Ahrendsen - Vice President – Regional Account Executive First Citizens Bank, is responsible for the business development of Association Banking products and services. With over 19 years of experience in the HOA banking industry, April is a native Idahoan and an active member of the Community Associations Institute, where she chairs one committee in Colorado and is the Idaho CAI board President. She is dedicated to continued education and industry improvement, presenting to associations across multiple states and writing articles on HOA lending and investments for CAI chapter magazines.
By Kevin Lucas, RealManage
Nobody LIKES to have those hard discussions with board members and homeowners on the reality of the Association’s financial health, but it is increasingly becoming a necessity within the HOA industry. Over the past 10 years, we have endured dramatic price increases across the board, including basic labor rates, material price increases in some industries of more than 100%, and insurance premiums that have skyrocketed. It is a rarity for an HOA board to adjust assessments in a timely manner when these increases occur, as most often the increase is realized after an annual budget has already been ratified. So, each year the board is faced with not only planning for another unknown increase, but also trying to make up for previous increases that were realized after the last budget ratification process. In most instances, a board is stuck playing catch-up when it comes to financial health.
It is imperative that CAMS and boards have those hard discussions on the reality of the financial impact of previous increases and potential future increases, when preparing for the upcoming budget process and ongoing conversations with homeowners. Simply stated, within an HOA, there are two ways to balance a budget – 1) Reduce costs incurred to reduce the cash outflows of the association; and/or 2) Increase inflows of cash through the increase of assessments.
Most associations have already been working on reducing costs, and as a result, most associations are at the BARE MINIMUM of services being provided. This “tightening of the belt” by most boards has worked in reducing the overall assessment increase, but many homeowners are now noticing the reduction in the services performed by the HOA.
The only other way of balancing a budget is to increase the cash inflow, by increasing assessments, to cover the additional costs and recoup the previous unbudgeted increased costs that most associations have already incurred. The conversation of increasing assessments always comes with negative connotations, as nobody likes to pay more for the same services (or even reduced services), but just as homeowners are now paying much higher prices for gasoline, bread, and beer, the vendors that perform the services are all paying for higher priced gasoline, labor, and insurance.
When CAMS and boards sit down to discuss the upcoming budget, a discussion based in reality is required. Review the costs incurred that were higher than the budget, to determine the total amount of previous year’s shortfall that needs to be recouped, have a legitimate discussion on anticipated costs for the upcoming year on those items that historically have been higher than anticipated, and then also have a conversation regarding service level changes that have occurred (or are still on the table to occur in the future), before any budget discussions are held. By documenting the shortfalls realized, service level reductions instituted, and cost increases anticipated, the board can then list out the necessity of an assessment increase in black and white when presenting a proposed budget to homeowners. There is nothing wrong in being cordial when having those discussions, but laying out the facts of the association’s current financial position is necessary to avoid rumors, differences of opinion, and assumptions.
The discussions are never easy when it comes to the financial impact of increased assessments on individual homeowners, as it will have a very personal impact on each individual differently. It is important to remind homeowners that the HOA is a business that is in charge of running a community, versus a community trying to run a business. Hard decisions are the responsibility of the elected board members to move the organization in a positive direction to help the overall health of the community. By presenting the FACTS in a very concise and easy to understand presentation, it is easier to educate the homeowners on the reasoning behind the proposed assessment increase, along with the alternatives of not making the hard decisions. Showing compassion of the impact these decisions have on individuals is a necessity, but it is important to stay focused on the overall impact on the community, as opposed to the individual.
This can be considered a harsh approach, but the presentation of FACTS, ALTERNATIVES CONSIDERED, and the ANTICIPATED IMPACTS of those decisions can be considered a “Tough Love” approach when presenting information to homeowners. When decisions can be boiled down to basic math – more funds need to come into the HOA to pay for the higher costs incurred to avoid the reduction in the level of services – homeowners may not LIKE the results, but they can understand why decisions were made as they were.
Kevin Lucas CPA is a Financial Manager for RealManage and has been in the industry as a Management Company Owner for 20+ years, before joining the RealManage team. Financial Stewardship has always been my priority, with individual compassion sprinkled in, but I feel that Association Financial Health is our industry’s top responsibility.
By Angela Hopkins, Esq, Altitude Community Law
There are times when a community association may need to explore its funding options, such as if it is considering a large construction or renovation project for the community. A loan may be an attractive option to avoid relying on increased assessments, special assessments, or reserves alone to fund the project. Ultimately, whether a loan is a good option for your community is up to the association to decide. However, an association must review their governing documents to determine: (1) if the association has the authority to borrow funds; and (2) whether there are any conditions related to the association taking out a loan.
Authority to Borrow Funds
Usually the association’s declaration includes language regarding the board’s authority to borrow funds or use the common elements as security. However, for older associations, sometimes this language can be found in the articles of incorporation or bylaws. The governing documents may grant your association the express authority to borrow, impose conditions on the association’s authority to borrow, or prohibit borrowing altogether. If none of the documents address whether your association can take out a loan, then you can rely on the Colorado Revised Nonprofit Corporation Act (“CRNCA”), which grants nonprofit corporations the general authority to borrow funds.
Possible Conditions to Borrow Funds
The most common condition we see on an association’s authority to borrow is the requirement to obtain owner approval; however, the declaration could also impose limitations on the amount that can be borrowed, the amount that can be borrowed without owner approval, or what collateral requires owner approval. Lenders will ask whether or not the community association has obtained all requisite approval to take out the loan; therefore, it is important that the board know from the beginning whether or not an owner vote will be required as this adds an extra step to the process.
If you have a digital, searchable version of your governing documents, you can search for such terms as “borrow,” “collateral,” and “encumber.” The language you are looking for may be in its own titled section, or it may be in a list of the association’s powers and rights. Once you find the language regarding the association’s authority to borrow funds, you should verify whether there are any other conditions that must be met to obtain the loan. There are many types of restrictions that may be apply to loans, including, but not limited to:
It is very important to verify your governing document language relating to the association’s authority to borrow funds to make sure you are aware of such conditions.
Collateral
Most lenders require a community association to pledge or assign its right to future income as collateral (i.e., the lender wants to be able to collect homeowners’ assessments directly in the event of default). If your community association was created on or after July 1, 1992 then Section 302(n) of the Colorado Common Interest Ownership Act (“CCIOA”) allows your association to assign its right to future income only if the declaration expressly allows such assignment. As such, the declaration must contain language allowing the association to assign its right to future income. If the declaration is silent then the association does not have this authority and should consider amending its declaration.
If your community association was created before July 1, 1992 and your declaration is silent then your community may be able to rely on the CRNCA for authority to pledge its income without having to amend your documents.
Additionally, ownership approval might be required if the association uses the common elements as collateral. The governing documents may place this restriction if the board intends to mortgage, pledge, deed in trust, hypothecate or otherwise encumber the common elements as security for the loan. Therefore, the board may need to consider what kind of collateral it will use for the loan.
It is not an absolute right of all community associations to obtain loans. As such, it is very important to review your governing documents to determine if there are any prohibitions or conditions for the association to seek a loan before starting the loan process. If membership approval is needed, that should be obtained so that the lender/bank can be provided evidence that all of the governing documents’ requirements have been met. If you review your governing documents and still are not sure whether your association can obtain a loan, it is recommended that you seek legal guidance.
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Angela has been practicing community association law since 2017 and has represented common interest communities in transactional, collection, foreclosure, and covenant enforcement matters. As such, she has interpreted, drafted, and amended community association governing documents; addressed covenant enforcement violations and assessment delinquencies; and represented community associations in contract disputes, land use issues, and Owner bankruptcy matters. She has represented community associations of various sizes, from a 6-unit condominium, to a master community association with over 1,100 units. In 2022, Angela joined Altitude Community Law and is now focusing her representation of common interest communities in transactional matters.
By Amy Bazinet CMCA, AMS, PCAM
Associations are responsible for the upkeep of common elements, and this can include everything from roofing and roads to landscaping and swimming pools. To manage these responsibilities effectively, strategic allocation of your Association’s reserve funds is essential for maintaining the financial health and longevity of the community. This process involves planning, communication, and regular review, ultimately protecting the community’s financial stability and property values.
Get a Reserve Study
The first step on the strategic allocation path is getting a comprehensive reserve study completed by a reserve analyst. This study will outline all the components the Association is responsible for, evaluate their current condition and remaining useful life, and determine the cost to replace or repair those items. This study provides a roadmap for the community that can assist in preparing a plan to save the money needed to cover the future expenses as outlined in the study. Regular reserve studies typically conducted every three to five years, help ensure that the reserve fund plan remains accurate and reflects any changes in the condition of community assets or economic conditions.
Set A Funding Plan
So, you have a reserve study in hand, the next step is to develop your funding plan. This plan should outline how the community will gain the necessary funds over time. There are three types of funding that can be used – Full, Baseline, and Threshold.
Whichever funding plan you choose depends on the needs and the financial health of the community.
Assess your Risks
Your decision making on reserve allocation must focus on risks: what risks might the community face that will put demands on financial resources with not enough cash on hand to address? Make a list of possibilities: a recession, a major system repair, a flood, a wildfire, a significant increase in material costs. As you develop your list, attach a probability score to each risk. Healthy reserves must be risk discipline first, and that means flagging the items on your master list of reserves that should be funded first. You need to be mindful of the fact that the major expense that hits your community before you get your reserves built up must be considered your major expense at that point in time. So, find ways to slow down and spread-out payments for your rungs, paying more cash to your first few projects than to the final few. That’s how reserves become a crystallizing tool for your community.
Communicate Your Plan
Transparency and communication to homeowners are necessary for effective reserve fund management. Keeping homeowners informed of upcoming projects, reporting the financial status of reserve funds and notifying homeowners if there are going to be any changes to their assessments, all work to build trust and “buy in” on how their contributions are being used.
Take Time for Review and Adjustment
Reserve fund allocation is not a one-time process and should be periodically reviewed and adjusted if necessary. These reviews can come in the form of a reserve study review every 3-5 years, as well as noting any changes in the financial landscape of the community at any time. This review ensures that the Association’s financial planning remains relevant and accurate. There may need to be adjustments made due to changes in inflation rates, unexpected wear and tear on assets or new community developments. Staying proactive and adaptable is key. This will ensure a healthy reserve fund that meets the community’s needs.
Decide How you Want to Invest
Your investment strategy is an important consideration when allocating reserve funds. You will need to balance the need for cash, for immediate expenses, with the goal of earning returns on funds that are meant to help offset future costs. Investment options should be outlined in the Investment of Reserves Policy. Options that are commonly included are money market accounts, certificates of deposit (CDs) and low-risk bond funds. Each of these involves some degree of risk and a return. It’s always advisable to find yourself a Financial Analyst who will help you walk through the options. Your strategy should align with the Association’s risk tolerance, financial goals, and timeline for major expenses.
The benefits from choosing to strategically allocate your reserve funds are plentiful. If your reserves are properly managed, you will ensure that repairs and maintenance will be done timely, and you will preserve the property values and overall quality of the community.
Amy Bazinet CMCA, AMS, PCAM has dedicated over 15 years to serving communities across the Denver Front Range. She currently holds the position of General Manager for the Aspen Alps Condominium Association in beautiful Aspen, CO, where she embraces the many wonders of mountain life.
By Gabriel Stefu, WesternLaw Group LLC
Covenant enforcement and foreclosures have become harder in the last few years due to legislative and economic changes. As such, certain covenant enforcement and foreclosure cases can become extremely difficult to resolve due to Owners who may attempt to delay the process or due to not following the proper processes and procedures both in the Association’s policies or in legal proceedings.
The following are recommendations to ensure that these cases can be successfully brought to a resolution:
COVENANT ENFORCEMENT
Associations need to follow the steps below to ensure that covenant enforcement matters are resolved and funds are collected from the Owners:
JUDICIAL FORECLOSURES
Foreclosures by Homeowner Associations are a last resort in collecting assessments when an Owner refuses to pay delinquent assessments. This is never an easy process and as Owners are becoming savvier, the Association must ensure to follow all steps necessary for successful foreclosures. PLEASE NOTE THAT A FORECLOSURE IS ONLY POSSIBLE IF ASSESSMENTS ARE DELINQUENT AND CANNOT BE PERFORMED IF ONLY FINES, INTEREST AND LATE FEES MAKE UP THE DELINQUENT BALANCE. The steps involved are as follows:
In the end, covenant violations and foreclosure actions require a great deal of attention. The Board of Directors, manager, management company and Association’s attorney must work closely together to resolve these types of issues successfully, following the proper steps and procedures outlined in policies and the law.
Gabriel Stefu is the managing partner of WesternLaw Group LLC, a law firm dedicated exclusively to Homeowner Associations in Colorado and Wyoming. WesternLaw Group has been in existence for over 16 years and proudly serves many Colorado HOAs.
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