The following article, along with additional online content, has been approved for one hour of continuing education by the DBPR. All of our readers are welcome to apply for one CEU hour at no cost, and FCAP members have access to all five CEU hours. In order to appropriate the hours, read the articles and then go to www.fcapschools.com/ceu and click on the appropriate course number to complete the process.
By Mitchell Drimmer, CAM / Published July 2016
The Fair Debt Collection industry has established an objective test based on “the least sophisticated consumer.” The purpose of this is to protect consumers. Some are Harvard graduates, others are less educated, and there are always the very clever. So who is this “least sophisticated consumer,” and how does this apply to accounts receivable collections for HOAs and condominiums? One court explained that “even the least sophisticated consumer can be presumed to possess a rudimentary amount of information about the world and a willingness to read a collection notice with some care.”
For your condominium and HOA, I suggest that any entity that has been given the mandate to collect the fees and engage an owner in the collections process use this standard. Do not assume that they (owners) know how much is owed to the association, but rather put it down in a very simple, easy-to-read statement of account. Condominiums and HOAs must stop relying on coupon books because amounts that people owe change due to circumstances such as late payments, fines, violations, and special assessments. Statements to unit owners are the key to working with and achieving the standard by which a business will be able to communicate with “the least sophisticated consumer.”
When a unit owner becomes late, the worst policy is allowing this delinquency to fester. You must act fast because it will only get worse until you have a crisis. The first step is notifying a delinquent owner within a week after the grace period has passed. In today’s electronic age, we have multiple ways of communicating, such as e-mail (if the owner has opted in to receive e-mail from the association), text messaging (opt in also required), telephone calls (how hard is it to pick up a phone?), and finally, a good old-fashioned letter in the mail (both registered and regular). Get the word out and get the work out fast to the owner that a payment is due.
If there is no response to these “courtesy” communications, then it’s time to take more serious action. Here is where a board of directors needs to make decisions. Do you send the file to an attorney in order to litigate an association foreclosure, or do you send the file to a licensed, professional collection agency? The board must weigh out the costs, objectives, possibilities, and what they hope to accomplish. Of course, the goal is to obtain payment, but there are many ways to get to that place. If the path you take is litigation, is the association prepared to take a property and make it into a rental unit, because that is the only way you can recover your money if you foreclose? If the board is prepared to engage a process that is merit based, it will make outbound phone calls, send demand letters, and report delinquencies to credit bureaus, then that is the route they should take. Consider all the paths you can take before you decide how you will handle a delinquency.
Mitch Drimmer is with SNAP Collection by Association Financial Services at (305) 677-0022 ex. 804, www.SnapCollections.com.
By Matthew C. Kuisle, P.E., RS, PRA / Published July 2016
You may have noticed a slight uptick in the number of new developments around town recently. With this new construction comes an increase in demand for construction labor and materials. Inevitably this affects supply, and we see increases in construction costs, otherwise known as inflation. While local development may be up, the international economy has slowed, and material prices have stayed relatively low, which is leading experts to forecast continued moderate inflation rates for the immediate future. Despite recent history and these immediate forecasts, we can be certain that inflation will result in higher costs over time. However, even the experts cannot predict the exact costs of roofing, painting, paving, equipment, or other projects several years or decades into the future. Florida Statute 718 and the Florida Administrative Code keep things simple for condominium associations. Neither the law nor the codes require that replacement cost estimates in reserve schedules include an inflation factor. In fact, the Division of Condominiums, Timeshares, and Mobile Homes at the DBPR excludes inflation in their training publication, “Budgets and Reserve Schedules: A Self-Study Training Manual.” The manual states, “It is important to remember that when you compute the current year funding requirement for the proposed budget, you are only computing it for the year for which the reserve analysis is being prepared.” In other words, you must recalculate the reserve funding requirement using updated replacement costs and useful life information every year. This means that an association only has to include inflation after it occurs and is not required to forecast inflation out into the future, even when using a pooled schedule.
The downside of only looking at today’s dollars is that a board can get into trouble if they don’t update the costs in the schedule every single year. I recently overheard a board president proudly boast that he “hadn’t raised fees in 14 years.” He was about to get off the board, and the association commissioned a reserve study. The next year, the fees had to nearly double to make up for the years of physical and financial neglect.
Prudent boards continue to identify a nominal inflation rate in their pooled reserve expenditure forecasts. In many states, the inflation can be offset by nominal annual increases to the reserve contributions each year. These inflationary contribution increases create equity in the plan for current and future owners. Annual increases also illustrate that association fees should not remain the same every year if a community intends to keep pace with their surrounding financial environment. Unfortunately, the Division does not allow these inflationary increases for Florida condominiums as they interpret them to be balloon payments in the funding plan, which are specifically prohibited by the Administrative Code. Therefore, condominium boards in Florida have to be especially diligent about updating their reserve schedule each year to account for the inevitable occurrence of construction inflation.
Matthew C. Kuisle, P.E., RS, PRA, is with Reserve Advisors Inc. at (800) 980-9881, www.reserveadvisors.com.
By Janet Romano / Published July 2016
There are many factors to consider when deciding on which bank will be best for your association. By far, the most important factor is the bank’s safety. Association funds are owned by all owners, and their paramount consideration is that the funds are FDIC insured and that the bank is strong and well-rated.
It is easy to determine a bank’s safety rating by checking an online bank-rating agency like Bauer Financial. Bauer Financial rates all banks and credit unions in the U.S. using a star system ranging from zero to five stars. Four-star (excellent) and five-star (superior) rated banks and credit unions have earned the highest rating and are recommended. Looking up the star ratings is free on Bauer’s website, and detailed reports can be purchased for a modest price. These reports are a good tool for your board to use in choosing a bank.
Another important factor for associations to ask is, does your bank understand how associations operate and have the proper technology to offer to help meet the special needs of your association? Consider how hard it is to change signature cards when new board members are elected. Associations may want to consider using a lockbox system for collecting maintenance fees. Look for a bank that reports payments received daily, has a system that works well with the accounting software you are using, and is inexpensive to use. Many of the new technology options can be very helpful to associations. Discuss with a banker whether remote deposit capture, accounts payable lockbox, automatic account reconciliation, positive pay, or bill pay options would be beneficial to your operations.
Does your bank offer loans to associations? When choosing a bank for your deposits, you may want to be sure that they will provide a loan to your association if that need arises. If your association is considering a large project such as re-roofing, concrete restoration, or window replacement, a loan may be a good way to fund the project and allow owners to pay over time and not face a large lump-sum special assessment. Most banks that offer loans to associations will require a deposit relationship.
Does your bank have a specialist on board who specializes in working with associations? This is another important consideration. Your banker should be a part of your team of experts and should be willing to advise your community on investing association reserves, ensuring all deposits are covered by FDIC insurance, and on loans and lines of credit. The bank on the corner may not be the best choice for your association. Consider all of these factors, and choose a bank that will work for you.
Janet Romano is with Stonegate Bank at (866) 227-0441, www.stonegatebank.com.