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  • 10/01/2019 10:46 AM | CAI Rocky Mountain Chapter (Administrator)

    By Clint Larson, 303tech

    A few months ago, we received a call from a client about some missing emails.  Upon investigation those missing emails turned out to be much more than that.

    Several weeks prior, some of this company’s email accounts were compromised.  Not just one, or two, but as many as five accounts.  The hackers gained access through a simple email request to verify the email credentials, and then they waited patiently for their opportunity.  They had access to the CEO, CFO, AR, Executive Assistant, and the Help Desk.  The hackers waited, going through email accounts, learning how the company operated, and with whom.

    One day, the CEO received a call from one of their clients explaining that they were pulling the money together and he would have it by the end of the week.  The CEO, confused, started inquiring about what he was talking about.  For the last week, the customer had been receiving emails from the CEO, CFO, and AR about multiple outstanding invoices.  These emails started out kind enough, but soon turned very demanding.  The emails were requesting hour by hour progress on the payment which needed to be wired into the account immediately.  The sum: $1,845,000.  The exact amount of the outstanding balance.

    Fortunately, that client was able to pull back the transfer before any money was lost.

    Hackers have easy, affordable access to more and more sophisticated systems. They are no longer just sending out an email campaign in hopes of someone clicking on it.  It is one thing to steal the identity of a person, but what happens when they steal the identity of an entire company?  This is easier than you think. Once they have access to the emails, they can setup phone systems, start making calls, and request money be directed to anywhere they desire.

    What if this was a title company looking for a mortgage payoff?  What if this was a request from a management company looking to transfer the reserves to a new management company?  What if this was a vendor looking for a deposit before work could begin?

    Would you know how to spot it?  Would you know what to do?

    There are hundreds of scams in cyberspace.

    Wire Fraud

    Romance Scams

    Payroll Diversion

    Company Impersonation

    Business Identity Theft



    Tax/W-2 Fraud

    Pet Scams

    That’s just the tip of the iceberg.

    The real estate industry lost over $18 million in October of 2017.  That is just the real estate industry, and in a single month.  We are a part of that industry.

    What can you do?

    Follow some simple rules about emails:

    1. Are you expecting this email?
    2. Is this the type of email this person would typically send you?
    3. Is there a call for immediate action (click a link or open attachment)?

    These three things may seem simple enough! If you follow them you are going to save yourself, your company, and your clients a lot of headaches.

    Other items such as; email addresses being misspelled, improper grammar, special characters like Ⱨere or y, and learning to hover over a link to see where it is actually going to take you.  All of these things will help prevent these malicious attacks.

    What to do if you are a victim.

    1. Change all of your passwords.
    2. Contact your Bank/Financial institution and put a fraud alert on your accounts
    3. Contact ReportWireFraud@state.co.us  ReportWireFraud.com
      1. Be prepared with email requesting funds w/wiring instructions
      2. Email Headers (IT people can get that)
      3. Also report this to IC3.gov

    If you need any further information, please contact CBI or 303tech.

  • 09/30/2019 9:35 AM | CAI Rocky Mountain Chapter (Administrator)
    By Tony Diaz III, CMCA, AMS, Worth Ross Management Co., Inc. AAMC 


    These are questions that you might consider asking the insurance agent or broker when your BOD is looking to renew or purchase insurance for the HOA. Prior to contacting the agent, managers can do some research to get a better understanding of the building’s needs. These are items you might consider:   


    • Use the FEMA website maps to determine the location of any flood plans and see if the building is in a flood plan area. If so, I alert the agent to this fact and send them a copy of the map you printedhttps://msc.fema.gov/portal.  
    • Research the last time a building valuation was completed. If you can’t find it or it’s been more than 3 years since the last one was completed, order a new one. Your agent should be able to recommend a company to assist you. Knowing this the value helps in case of total loss. This will help the BOD request full replacement value should there be a need to rebuild. Some policies do this automatically so make sure you are aware if yours is or is not one of those.  
    • Ask the representative for various deductible options for the BOD to consider. Each level will result in an increase or decrease in the overall policy costs. Note that some items may have a standard deductible which may be changed depending on the various options available via that policy. 
    • Ensure that your insurance representative knows that the BOD would like to review and may seek protection from updated building and other city/county codes by requesting a quote for Law & Ordinances Insurance to cover any financial gap caused by new building codes and ordinances.  
    • Inquire as to any coverage included or available for purchase for Earthquake, earth shifting or other similar perils which may not be common in your area. 
    • Some areas in the USA offer additional coverage for foundations and other structural concerns for “below ground” items. This may be hard to find, but I make it a point to ask the agent to explore these options because this can be a costly repair if needed. 
    • Ask that the deductible and limits for each type of item covered is clearly shown so that the BOD has a full understanding of what their coverage limits are. Once that is determined, ask for various options for the Umbrella coverage. Usually coverage starts at $5M and can go as high as $25M with just a slight increase in your payment. Try and get at least $20M since it is relatively inexpensive.  
    • Inquire about various options for D&O, Errors & Omissions, Employee Dishonesty/Theft which usually fall into the Crime/Fidelity coverage and can vary by carrier. 
    • Ask about wind, windstorm and hail. There are usually various options and deductibles available and in this part of the country it’s recommended you explore the options so you can present them to the BOD. 
    • Have a clear understanding of fire, and other perils which are typically covered or suggested by the agent. Some agents refer to this as “special form” which refers to their standard coverage proposal. 
    • Ask the agent to provide any additional information about policies or recommendations which they may have so that you get a professional’s input on any additional items the BOD may choose to explore. 
    • Lastly, once the new policy is bound, you might ask your agent to attend the next BOD meeting to give a short overview of the policies and coverage. This allows owners to ask questions and get a better understanding of how the BOD has elected to protect everyone financial and structural interest. 


    These are ways that may help you address insurance renewals or the purchase of new insurance. These are all just recommendations which I hope will help my fellow managers. Even if you have been in the business for years, it might be wise to review this information with your broker or agent. Knowing the various policies and limits that are in place are key components we should all understand. 


  • 09/30/2019 9:33 AM | CAI Rocky Mountain Chapter (Administrator)

    By Tony Diaz III, CMCA, AMS, Worth Ross Management Co., Inc. AAMC

    As onsite managers we are sometimes asked to help prepare an RFP and in selecting a contractor. While there are many approaches to doing this, I have found the following works best for me.  Using this method, allowed our building to complete 3 different yet major projects totaling almost $2.8 million in just 18 months. 


    • Step One – Build an RFP:  Depending on the type and size of the project, we managers might not be the best person to build the RFP. In all three of our recent projects, I suggested to the BOD to hire a third party who is better qualified to build the RFP. They agreed and the RFP was developed after several onsite visits and with significant input from the property manager. 


    • Step Two – Identify Potential Contractors:  Once the RFP meets the recommendations of the third-party expert and those of the onsite manger, you can work to put together a list of potential contractors. The RFP should be sent to them at the same time by the RPF provider.   


    • Step Three – Plan a Contractor Meeting:  While not required, I strongly recommend a mandatory meeting be called for all contractors who have an interest in providing a bid. This meeting should be 7 to 10 days after the RFP was sent out. This allows time for the contractors to review the RFP and identify any concerns or questions they may have.  


    • Step Four – Contractor Meeting:  Every contractor that wishes to provide a bit must attend this meeting. After all the contractors have arrived and introductions have concluded, the RFP provider should review the entire RFP with questions allowed at the conclusion of the presentation. This ensures the RFP is covered as presented prior to making possible changes.  


    • Step Five – Contractor Meeting Walk Through:  After the Q&A, all potential contractors should walk the property to review the items which need to be addressed according to the RFP. If subsequent visits are needed, they should work directly with the onsite manager to gain access to the building. 


    • Step Six – Contractor Meeting Conclusion:  To conclude the meeting, it is important the certain items are covered one last time. Those could include the due date for the bid. Where the bid should be sent. Explain that any questions which may arise after they depart the site should be sent to the RFP provider so they can respond and copy all other vendors. This ensures everyone gets the same information. 


    • Step Seven – Review of Bids:  The provider of the RFP should receive and review all the bids. They should give the onsite manager a comparison of the various bids. They should also provide a recommendation with their justification on the selected contractor. 


    • Step Eight – Selection of a Contractor:  The manager can now review the information provided. Compare it to the original RFP and the provider’s recommendation.  Once the manager feels comfortable with 1 to 3 potential contractors, they can present the information to the BOD for a final decision.  

  • 08/01/2019 10:42 AM | CAI Rocky Mountain Chapter (Administrator)

    By Trisha K. Harris, White Bear Ankele Tanaka & Waldron

    It’s August, and that means one thing: Budget season is upon us. With budget season comes the age-old question for many boards and managers; Should we raise assessments?  Is there any chance we could actually lower assessments this year?  There are many factors that go into such budgetary decisions.  The following are considerations that go into either choice.

    Raise the Roof

    • Does your association have deferred maintenance that can no longer go unchecked? If so, an assessment increase may be inevitable in order to avoid a large special assessment at some point in the future.
    • Has your association been lagging in saving reserve funds in line with your reserve study?  If so, you may need to consider raising assessments to get your reserve fund caught up to the level recommended by your reserve study.
    • Does your association desire to make certain larger-scale improvements, such as adding new playground equipment or upgrading landscaping?  If so, it may be prudent to raise assessments to fund such projects over time, rather than imposing a special assessment.
    • Is your association consistently busting your budget each year?  If so, it may be necessary to take a hard look at your budget line items to determine where budget shortfalls are occurring, and increasing assessments to give the association more breathing room in your contingency line item.
    • What is your current delinquency rate?  If owners are struggling to pay assessments at the current rate, will an increase in assessments create more collection problems for the association?
    • Is owner approval required for an assessment increase?  If your community is a post-CCIOA community (meaning it was created on or after July 1, 1992), you must follow the budget ratification process set forth in CCIOA in relation to ratification of your budget and any assessment increases contained in your budget.  The same budget ratification process applies to pre-CCIOA communities (those created before July 1, 1992) unless your declaration sets a maximum assessment amount or limits any increase in an annual budget to a specific amount and your proposed assessment is within those limits.

    Lower the Bar

    • Have your assessments been set higher in recent years to get the association caught up on reserve funding?  Are you now caught up?  If so, it might be possible to lower assessments, or at least keep them at a steady level.
    • Does your association consistently end up with a healthy surplus of operating funds at the end of each year?  If so, you may be setting your assessments too high for the actual needs of the association.  
    • Has your association recently gone out to bid for recurring or continuing services, such as landscape maintenance, management, accounting, or legal?  Are there savings that may be gained by negotiating new contracts for such services that could lead to the ability to decrease assessments?
    • If assessments are lowered, consider how that might impact, from a political perspective, any future increases that may be necessary in the future.  

    Decisions about the rate of assessments, especially when an assessment increase is contemplated, are not always easy decisions for a board to make.  While it might be tempting for board members, who are also owners who pay assessments, to forgo an assessment increase, or even lower assessments, in the end, the decision must be made based on the good of the entire association.  As with any decision, the board needs to make sure it is making the decision in an informed and reasonable manner.

    Trisha K. Harris is a senior associate with the law firm of White Bear Ankele Tanaka & Waldron.  White Bear Ankele Tanaka & Waldron serves the needs of residential, commercial, and mixed-use projects throughout the State of Colorado, and provides advice and counsel to project developers, property owners, and residents on a wide range of issues.  WBA also represents homeowner and commercial associations, as well as metropolitan districts that are responsible for covenant enforcement and design review, operations, and maintenance of common and other public areas, together with required collection activities. 

  • 08/01/2019 10:39 AM | CAI Rocky Mountain Chapter (Administrator)

    By Kim Hithcock, McNurlin, Hitchcock & Associates PC

    Did you know there are two different tax provisions benefiting Homeowner Associations aka Common Interest Realty Associations or CIRAs?  With the correct knowledge of these provisions, income can be treated as tax exempt. Don’t miss out on this opportunity to save money! 

    Most of the time, we think tax-exempt only applies to non-profit organizations like the Red Cross or the Better Business Bureau. The Homeowner Association is not a charitable organization, so how does this work? 

    The Internal Revenue Code (IRC) has two provisions, or tax codes, written especially for Associations.  One provision is for the Association to file their annual tax return as a Homeowner Association under Internal Revenue Code §528. If the Association elects to file Form 1120-H, it is not taxed on “exempt function income.” Exempt function income includes membership dues, fees, and assessments received from owners who are members of the Association. Under this provision, Homeowner Associations avoid paying tax on most of their income. 

    To qualify for exempt treatment and file form 1120H, the Association must meet the following requirements: 

    • At least 60% of the Association's gross income must consist of membership dues, fees, or assessments from the owners of the timeshare units; 
    • At least 90% of the Association's annual expenditures must be to acquire, construct, manage, maintain, and care for Association property; 
    • No part of the net earnings of the Association can directly benefit any one member or individual; however, a rebate to all members of excess assessments would generally be allowed; and 
    • At least 85% of the units within the Association (using a square footage test) must be for residential, non-commercial use.

    These requirements can be difficult to meet for Associations that are mixed-use so there is a second provision. If the Association does not qualify for exempt treatment under IRC §528, they can file their annual tax return as a C-Corporation using Form 1120. This provision follows Internal Revenue Code §277 which allows for Deductions Incurred by Certain Membership Organizations in Transactions with Members. Although it uses the same tax form as other corporate businesses, it has a special tax rule which permits net membership income to be excluded from the tax calculation.  

    If the Association collects too little (or spends too much), it has Excess Membership Expenses which is not a problem because the excess will carry forward and offset future assessments.  

    The trouble comes when the Association has collected more than it spent.  This is called Excess Membership Income. This excess can also be carried forward to offset the next year’s budget, but this doesn’t happen automatically. The Association is required to make an election under Revenue Ruling 70-604 to agree to carryforward any excess or repay it to the members. This election must be agreed to by the full membership, so we recommend having the election addressed at the annual meeting. All Associations should make this election annually just in case they have to file Form 1120 and report excess membership income for that year.  

    Now that you understand what income is tax exempt under IRC §528 or IRC §277, we can move on to non-exempt income. If an Association collects rents, interest, vending machine revenue, easement contracts, or certain other income, that income is not tax free. When an Association has this type of income, it gets specially classified and reported as taxable on either Form 1120 or Form 1120H. Fortunately, the Association also writes off related costs before calculating the tax. The deductions can be any expenditure associated with the specific type of income, such as tax preparation fees, cash management costs, maybe even utilities or repairs.  

    Once the Association has calculated the net taxable income, it then calculates the tax. If the Association is filing Form 1120H, it takes a $100 standard deduction and then pays Federal Income tax of 30% of the net taxable income.  

    If the Association is filing Form 1120, it pays Federal Income tax of 21% of the net taxable income. 

    In every case, the Association will also file a State income tax return and pay tax to the proper taxing authority. In Colorado, we pay a State income tax of 4.63% of the net taxable income.

    This area of the law is technical. The bottom line is that the opportunity to benefit from tax-exempt treatment is an option all Associations will want to consider. 

    If you would like to pursue this matter further, particularly with regard to the determination of tax return form, or to discuss specific tax ramifications of either option, please do not hesitate to email me at kim@mcnurlincpa.com or call our office to speak to one of our professionals at (303) 988-5648.  

    Kim Hitchcock and her team at McNurlin, Hitchcock & Associates PC have been working with Homeowner Associations for more than 24 years. Call them to benefit from their extensive experience with accounting, payroll, audited and reviewed financial statements, and income tax preparation!

  • 08/01/2019 10:38 AM | CAI Rocky Mountain Chapter (Administrator)

    By April L Ahrendsen, VP, Mutual of Omaha Bank

    If you are experiencing leaky pipes, aging roofs, or degrading asphalt, you may be one of the many communities facing major repairs. Finding money from homeowners is often a very difficult and painful process.  Homeowners may come to meetings angry or combative, but it’s important to understand this anger is often based on fear and misunderstanding.  

    Who are these homeowners?  They may be retirees on fixed incomes concerned about depleting their savings, first time buyers who may have financed their down payment, or people living paycheck to paycheck with no backup plan. The reality is these homeowners are not in a position to afford a one-time special assessment, and will most likely vote no to any project, regardless of its merits, because they do not have the funds.  The higher percentage this group makes up of your community, the greater probability that your vote will fail or that a recall election may be held. 

    But what happens when your community must make these major repairs?  How do you offer solutions for your neighbors in order to help keep them in their homes and reduce the fear? 

    Provide them options:

    1. Pay cash – some homeowners may have money for the entire special assessment. They may be able to tap into investments (discuss with financial advisor), credit cards (special promotional rates), or savings accounts. 
    2. Borrow funds that are secured on real property – such as a second mortgage or equity line of credit on your home.
    3. Pay the special assessment over time – because the board of directors provides a commercial loan for the community, interest rates are reasonable and can be fixed over the term of the loan. No personal information is required, no liens are placed on the homeowners’ property, and there is no impact to their credit score.

    What are the advantages of borrowing?

    a.Downward slide of property values slowed or eliminated.  Structural problems, which must be disclosed to potential buyers, will make it difficult to sell homes and lead to falling home prices.  Getting construction done quickly and improving the appearance and/or eliminating structural integrity problems can slow or eliminate falling home values.

    b.Needed repairs/improvements completed quickly.  By borrowing the money, total needed funds become available for use much faster than through the traditional special assessment process.  Passing a special assessment will give the board of directors the power to collect the money.  There is still the difficulty of collecting from those homeowners who do not have the ability to pay.

    c.Reduced financial impact on homeowners -  By participating in the loan, homeowners avoid having to make a lump sum special assessment payment.  Homeowners can pay their share over time to reduce the impact on their personal finances.

    What are the disadvantages of borrowing?

    1. May increase monthly assessments -  A special or increased assessment may be implemented to support the loan. Sometimes there are budget items or reserve contributions that can offset some or all of the increase. 

    Don’t let a major repair get your community down!  Homeowners that are informed and given options make better decisions for the community. 

    Contact the CAI-RMC to get a list of banks that provide loans to Community Associations. In particular, look for banks that will send someone to your meetings and work with your homeowners face to face. 

    The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the views of Mutual of Omaha Bank.

  • 08/01/2019 10:37 AM | CAI Rocky Mountain Chapter (Administrator)

    By Nicole Bailey, RBC Wealth Management

    The board of directors of a community association is elected by its membership to make decisions based on the best interests of the association as a whole. In accordance with this responsibility, each director is designated as a fiduciary of the association and is thereby obligated to uphold his or her fiduciary duty. According to the Community Associations Institute, fiduciary duty means that board members are bound under state law to act within their authority, to exercise due care, and to act in good faith and with ordinary care that they believe to be in the best interests of the association. 

    To help them fulfill this fiduciary duty, boards consult with professional experts in their decision-making process. Doing so ensures the board has made a reasonable effort to act with the benefit of the entire community in mind. Any association can benefit from investing its funds, however the term and type of investment can vary based on the association’s investment objectives and projected expenses. 

    If the association has accumulated enough in its bank account to cover 30-60 days of expenses, it can benefit from potential interest earnings on additional funds until they are planned to be distributed. CD’s can have maturities ranging from 30 days to 30 years. Lastly, each dollar earned in investment income is one less dollar that needs to be assessed to the ownership. 

    Once the decision has been made to invest association funds, it can be difficult to know where to start. Partnering with a professional investment advisor can provide peace of mind that the investment selections are safe and meet the needs of the association’s long-term financial plan. In addition, with so many investment vehicles and strategies to choose from, an investment professional can provide focus and make suitable recommendations specific to the association’s circumstances. 

    While Colorado doesn’t have a statute outlining investment criteria for community associations, the Colorado Common Interest Ownership Act requires each association to adopt a policy concerning the investment of reserve funds. Investment guidelines provide for the types of investment vehicles appropriate for the association, liquidity requirements of these vehicles, asset allocations, responsibilities of the investment advisor, and an overall investment strategy. Consulting with the association’s attorney in reviewing or amending the policy is important to ensure the policy is in compliance with the association’s governing documents. A qualified financial advisor can also provide valuable input in drafting these policies. 

    Most association investment policies outline three parameters to be considered with investing funds. First, safety of principal is of utmost importance and no credit risk should be taken on with association funds. In declaring this, the policies often require investment selections be FDIC insured or guaranteed by the federal government. Second, the availability of funds should match anticipated expense schedules. Finally, once the first two criteria are satisfied, the association should seek the best rate of return possible on the funds. In addition to the components listed above, each association should be aware of inflation risk and potential loss of purchasing power. If inflation rates exceed portfolio returns, the association could face loss of purchasing power and should discuss this with their chosen financial advisor.

    Once an investment policy is drafted and finalized, the board may consider appointing a finance committee to lead the search for an advisor. The board and/or committee can begin to meet with and interview qualified investment advisors. Similar to physicians, investment advisors tend to specialize in specific areas. In order to identify potential candidates with community association investment experience, the board should consult their local Community Associations Institute chapter for a member list. 

    Each investment firm can offer a variety of services and allocation models. To determine if the advisor and their firm are a good fit for the association, the board should conduct interviews with each of the candidates. Questions to consider asking when selecting an advisor are: 

    • What experience does the advisor have with community association funds?
    • Who comprises the advisor’s client base?
    • How does the advisor determine suitability of an investment vehicle for a community association?
    • What are the advisor’s personal and professional qualifications to work with community association funds? 
    • What is the expected rate of return for a community association’s portfolio with consideration of the investment policy and the board’s expectations for liquidity?
    • What type of communication can the board expect from the advisor?

    In addition, requesting a list of references and consulting your management team in selecting an investment advisor is always beneficial to the association. 

    Once an advisor is selected and notified, the advisor will work with the board and management to open the account. Investment firms operate under many stringent compliance guidelines, which require detailed documentation be kept on each account. As part of the account setup, the association can expect to sign paperwork, as well as outline account operating procedures.

    These procedures often include the following information: 

    • Who can authorize investments and distributions in the account?
    • Where will statements and trade confirmations be sent?
    • Who will have access to viewing the account online?
    • How often will the advisor be in touch with the board?

    As part of their fiduciary duty, boards are encouraged to work with community association partners. Partnering with a professional investment advisor can be extremely beneficial to an association. Establishing investment parameters can help to focus the investment playing field for the association and guide the relationship with the chosen advisor. The advisor should demonstrate proficiency in corporate cash management for community associations and understand and implement investment strategies that align with the association’s investment objectives. With a well-developed investment policy and a trusted advisor relationship, investment of association funds will benefit community associations. 

    Nicole brings a broad background in community management in the Atlanta and Denver areas to her role on the West Wealth Management team. She actively volunteers with the Rocky Mountain Chapter of Community Associations Institute on the Marketing and Membership Committee.

  • 08/01/2019 10:36 AM | CAI Rocky Mountain Chapter (Administrator)

    CAI-RMC Member Opinion Piece

    While an HOA’s board of directors (BOD) has many duties, proper management of finances is the one responsibility that cuts across all aspects of a community.  Management of funds falls into two categories; short term and long term.  Short term funds deal with the daily operations of the community – keeping the lights on, mowing the grass, trimming shrubs & trees, heating the pool, etc.  It also means paying for the services of these day in/day out functions.

    Long term duties concern the repair, replacement, and upgrades of community assets.  Marquee signs, concrete, siding, fencing, elevators, light fixtures, and roofing, etc.  These are more difficult to properly manage for several reasons.  First, many board members know they will not remain in their current roles on the BOD, and so they may not feel that they need to have a ten, twenty, or thirty-year perspective on their community, especially if they do not plan on living in the community for a long time.  Second, deterioration is slow and not as easily noticed as say, hail damage to a roof from last night’s storm.  It does not provide the same sense of urgency.  Third, most long term items require a level of expertise that many board members simply do not have.  It is one thing to pick what kind of flowers to plant at the community entrance every spring, but how many BODs have intricate knowledge of light ballasts or roof underlayment?  Fourth, too many directors and homeowners believe that keeping monthly assessments as low as possible today (and forever) is their most important financial duty and the best indicator of smart decision making since everyone needs to keep costs low.  This task can be daunting for many.

    In addition, when we consider the finances required for some of these projects, the funds required are quite large.  When we combine more complex projects with large dollar figures, and then add a layer of peer pressure to not raise monthly assessments (or even personal resistance), a recipe for disaster will be created in the future that is unavoidable.  Special assessments and loans can undermine a strong sense of friendship with neighbors, and ultimately will cost much more than addressing reserve needs more proactively.  Periodically raising monthly assessments over time allows homeowners to plan and budget.  Special assessments are worse than a gut punch.  Who plans for those?

    Colorado has the Prudent Investor Rule that covers financial responsibilities when one or many people manage funds on behalf of others.  There are several parameters that are obvious to most with this statute, like using reasonable care, skill, and caution.  Also, liquidity, preservation of capital, appreciation of capital, and taxes are important to consider.  These are obvious to most people and do not require boring lectures to bring people up to speed.  One important consideration that is often overlooked is the effect of inflation.  Inflation is not tangible, happens slowly, and is difficult to notice (much like deterioration of siding or a roof under the surface).  This is one facet that should be placed high on the list to overcome.  Sadly, it is not.  According to the Bureau of Labor Statistics, in the 40 years leading up to 2010, average annual inflation was 4.4%.  Even if the last nine years since then of low inflation could have pulled the average down to 4%, we have a tough task of dealing with decreased purchasing power of reserve funds over time.  4% inflation means we need returns of 4% each year just to keep pace.  In fact, even when interest rates are higher, bank and credit union products will not keep pace with inflation over the long haul.  How can we fight this and still be prudent?

    There is an important distinction between adding to reserves diligently, including increasing monthly assessments routinely, versus loans or special assessments.  The former involves foresight, planning, and strong communication.  The latter is reactive and puts a community in firefighting mode, which creates confusion and helps spread doubt in other areas of HOA decisions and processes, not to mention leadership.  The other advantage that the first approach adds is that there is an opportunity to have the reserve funds work hard for the community, instead of the other way around.

    Looking at the difference between short (operating) and long-term funds (reserves) we should realize we need two policies in place.  For the short term, we should mandate zero risk.  Banks and credit unions provide us with funds that are FDIC or NCUA insured.  We can’t lose, even if a banking firm fails outright.  We need to make sure the electric, landscape, or insurance bills get paid.  Having the bank or credit union of our choosing backed by Uncle Sam is a prudent route.

    For the long term, we need to understand the role inflation plays as discussed above.  By their very nature, banks and credit unions do not help us keep pace with inflation.  We must look elsewhere, which takes us away from FDIC or NCUA insurance.  This means we need to take extra effort and care (or hire an expert) to make sure our decisions are in the best interests of the community.  This is where the Colorado Prudent Investor Rule applies. 

    So, what tools should be examined?  We need to look at treasuries, bonds, stocks, mutual funds, and other tools that have the potential to overcome inflation over the long haul.  These instruments have varying degrees of fluctuation or volatility.  While some will say that any loss of principal is unacceptable, the effect of inflation eroding purchasing power is the same net result.  When we are investing reserves for 10, 15, or 20 years or more, fluctuation in the short run becomes an opportunity to add monthly reserve contributions when the investments are “on sale.”  The fluctuation becomes healthy, and in fact, desirable.  

    This does not mean we should move to the other end of the spectrum on fluctuation, however.  For example, while stocks outperform other asset classes over the long haul, their inherent high volatility would not sit well with the majority of HOA boards.  We must find a “sweet spot” to get over the inflation threshold without sticking our necks out too far.  This is where treasuries, corporate bonds, and municipal bonds, or even bond funds may fit the bill.  Please consult with your property management company and financial professional to inform yourself and your fellow board members to make the best decisions for your community.

  • 08/01/2019 10:34 AM | CAI Rocky Mountain Chapter (Administrator)

    By Ryan Gulick and Heather Nagle, The Receiver Group, LLC

    Everyone knows of or has had that “problem property” where the homeowner just won’t stay current or pay their HOA assessments. The past-due balance is growing, and the demand letters continue to be ignored.  The property is either tenant-occupied or vacant, the yard is not cared for, the neighborhood is unhappy, and the code violations are piling up.  These circumstances are challenging and stressful for managers and their boards to work through, but did you know these properties usually fit the bill for receivership?  

    In recent educational seminars on receiverships, we asked for a show of hands as to how many Community Managers in the room were familiar with homeowner association (HOA) receiverships.  The responses have been alarmingly low with approximately 20% or less raising their hands.    We understand that receivership will never be a hot topic of conversation in the breakroom, but it certainly should be in your arsenal of remedies for debt collections, when the time comes.  Although receivership is an advanced legal process, it is not complicated and can be employed in many situations for associations.  Let’s take a closer look.

    Receiverships have existed for a long time, dating back to the reign of Queen Elizabeth in England and later used in America where there was need to protect the insolvent railroads during the panic of 1873.  The concept of receivers to protect and manage assets where debts are concerned is not new.    

    Colorado is one of twenty-one states in the US that allow liens to be filed against properties for unpaid assessments and costs when the property is governed by a common interest association.  There are also legal remedies to collect on those liens.  The Colorado Common Interest Ownership Act (CCIOA) , article 38-33.3-316 states, “In any action by an association to collect assessments or to foreclose a lien for unpaid assessments, the court may appoint a receiver of the unit owner to collect all sums alleged to be due from the unit owner prior to or during the pending of the action. The court may order the receiver to pay any sums held by the receiver to the association.”  

    What is Receivership?

    Receivership arises when a court takes custody of property involved in a dispute (for our purposes, call it a debt owed to the HOA) and places it in the control of a receiver.  The court issues an order outlining the duties of the receiver and oversees all actions, ensuring the receiver remains independent, unbiased, and neutral. 

    The receiver then administers or manages the property on behalf of the court until the matter is resolved or the debt is paid.  

    An HOA specific receiver is appointed by the court to collect a debt by taking control of a property and collecting the rental income.  The asset must be producing income or able to produce income, such as vacant properties, for it to be a success; it cannot be owner-occupied.  As funds become available, the receiver can distribute money to the association until the amount owed is paid in full. It is possible for a homeowner to retain counsel and challenge the lawsuit; however, unless otherwise ordered by the court, or a settlement is reached, the homeowner does not get their property back until the debt is paid.  So, one can see there is a lot of incentive for a homeowner to fix their situation on their own.  A good receiver will give homeowners the opportunity to do this, if they are willing or able to.  Once the debt is satisfied, the receiver is discharged from the court and the property is released back to the homeowner.

    Often, receivers do not have to enforce the full authority of the court order to be effective in satisfying the debt.  Just the mere threat of the receiver’s authority and losing the property’s rental income can bring a homeowner out of hiding to negotiate or pay in full.  Thanks to today’s strong real estate market, we have seen this scenario play out in up to 75% of recent receivership matters.  

    Some key points about appointing a receiver:

    Not every delinquent homeowner can be put into receivership.  It is best to consult with the association’s attorney to make sure the action is warranted.  The courts will not always appoint a receiver just because the CCIOA statute allows for it.  In recent years, the courts have made it abundantly clear that the power of their discretion overrides any entitlement an association may have under the law.  The courts would like to see associations make reasonable, if not extensive efforts, to collect a debt before asking for the appointment of a receiver.  

    It is imperative to follow the association’s collection policy.  The outstanding debt should be high enough to elicit the court’s assistance, the homeowner should have a long-standing or habitual delinquency, and remember, the homeowner cannot occupy the property.  If the conditions are right, the association’s attorney can then file a lawsuit to appoint a receiver.

    It is also important to make sure you’re requesting a reputable receiver with substantial experience and a good standing relationship with the courts.  The Courts appoint receivers who have proven business practices, unquestionable ethics, and specific experience in both real estate and the legal process.  Although most courts are familiar with the more active receivers, they heavily rely on the attorney to propose the best candidate.  Attorneys themselves should also have extensive experience with the process so the association is well advised throughout the matter.  Not to worry though, after the financial crises of 2008, it is rare to find an association attorney who has not appointed a receiver one time or another.  


    There are also other inherent values to receivership, other than just debt collection.  Receivers care for properties when homeowners do not. Receivership provides a piece of mind to the community and HOA-board that a problem property is being handled.  While the debt is reduced, code violations can be cured, problem tenants removed, and neighbors more at ease 

    Finally, don’t be fooled by the perceptions out there that receiverships are too extreme, too complicated, or too expensive.  Having a good receiver who understands the process and can navigate the situations efficiently will have the matter resolved quickly and with minimal harm to the homeowner and association. Let’s face it, if someone is being placed in receivership, they are not being a responsible homeowner and sometimes receivership is the only option.  There are times when even more aggressive action is needed, such as foreclosure, but don’t overlook the option of receivership as an alternative or even in conjunction with a foreclosure action.  

    Receivership is an effective method for collecting debts when the more traditional methods have failed.  There is no need to remain burdened by uncollected debt if a property is the right fit for receivership, it might just be the best solution for the association.  

    The Receiver Group is a professional receivership company offering equitable solutions for HOA debt collections in Colorado.  Their team has provided services for associations and their community managers for over thirteen years and are proud business partners to CAI.  You can learn more about them at www.thereceivergroup.com.

  • 08/01/2019 10:32 AM | CAI Rocky Mountain Chapter (Administrator)

    By Russell Munz, CMCA, Community Financials

    We are all aware that the economy has a rhythm or cycle and is also referred to as a business cycle.  When the cycle is on an upward trajectory, people’s financial situations are improving, and as the cycle turns downward their financial situations can deteriorate.  Over the last ten years the U.S. has been experiencing the longest economic expansion in post-war history.  The odds of the cycle turning downward are increasing every month.  How do you improve your condo and HOA’s collection practices before the next recession?

    The chart below is from June 2018, and by the time this article is published in August of 2019, we will be at 122 months and the longest economic expansion in U.S. history.  If you listen for it, you will start to hear professional investors and economists starting to say the “R” word again (Recession), and their predictions range between later this year or during 2020.

     June 2018 (Orange) is the Second Longest Economic Expansion in U.S. History (now the longest)


    During the last few years of this economic recovery most communities have experienced “good times” with few problems with delinquent payers.  However, when we start to experience a recession, your board may experience the “bad times.”

    It may not be like the “Great Recession,” but the next economic downturn can still be impactful.  A larger percentage of late paying or delinquent owners can have a serious impact on a community’s budget.  Cash strapped communities may accrue fines or late fees for paying bills late, vendors may not show up to provide service since they are not being paid in a timely manner, services may be interrupted, and amenities could be shut down due to the lack of operating funds.

    The Board your community has today is likely not the Board that went through the “Great Recession.” So when your community experiences a sudden increase in delinquencies what is the Board going to do?

    6 Steps to Improve Your Condo and HOA’s Collection Practices Before the Next Recession:

    Make it Easy for Owners to Pay:  The best way to make paying your dues/common charges easy to pay is to give owners more ways to pay.  Let people pay by check, let people pay by bank draft (ACH), let owners pay by credit card (they pay the transaction fee), let people mail in payments, pay online, and you can even take payments by phone.  The one caveat to this is cash, we recommend you do not accept cash as it can go missing far too easily.

    Adopt or Update Your Collection Policy:   A collection policy will outline what steps your community takes when an owner pays late.  If you don’t have one, you may consider creating one, as it is required by Colorado law to ensure you are able to take legal action on late payers.  Get professional advice:  You can use a credentialed manager to review and help you with collection policy best practices.  After you’ve incorporated these changes, you’ll want your attorney to review it.  When using an attorney, make sure your community uses one that specializes in community association law and is not a generalist, as this will take you longer and cost you more.  When completed, send this out to all owners so they are aware of what the policy is and what will happen if they pay late.  Remember, the money spent to properly write up a collection policy is an investment.

    Communication Protocol:  Can you quickly mail communications to owners on what they owe?  If you don’t already, maybe you want to change to mailed statements showing updated balances and late fees.  Make sure you have the ability to mail out Late Letters as friendly reminders and that you can send out Pre-Lien Letters by certified return receipt mail.  Communication systems will work lockstep with the collection policy you adopted.

    Increase Late Fees:  If you are not charging late fees you need to.  The late fee should be a meaningful penalty.  If it’s not meaningful, it’s a joke and you are last on the list of bills to pay.  You may be able to simply increase the late fees in your rules and regulations, however, check your governing documents as some may have a stated late fee that you may have to revise.  I’ve seen documents from the 1970’s and early 1980’s, and the late fee is $10 or $15.  If you adjust that for inflation you are going to have a better deterrent.  Lastly, remember your community needs to be able to uniformly apply the late fee to every owner and record it in your accounting system.

    Add a Meaningful Penalty:  If late fees are not producing the desired outcome you have another option.  Lower the delinquent payer’s credit score every month and they will start to pay attention to your bill.  This method works, which is why large corporations report to the credit agencies for credit cards, car loans, mortgages, etc.  The association can add this with the help of a credit agency approved Financial Management Company.

    Find a Condo/HOA Collection Company or Collection Attorney:  If you don’t currently work with a collection agency or collection attorney you will want to line one up.  Additionally, if you are not satisfied with the agency or attorney you currently use, now is the time to investigate alternatives.  We recommend you search for candidates through your local Community Association Institute (CAI) chapter.  Vendors that are part of CAI are specialists that will know not only about collection law, but also condo and HOA specific laws. 


    If you utilize these 6 steps to improve your condo and HOA’s collection practices before the next recession, you will fare better than the community down the street.  I know most community boards are usually kept busy reacting to issues that come up.  We recommend getting ahead of this issue as it will save your Board time and problems down the road.  If your Board doesn’t have time, form a committee to assist you.  

    *Chart sourced from SeekingAlpha.com

    Russell Munz, CMCA, is the Founder of Community Financials which provides stress-free financial management to self-managed communities and managers nationwide.  Previously, Russell grew a successful 41-person full-service management company over 16 years; he now provides big company systems and processes to a new audience.  Have a question? Ask him by emailing: russell@communityfinancials.com

(303) 585-0367

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