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Boards of Directors of Community Associations Can Delegate Tasks to Management, but Cannot Delegate Decision Making Responsibility.

I was happy to contribute to an article published by HOAleader regarding the responsibilities and obligations of a Board of Directors.  The author indicated that through her research, she learned that some management company contracts authorize management to select the association's attorney and to decide how to handle enforcement and collection matters without the board's involvement or approval.  I've heard this complaint from board members in different forms from time to time and its not limited to management, some law firm retainers likewise allow the law firm to decide when to file and how to handle association legal issues, particularly when it comes to collection of delinquent assessments.  I have to shake my head when I hear "management has attorneys that handled everything - we don't know" when I ask why something was done (or not done) in a particular case.  That practice is dangerous for a number of reasons.

Board members must realize they have ultimate responsibility for association operations and actions (or non-action).  Sure, a "package deal" with management (or another service provider) that rids the board members of the headaches associated with reviewing legal matters (particularly collections) and making strategic decisions may sound attractive.  Please ask yourself various questions:

• Is the relationship such that one or both of the parties benefit by increasing the amount of legal work or pursuing claims (such as insurance claims and the like)?
• What happens if the service provider tells the law firm to do something questionable? 
• The law firm may discuss the pros and cons of the action as well as the potential exposure of the action with the service provider - did you have the opportunity to evaluate that risk?
• Who are the service providers loyal to- each other or to your association? 

Hiring a professional CAM can benefit the association tremendously but the bottom line is this is your community and if you serve on the board you must be involved in association decisions.  You can read the article Should Your HOA Manager Approve All Lawsuits by clicking on the title.

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By Adam Cervera

Almost every association has been through it. A deadbeat unit owner has stopped paying their mortgage and the lender brings a foreclosure action against them to enforce the note and mortgage. Not surprisingly, this same owner stops paying his maintenance fees to the association and the association finds itself stuck between a rock and a hard place: bring its own foreclosure action and attempt to obtain title, knowing that ultimately the lender will recapture this title from association as a superior lien holder, or wait for the bank to finish its foreclosure action and hope the new owner begins to pay all future maintenance fees.

For those associations opting for the latter option, a great deal of frustration arises when they see just how long it takes for the average bank foreclosure lawsuit to reach its resolution. While under the Tadmore decision an association can no longer force a lender to pay monthly maintenance fees while its case is pending, since they are not the “legal” owner of the property, all hope is not lost.

Associations have rights when mortgagees foreclose. Don’t let these mortgage foreclosures drag on and on and on ….

Ask for a Case Management Conference. This gives the association’s attorney the opportunity to request hard deadlines in the case. Judges can enter Orders requiring summary judgment motions filed and hearings set within a short period of time, generally 30 days or less. Summary judgment is key because once this is granted, the case is essentially over and all that is left to be done is to sell the property.

With the order on the case management conference in hand, the association now has a powerful tool in its arsenal that can only lead to positive results. If the lender’s attorney complies with the order, the final judgment clears the way for the property to be sold. If not, the door is wide open for the association to seek and recover sanctions against the lender for the delay.

Bank attorneys are often unable (or possibly unwilling?) to comply with scheduling orders. Judges hate when parties do not follow their orders and are often very quick to sanction or fine those plaintiffs. Sanctions can range from a one-time lump sum payment all the way up to daily fines that accrue every day until they take action. In short, associations can finally have the upper hand when a bank drags its feet in violation of a court order.

In Miami-Dade County alone, Becker & Poliakoff has collected several thousands of dollars in sanctions for associations who have filed motions against dilatory lenders and their slow moving counsel.

This is crucial - if an association finds itself in a situation where a lender’s case is in a standstill, set a case management conference as soon as possible. It is important to authorize counsel to act fast once the initial case management conference order deadline expires. Judges around the state are becoming more sympathetic to associations that get caught in the middle of lender foreclosure cases that go on forever. 

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Question: I am a member of a homeowners’ association. Our board recently hired a new management company. The owner of the management company is also a resident/property owner in our community. Some of us feel that this creates a conflict of interest. What is your opinion on this? T.W. (via e-mail)

Answer: As long as the owner of the management company is not also a member of your association’s board of directors, I do not believe that conflict of interest concerns in the traditional legal sense are presented.

There is no legal prohibition against contracting with a property owner within your community. I have seen a few associations which have bylaw provisions which prohibit contracting with association members, but such provisions are certainly the exception.

There are a couple of different ways to look at this. Some may argue that because the owner of the management company also has an investment in your community, he or she will go “above and beyond” to ensure that the community’s needs are served, thus protecting their own investment and keeping their friends and neighbors happy. Others would argue that contracting with an association member is a bad idea, because friendships and internal community politics could obscure the objective viewpoint the board should have in dealing with contractors.

Whether contracting with a neighbor or a total stranger, I always recommend that contracts between community association management firms and associations contain a liberal termination clause, with or without clause, upon reasonable notice (such as thirty days).

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