As Bob Dylan noted in 1964, “The Times They Are A-Changin’.” While this anthem of societal change may seem unrelated to the 2011 residential real estate market, in actuality, Dylan’s poetic title track serves as a template for today’s buyers. Back in 1964, most buyers were limited to “traditional” home ownership. Today’s buyers have a myriad of options, including living in a common interest community (CIC).
In a nutshell, CICs are formal legal entities (usually non-profit corporations) created to provide a common basis for the maintenance and preservation of the homes and/or the property contained in the community. In Pennsylvania, CICs are generally set up as either homeowners’ associations (HOAs) or condominium associations. CICs are subject to the statutes that govern both non-profit corporations and common interest communities. Most homes that are located within a CIC are purchased subject to Covenants, Conditions & Restrictions (CC&Rs), which are restrictions placed upon each home to maintain uniformity within the community. This uniformity will hopefully lead to a preservation of property values for the homes located within the community. Homeowners pay dues or assessments so the CIC can pay expenses related to maintaining common property in the community, including roads, gated entrances and drainage basins and often to provide various services and/or amenities that are common to all of the homes in the community, such as trash removal, snow removal, security, landscaping, a fitness center, a swimming pool, a community center, or a playground.
Today’s buyers interested in purchasing a home in a CIC should consider a few important things, including:
Reserves
Make sure that the reserve funds set aside for maintenance of common areas are adequate to fund a large scale capital improvement project, like repaving a road or replacing a roof. Owners will be issued a special assessment to pay for the project in addition to the normal assessment if the reserve funds are not enough. If not enumerated in the resale certificate issued to the buyer prior to closing, the buyer should ask for a breakdown of the reserve funds as well as expected, upcoming capital expenditures.
Budget
Ask the CIC Association or the seller for a copy of the budget. Pay careful attention to the Association’s outstanding debts and liabilities, as well as the percentage of homeowners that are not paying their assessments. If the majority of homeowners are not paying, this spells financial trouble for the Association as well as its member-owners. This could also have a negative impact on a potential buyer’s ability to obtain a mortgage to purchase a home in a condominium association. Freddie Mac, Fannie Mae and the Federal Housing Administration, which purchase and/or insure a majority of mortgages, place a 15% cap on assessment delinquency rates in order to approve lending for homes in the community.
Insurance
Ask for a copy of the Association’s insurance policy to make sure that the community’s coverage is adequate. This is separate and distinct from an owner’s homeowners’ insurance policy. Ask your insurance agent to look at the Association’s policy. Coverage should include but not be limited to general liability coverage with no general aggregate, director & officer liability coverage, environmental impairment coverage, guaranteed replacement cost coverage and employee dishonesty coverage.
Number of Investment Properties
If a potential buyer is looking to live in the home as opposed to using the home as an investment vehicle or rental property, the buyer should look into the percentage of homes that are actually owner-occupied versus how many are leased to tenants. A high number of rental properties in the community could mean that a low level of owner involvement is present in the community. A high level of rental properties in a community can also have a negative impact on a potential buyer’s ability to obtain a mortgage to purchase a home in a condominium association. Freddie Mac, Fannie Mae and the Federal Housing Administration currently require a 51% owner occupancy rate in order to approve lending for homes in the community.
Covenants, Conditions & Restrictions (CC&Rs)
Look at the CC&Rs for the community to make sure that you, as a potential community resident, can live with the limitations imposed on all owners in the community. For instance, many communities require that curtain backs–the side of the curtain that faces the window–be one color so that all of the community’s homes have a uniform appearance from the outside. If you must have fuchsia curtains for the world to see in every one of your windows, then perhaps buying a home in a common interest community is not the best choice for you.
Homeowners living in a CIC enjoy many attractive benefits and amenities, including security, access to recreational facilities and activities, and fewer worries about property maintenance. By carefully reviewing contracts and asking questions, homeowners will be able to determine whether living in a particular community is right for them.
By Edward Hoffman, Jr., Esq. Originally published in Lehigh Valley Marketplace, December 2011
It’s safe to say that there’s no avoiding social media use these days whether it is for personal use, commercial use or even for the benefit of a Community Association. So just how should your Association be handling social media?
In a nutshell, the Association should own its online presence. To begin, every Association should copyright its official, corporate name, as well as other names that may frequently be utilized. This may serve to prevent others from being able to use the Association’s name online.
The Association should also affirmatively run its “official” online presence as it is good practice to never allow an owner or some other person to set up a social media page on behalf of or in the name of the Association because (a) others may think it is the official Association page and (b) the Association won’t be able to manage/restrict the content on the page. If an owner is hosting such an unofficial social media page, the Association can politely ask the owner to remove the page and can concurrently direct all owners to “join” the “official” social media page for the community by informing the owners by way of newsletter, e-mail or otherwise. If an owner or other person who is hosting the “non-official” social media page refuses to take it down, the process of trying to have an “unauthorized” Association social media page removed from the hosting social media site frequently involves litigation and can be lengthy, expensive and stressful for an Association to endure. In addition to the logistical and economic aspects involved in such an undertaking, first amendment freedom of speech issues would most certainly be implicated, and the end result is not guaranteed. However, this being said, the Association most certainly has a duty to at least make a reasonable effort to deal with any unauthorized sites which purport to be the Association site, regardless of outcome.
As for Association run social media, it is recommended that Associations create an Acceptable Use Policy (AUP) for members who want to post as well as a similarly structured social media policy (SMP) identifying the Association’s social media page(s) as the official page(s) for resident use. Having owners sign a copy of each policy would put them on notice as to the existence of each policy and may dissuade negative behavior associated with a breach of either policy. While the legal enforceability of each type of policy in a Community Association setting currently lies in uncharted waters, given the prevalence of technology in a Community Association setting these issues will most certainly be litigated at some point in the near future. An example of what the AUP should provide for includes, but is not limited to, the following:
The posting of harassing, discriminatory or otherwise threatening comments and/or material is prohibited;
The posting of pornographic, obscene, hateful, incendiary, violent, unlawful or otherwise illegal comments and/or material is prohibited;
The uploading of copyrighted material or images is prohibited;
The posting of defamatory comments of any kind is prohibited;
The posting of personal views as representing those of the Association is prohibited;
The posting of “junk” messages, advertisements or other solicitations, not related to the Association in any way, is prohibited;
The Association reserves the right to remove offending post(s) without any prior notice and/or reserves the right to terminate access to any person who does not abide by the posting policy.
Any violation of the AUP can be grounds for removal of the post and a ban on all future posts on the Association’s website. This type of content monitoring and moderation can also be performed on social media websites like Facebook, so long as the Association sets up and runs the social media page on behalf of and in the name of the Association.
While implementing acceptable use and social media policies and monitoring posted site content is surely proactive behavior, these actions can’t completely relieve an Association of potential liability for improper, damaging, false, inflammatory or defamatory content that is posted to the Association’s website or social media page. The key is to never acquiesce, either by way of action or by a failure to act, to potentially harmful postings on the Association site. Associations should contact their insurance professionals and inquire about obtaining standalone cyber-liability insurance and/or adding a cyber-liability rider to their current insurance coverage in an attempt to insure against and offset any potential liability to the extent possible. Such insurance should cover employee technology use, data breach and notification issues as well as “other” potential liability that may arise from and/or out of the Association’s online presence (i.e., defamation, fair credit issues, etc.).
Finally, community leaders, Board Members and Managers should avoid connecting with Association members on social media sites. By limiting their virtual relationships, they can avoid issues surrounding favoritism and ever-present fiduciary duty issues. If not “friending” others in the community is simply not possible, then the community leaders and Manager must refrain from posting comments about the community or community issues on any website that is not designated as an official community site. Similarly, even if the community leaders, Board Members and Manager are not posting comments about the community or community issues on their own or their friends’ social media walls, they have an obligation to look out for the best interests of the Association when reading comments that are made by others about the Association.
