Source: http://www.buckheadpropertymanagement.com/2015/
Timestamp: 2019-04-25 18:28:44+00:00

Document:
The 'proxy put' This provision allows the lender to immediately call the loan due if a majority of the Association's Board of Directors becomes filled with 'non-continuing Directors' that were not approved by the original Board members. Take it a step further to a 'dead hand proxy put', which prevents current Directors from bestowing 'continuing director' status to any new directors seated via a contentious election.
Governing Amendment The lender holds veto power over any changes to community regulations. That smoking ban will just have to wait.
Annual Audits No, the treasurer did not pay for that Porsche with community funds. Conspiracies are a thing of the past, when you’re required to have a CPA touch the books every single year.
Insurance coverage No corner-cutting here. Great way to ensure that D&O insurance, fidelity, and workers comp coverage - the three coverages that typically get neglected - are fully in place.
Self-Managed? No way. That lender is going to have the last say on any changes in professional management. And self-managed always turns out to be more costly in the long run.
Minimum Annual Budget Yep, put the kibosh on all those crazy candidate promises of ‘lowering assessments’. A related requirement keeps wastrels from draining your reserve funds.
First priority asset status This allows the bank to have first dibs over any money or property the Association holds or might hold in the future. Since HOAs rarely actually own real estate, the next best thing is having rights to all future assessments paid by homeowners.
Collections The days of “going easy” on deadbeats are over. Your banker expects the community to hit delinquent behavior with both barrels. Absolutely no write-offs of debt without prior approval! Best of all, if the delinquency rates slip above 10%, the note is called due.
Cross Default Not cross-dressing, but close. If the Board stiffs the plumber, it’s an automatic bank loan default. It is also a default for any other creditor to have the ability to elect a majority of the members of the Board.
The point is this: Requirements like those above have ramifications most of us never guessed existed, so be careful navigating past potential problems. When your community obtains a bank loan for a major renovation/repair project, be sure your attorney is heavily involved.
Expenses. Protect yourself against expenses connected with any proceeding, by expanding the definition of “Expenses” to cover items often excluded in a D&O policy: fines & damages, experts’ and arbitrators’ fees, bonds, settlements, and income taxes resulting from payments. Proceedings should include any threatened or pending legal proceeding such as investigations, discovery requests, and administrative proceedings.
Fees-on-Fees. Directors are not necessarily entitled coverage for legal costs needed to sue the Association to enforce your indemnification rights - be sure this is added!
Insurance. Require that the Association have its D&O coverage audited to obtain the highest quality insurance available in the homeowner association industry.
Express coverage for negligence. An all-inclusive provision may be voided because it is overly broad. Be sure that your agreement explicitly covers all negligence except gross negligence. Here are a couple of court cases that talk about this quirk in Georgia law: Service Merchandise Co. v. Hunter Fan Co "Georgia courts never imply an agreement to indemnify another for one’s own negligence in the absence of express language.” Satilla Community Service Board v. Satilla Health Services, Inc "Contracts indemnifying one against the consequences of his own negligence are not favored, but will be given effect where the intent is expressed in plain and unequivocal terms."
Procedures and Timing. The agreement can require that the Association, when settling a claim against you, include an unconditional release from all liabilities relating to the proceeding, along with an acknowledgement that you deny all wrongdoing. Require all indemnification payments be made within 30 days, and all advances within 20 days of a written request. In the event of an adverse ruling, you can appeal, and be indemnified for all expenses. Include a presumption in favor of indemnification, that you have met the applicable standards of conduct allowing for indemnification, and that a judgment, settlement, or criminal conviction does not create a presumption against indemnification. And impose a reasonably short period on any claim that the Association might have against you.
It is important that you require immediate money advances to cover defense costs, regardless of whether you are the subject of a lawsuit, investigation or witness subpoena, with coverage continuing for your legal expenses - even after you leave the Board.
The above is not to be considered legal advice, and you should consult with a legal professional before acting.
"That's what insurance is for." Uttered by a Board member after several 300-pound marble blocks plummeted from the sides of his condominium tower.
What sounds like a punch line for a joke will punch a hole in your financials with this attitude. A visit by the Association's attorney and insurance broker is vital so Boards can see how coverage is stripped away in these situations. Insurance is not a 'Get out of Jail' card when you turn a blind eye to dangerous situations.
Confirm that you are only using top-rate insurance providers. Mountainside Holdings v. American Dynasty Surplus Lines In this situation, the umbrella insurer (the one providing additional money beyond the limits of the regular liability insurance) did not have to pay when the primary insurance went bankrupt. The additional coverage would only have kicked in if the underlying coverage had actually been paid out.
Check your policy for 'consent-to-settle' restrictions. Piedmont Office Realty Trust, Inc. v. XL Specialty Ins. Co In Georgia, proceed carefully when settling claims against where policies include consent-to-settle and no-action provisions. In this case, the umbrella carrier for the D&O (Directors & Officers) coverage refused to cover for the full settlement amount, since it had previously already agreed to only contribute $1 million. The client settled a suit for $4.9 million, and then tried to claim this amount against the umbrella policy, saying the carrier unfairly withheld consent. The appeals court said that settling without first obtaining consent means you forfeit coverage and are barred from suing.
The clock doesn't stop if years pass between 'same claims'. W.C. and A.N. Miller Dev. Co. v. Continental Cas. Co An adversarial proceeding held years ago had enough similarities to a lawsuit brought years later to effectively be the same claim. A claim doesn't need to be covered in your insurance for it to be classified as an “Interrelated Wrongful Act” and be treated as a single claim.
Always notify your insurer the first time round. Hamman-Miller-Beauchamp-Deeble, Inc. v. Liberty Mutual Agency Corp A broker received letters from an attorney claiming that a client suffered damages due to the broker's negligence. The broker waited until he was served with an actual lawsuit almost two years later before notifying his insurer. The broker argued that the attorney letters didn't constitute a claim triggering reporting requirements. The court disagreed, since the letters said the broker was “legally responsible for...damages” making this a demand for damages.
Don't take any action outside of your Board duties when dealing with the Association. The Langdale Company v. National Union This Georgia case reemphasizes the need to clearly operate only within your Board capacity. Not having a clear delineation allowed the insurance carrier to claim a Director was operating in an uncovered capacity. Because of this, the insurance could not be tapped by the corporation or other Board members to cover expenses.
Insurance companies are in the business of making money, so review the insurer terms with an expert to make sure you understand when you can and cannot rely on such coverage.
As much as we try, it is difficult for Board members and managers to ‘let go’ when dealing with a homeowner or vendor that has wronged us or our community. While no one is suggesting we blissfully ignore misdeeds and idiots, to forgive is critical to healthy community oversight. Festering anger only clouds judgment and leads to burnout.
‘Forgive’ has religious connotations for many. However, whether or not you are a person of faith, over the last decade the physical and social benefits have been confirmed too often to be ignored.
Getting scientific for a moment: Functional Magnetic Resonance Imaging (fMRI) brain scans traced forgiveness to the dorsal prefrontal cortex (for cognitive control), the posterior cingulate (for understanding how others are thinking) and the anterior cingulate cortex (for balancing the perception and suppression of moral pain (such as feeling wronged)). From this, neurologist Dr. Pietro Pietrini notes that forgiveness is a moral distress painkiller.
Dr. Pietrini states, “The fact that forgiving is a healthy resolution of the problems caused by injuries suggests that this process may have evolved as a favorable response that promotes human survival.” Forgiveness alleviates suffering. It is a positive, healthy strategy for overcoming an otherwise stressful situation.
Another medical example: In 2009 the journal Psychology & Health reported that patients with heart disease who underwent forgiveness therapy experienced higher blood flow and were at less risk of pain and sudden death, compared to those who underwent the standard treatment.
According to Professor Fred Luskin of Stanford University, “When you don’t forgive, you release all the chemicals of the stress response.” Think about a wrong twenty times today, and your body releases stress chemicals each time, limiting both your physical and mental ability to tackle problems.
Reframe that painful memory by considering possible points of view that led the homeowner or vendor to act the way he did. This makes it more difficult to blame and demonize him, reducing the level of resentment you are feeling.
When you blame someone for how you feel instead of holding them to account for their actions, you become stuck in victimhood. We’ve all experienced the same thing, and to get past it you have to accept that most often the person wasn’t intentionally out to personally hurt you. How we’ve been dealing with anger hasn’t worked. Instead, humanize the offender, and hate the wrong without hating the wrongdoer.
We are frequently asked for advice on how Board meetings should be run. One of the most critical pieces relates to strategy/goals. Strategic thinking determines what we’re doing and where we’re going. To be successful, Directors must have a clear answer for both.
As a Board member, you must continuously engage in strategic planning - not just once a year. It must be the central focus of each Board meeting. It is really hard to create sustained, long-term value for your community when the Board (and homeowners) are blinded by short-term views.
Boards are most effective at developing strategies when partnered with a professional manager, working together based on mutual trust and respect. This means coming together throughout the year to identify important topics, consider strategic risks, and answer hard questions. Management by itself cannot conclusively cover everything in goal planning – but benefits from the collective wisdom of the Board.
It is critical that all Board members understand the Association’s strategy and can articulate it consistently when responding to homeowners’ pointed questions and pressures. There should be no surprises with a fully involved Board.
Placing education and discussion on strategy development into each agenda must be your priority. All too often, the Board allows itself to get bogged down on governance and compliance issues. Push as many of these items to your committees for processing. If you don’t have committees, establish resolutions that capture the bulk of the situations dealt with by the Board, so management can proceed on autopilot.
When it comes to the meetings, all Directors must arrive prepared, with all applicable materials reviewed in advance. Plan to regularly include third-party experts for additional perspectives at your meetings. A CPA, attorney, engineer or insurance broker provides an outside voice identifying potential disruptions to your goals.
You need to be talking about risks associated with your strategy and how these can be mitigated. Effectively managing risks more than just protects value: It actually helps create value by taking advantage of the unexpected. You want to maximize opportunities and improve your community’s position compared to competing neighborhoods.
Manage this strategic risk by answering, “What is the amount of risk we’re willing to accept in pursuit of value? What is the worst possible thing that can happen and still leave us standing? What milestones do we need to check along the way to our five year goal?” While some things should not be changed (ex: always deposit money with FDIC-insured institutions), decisions on expansions and upgrades to the amenities are valid considerations.
The Board and management should be prepared to regularly readjust key assumptions. Every goal has variables requiring mid-course changes. Are you willing to alter the way you evaluate performance whether your plans exceed or fail to meet your initial expectations?
Final thought: When bad decisions meet a good management team, the bad decisions win every time. Don’t be quick to pin blame. When things go wrong, take a deep breath and analyze the situation before making changes.
Our reality TV culture has only increased expectations for immediate responses to all of our demands. Very few professions can continue to respond at the same pace as they did forty years ago. Those of us in service-related industries are pushed the hardest. And while automated attendants have growing capabilities to handle this environment, human interactions are still very necessary.
This demand for instant satisfaction comes at a price many aren't willing to pay, both in salary and in sacrificed private time. The problem is this: How do you expect to have a fully competent professional agree to 24/7 access at minimal rate wages? Obviously, the answer by many industries is to outsource to other countries with lower living standards. However, for those services requiring frequent personal interaction, such as in the medical or legal fields, you as the consumer can only push so far before the quality of service suffers.
The same holds true in the community association management industry. While some parts of the United States understand and pay for quality management with salaries in the six-digits, other areas view management as an administrative only function. In these suppressed regions, managers make half what their counterparts earn elsewhere, and turnover is horrendous. Many new managers leave the industry within a year, and those that remain behind often are living in financial slavery. The growing resentment and stress lead to behaviors that result in poor quality service, only reinforcing the cycle of keeping quality management out of the local market.
Turn off the email. The worst thing is walking out the door at the end of the work day stressing over some last-minute message that ruins your evening. At least an hour prior to departure, turn off your email and work on projects. Ditto with phone calls. And don't check your smart phone for messages after work.
After-hours on-call. Set up a rotating shift to handle evening and weekend demands. It's better to have a few weeks of year where you have to handle all messages for the firm, if it means peaceful sleep for all those other weeks.
Everything has a price. You don't have to say 'no' to your client, but do set a price. Sure you can stay for a long meeting, for an additional charge. Sure you can take on a project, for an additional charge.
Evaluate your clients. Healthy growth requires pruning. If a particular client is placing your reputation at risk, or is refusing to heed your advice, terminate the contract. There is plenty of other business to be had, with those who will respect what you bring to the table. If a client is soaking up lots of time, increase the rate. In one instance, a client agreed to doubling the management fee in order to keep a quality manager in place. It can be done.
Refuse abuse. The client is NOT always right, and if the staff knows that the firm stands behind it, retention rates will soar. A manager needs to know that it is okay to escalate a situation to higher management without being penalized. Don't sacrifice a manager to retain a problematic client.
They are watching. Support your managers. Whether it is with a family emergency, education opportunities, or providing the latest technologies, loyalty is something that grows over time, but can be lost in an instant. Be consistent in both your messages and actions.
Boards of Directors are always interested in concrete details on how to conduct their duties. One crucial aspect of governance is ethics. While this seems like a fuzzy subject, there are universal norms, according to the Josephson Institute of Ethics. Below you will find six values that define ethical behavior. Most of them seem like common sense - but a reminder never hurts! And by modeling the behaviors identified below, a Board member would definitely be on the right path to achieving ethical behavior.
Trustworthiness - Like they always say in those police procedurals, “Tell the truth, the whole truth, and nothing but the truth”. Speak straight and direct. Don’t betray a trust. Demonstrate integrity—stand up for what you believe, walk the walk and talk the talk. Show commitment and courage. Be loyal. Be discreet with Board information. Don’t spread rumors or engage in gossip. Don’t violate your principles just to win approval. Don’t ask someone to do something wrong. Keep promises—keep your word, honor your commitments, and pay your debts.
Respect - Judge by the content of character, not appearance. Be courteous and accepting of differences. Accept others’ right to decide about their own lives. Don’t abuse or demean. Don’t exploit others.
Responsibility - Consider the impact on yourself and others before you act. Claim the consequences of your choices. Set a good example. Don’t take credit for other people’s work. Be reliable. Do your best, don’t quit easily, make all you do worthy of pride. There is a difference between what you have ‘a right to do’ and ‘what is right to do’.
Fairness - Be open-minded, listening and considering opposing viewpoints. Be consistent in your actions. Use only appropriate considerations. Don’t let personal feelings improperly interfere with decisions. Don’t take unfair advantage of mistakes. Don’t take more than your fair share.
Caring - Show kindness, sharing, compassion, and empathy. Live the Golden Rule. Don’t be selfish, mean, or insensitive to others’ feelings.
Citizenship - Play by the rules, obey laws, respect authority. Stay informed, vote, protect your neighbors' interests, pay your assessments. Be charitable, help your community, and conserve resources.
Psychological and organizational factors pressure people to not act ethically. For Boards, one concern is that ethics can cost the Association money, at least in the short term. Doing the most ethical thing often appears at odds with your short term goals, or may not have an obvious immediate benefit. Focus on the results over the long-term, whether you are setting precedence for future Boards, or preventing a deferred maintenance disaster.
CAM - Friend or Foe?
In today’s world of association management this is what homeowners and board members generally ask themselves. The answer will even change depending on the situation. Much like any other relationship, when a positive interaction occurs - the answer is “Friend”, and on the other side - if it’s negative, the result is “Foe”.
In the association management industry, community association managers (or CAMs) are battling this issue on a daily basis. Often the reality of the law and personal opinion conflict. As a strong service-oriented person, we want to follow the rule of ‘the customer is always right’. Unfortunately, that is not always true. A board member going against the association-governed documents, based on his own personal feelings, will lead the Association down a path that not only could be legally incorrect but also costly in the litigious society in which we live.
A recent example: a few long term board members wanted to waive assessments for owners that had hit hard times but had never been late in over 15 years. While the thought was understandable, the manager had to make them aware this could not be done. If allowed, it would have to be offered to the entire membership, setting a precedence that the association could not afford, nor legally could do.
The manager (with legal explanation in hand) presented to the Board at the next meeting. Those Board members who strongly wanted to offer the waiver felt that the manager was not being a partner and had now become the enemy against the community, the Board and the membership. Of course this was not the case. From that point on, the manager was met with hostile, argumentative behavior.
Once this occurs, it is very difficult to move forward. The broken relationship will need to be repaired first. By further explaining the legal point and offering other ways to accomplish this goal - the manager can work to achieve common ground.
To not take it personal, but yet care personally, is a fine line to walk. Managers are the complaint department and not friend or foe, but the neutral mediator. A manager is a partner to all. The ground could be full of land mines or beautiful wild flowers and on occasion both. No matter the land, we must walk confident whether or not we are liked or disliked on any particular day.
We are service minded experts and those that truly get this ideal are successful. Doing what’s right for all is right!

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.