Community Association Governing Documents…Are They Up To Date?
Periodically in every state of the United States (mostly it would be annually) the state legislature gets together, and most of the time they change the laws. Bills are introduced, old language is deleted, and new language is inserted. The statutes are brought up to date to meet the new challenges that evolve as time marches on. In many states statutes are changed in regards to community association business. What about your community association? Do you review your By Laws, Rules & Regulations, Covenants, Conditions and Restrictions (CC&Rs) to keep up with the dynamic and ever changing conditions in a volatile industry?
A good case in point is an association that I been working with recently in regards to their community association collections. I have been called in to discuss an issue they have with their governing documents. It seems as if the developer back in 1985 totally eviscerated the association’s rights to collect a dime of unpaid assessments from a first mortgagee. Right there in their documents it says that when a bank takes title either by foreclosure sale or a deed in lieu of foreclosure that the membership has to eat that debt. Now, these documents were written before the Florida State legislature drafted the Safe Harbor laws in 1992 allowing for associations to collect the lessor of 6 months (now 12 months) or 1% of the first mortgage amount as well as late interest, administrative costs, reasonable legal fees, but the association never changed that language. Now, this article may seem to be Florida specific but please dear reader, continue reading on no matter what state your association may be in.
Worse than that, the association never added Kaufman Language (Florida specific but this issue may apply to any other state as well) that would allow new provisions in the governing documents as it “may be amended from time to time” by changes in the statues. This means that future changes to the statutes would be automatically adopted into the association’s governing documents. Recently, a very clever attorney working for a first mortgagee pulled the association’s governing documents off the county web site. He saw that there was no Kaufman Language and that the governing documents were crafted so that the association was stuck after the bank foreclosed for the full amount that was owed. No, 12 months or 1%, No late Interest, No administrative costs, No reasonable attorney fees…They got nada, zippo, zero because that is how their documents were crafted. Please keep in mind that amendments and improvements in your documents not only deal with community association collections but a plethora of other issues as well.
When I had to break the bad news to this association I drilled down and saw that in the last 22 years they had four different attorneys, five different management companies, and heaven knows how many board members responsible to keep the documents up to date and in step with the times. The lesson here is that a community association is not only a business, but in many ways functions like a government, and every year or so the laws have to be examined, reviewed, and if necessary changed. So no matter where your association is the question is: When was the last time you reviewed your governing documents?
