The Growing Trend of Community Associations' Digital Record Keeping

Like any corporation, community associations generate a tremendous amount of paper records and documents.  Some larger and/or older associations must dedicate entire rooms to storing nothing but filing cabinets packed full of paperwork.  Because inflow of paperwork knows no ends, as long as the association continues to operate, the records will continue to accumulate.  Organization of records is an enormous task that normally falls on the board members or the management company.  Fortunately, as technology continues to evolve, the prospect of keeping digital records becomes easier and more affordable.  Aside from elimination of the amount of space required to store digital records, digital records are also more time efficient.

The process of “going digital” is two-fold.  First, the board must approve a plan to convert all of its existing, paper records to a digital format.  Second, the board must purchase technology or contract an outside firm to incorporate new paperwork into the digital records moving forward.  Conversion of existing records may present more challenges due to high volume of paper records.  As a result, the board may choose to hire a third party company that specializes in scanning and organizing records.

Experts recommend that an association first devise a plan as to what it wants to store digitally. Does the association intend to convert all of its files, including dormant files, or only the active files?  Typically, third party conversion companies recommend converting everything to a digital format, ensuring everything is stored in the same place.  The board must then budget for the costs and time needed to complete the project, including the cost to hire the third party, if needed.  Although hiring an outside company may eliminate a large amount of time the board is investing in the project, either a board member or the property manager must work oversee the process to ensure accuracy.

Finally, if an association chooses to make all records digital, a simple desktop scanner can be purchased for the association’s office or the property manager to continue the paperless process.  Each time a new document is received it can be scanned and added to the digital records and the paper copy thrown away.

Choosing to become a paperless association is something many boards are now debating, as the digital process will likely, in the long run, save space and money and will help to ensure easy, long term access to all association records.

Ohio Supreme Court Rules in Favor of Homeowners

In a unanimous decision, the Supreme Court of Ohio recently issued a favorable ruling for homeowners across the state.  The decision also benefits community associations facing unnecessary repairs as a result of poor construction practices by their developer. 

In Jones v. Centex Homes, the Ohio Supreme Court reversed a decision by the Tenth District Court of Appeals finding that homeowners may waive the builder’s obligation to construct the house properly in their purchase agreement.  The Court concluded that a homebuilder’s obligation to build in a workmanlike manner is a duty imposed by law that cannot be signed away by a homeowner in the fine print of a home purchase contract.  The Supreme Court went on to state that homebuilders do not have to be perfect, but they do have to construct houses “in a workmanlike manner using ordinary care.”

Prior to the Supreme Court’s decision, developers often argued that community associations were barred from commencing a lawsuit for construction defects because each owner within the association had waived his or her right to sue in a purchase agreement.  Developers will no longer be able rely on this argument, as the Supreme Court clearly concludes that builders cannot insulate themselves from claims for poor workmanship by inserting a waiver provision in a homeowner’s purchase contract.  By eliminating a potential defense for developers engaged in shoddy construction practices, Ohio community associations stand to benefit from the Supreme Court’s recent decision.

Requesting Your Association’s Federal Tax ID Number

Condominium and homeowner association board members and property managers are often asked for their association’s Federal Tax Identification Number.  Community associations in Ohio are not-for-profit corporations that are registered with the Ohio Secretary of State.  Just because an association is not-for-profit, however, does not mean that an association’s income is non-taxable; therefore, the association still may have to pay income taxes.  As a result, every association is assigned a Federal Tax ID Number, also known as an Employee Identification Number (EIN).  Similar to an individual's social security number, a corporation's Federal Tax ID Number is a unique number that government agencies and other institutions, such as banks, use to identify individual corporations.

When paying taxes, filling out mortgagee questionnaires, receiving payment from a bank on a delinquent account, or opening a bank account and/or certificate of deposit, associations are often asked to provide their Federal Tax ID Number, but many board members are unaware of the assigned number.  To obtain your  association’s Federal Tax ID Number, board members may either call the Internal Revenue Service’s Business & Specialty Tax Line at (800) 829-4933 or visit http://www.irs-ein-application.com.

Association Thief Released From Prison

After serving 44 months of a 51 month sentence in federal prison for stealing more than $3.4 Million Dollars from over 40 of Ohio’s community associations, former MultiVest Management owner Kathleen DeSalvo is being released today. By her production of fraudulent bank statements and online fund transfers, the losses related to Ms. DeSalvo range from a few thousand dollars to almost $300,000 per association, with at least four associations losing $250,000 or more. While Ms. DeSalvo may have “paid her debt to society,” the losses sustained to many communities will likely never be repaid.

Despite this alarming wake-up call for associations, many Ohio community association still remain vulnerable to financial threats. To guide association board members in making sound financial decisions, partner Darcy Mehling Good, authored a Kaman Report Article entitled “Safeguarding Association Funds.” This article provides 10 suggestions that boards should seriously consider to reasonably protect the community’s money including lock box systems, segregated accounts, proper insurance, and regular audits. Kaman & Cusimano, LLC service option clients can view the entire article in the Client Articles section of ATLAS. Please click here to log into ATLAS.

Aurora Management Theft Leads to Prison Sentence

As a result of her theft of over $1 Million Dollars, Tracy Reed was sentenced to seven (7) years in prison yesterday by Judge Judith Hunter in the Summit County Common Pleas Court.

Bob Kmiecik attended the hearing and reports that Judge Hunter appeared fully informed about the economic, emotional and other harm that Tracy’s theft caused for hundreds, if not over a thousand homeowners. The Judge had read all of the letters submitted by Board members and had reviewed the matter at length with the prosecutor and Tracy’s defense counsel.

In addition, she listened to statements presented in Court by two board members and allowed Bob to speak as well. Bob informed the Judge that not only had Tracy’s criminal acts caused harm to the associations and their owners, but that a “secondary loss” occurred when Tracy gave a “black eye” to her colleagues in the Professional Property Management industry. Bob noted that Tracy was well aware of the great harm caused by the Multivest loss, but that apparently she was not deterred by the 5 year Federal Prison sentence handed down to Kathleen DiSalvo.

Tracy spoke briefly and softly in her own defense and said “I have no legitimate excuse; I betrayed my “customers’” trust; It is a difficult business; It got out of control; I have no way to repay it; I have no way to make it right.”

In sentencing Tracy to 7 years out of a maximum of 8 years, the Judge specifically noted Tracy’s apparent lack of genuine remorse and rejected Tracy’s request for a couple of weeks to arrange for the custody of her children. Noting “we will take care of your children” the judge ordered Tracy to be “immediately” taken to jail as she was led out of Court in handcuffs.
Although the Court will issue a restitution order, it was generally agreed by the prosecutor, the Judge, and Tracy’s lawyer, that she does not have any substantial assets to satisfy the order.

Condo Associations Get Tough on Fees

The increasingly large, grassroots push for community association rights to delinquent fees is beginning to receive national attention. The May 25, 2011 edition of the Wall Street Journal features a story entitled “Condo Associations Get Tough on Fees.” The story features communities in Nevada and Florida that have taken proactive steps to collect delinquent fees as a result of new legislation in both states. According to the Wall Street Journal:

Condo associations, which have been struggling as troubled homeowners stop paying their condo assessments, are becoming increasingly aggressive about finding ways to recoup unpaid fees. And they have lawmakers on their side.

Closer to home, we are optimistic that Ohio lawmakers will similarly respond as a result of increased national attention and greater pressure from community association constituents. Legislators are still being sought to reintroduce the updated Ohio Community Association Preservation Act (formerly called the “Super Lien”).

In the meantime, Ohio community association continue to be aggressive in pursuing delinquencies by filing liens, foreclosing on properties, and requesting that a Court appoint a receiver to collect rent from a delinquent owner’s tenant. By following this strategy, Kaman & Cusimano clients have recovered over $3,972,802 over the last twelve months for Ohio condominium and homeowner associations.

To view the complete Wall Street Journal report, please visit:http://online.wsj.com/article_email/SB10001424052748704281504576327693591415736-lMyQjAxMTAxMDIwNTEyNDUyWj.html#articleTabs%3Darticle

Ohio Introduces Legislation Protecting Service Flags

Recently, the Ohio General Assembly introduced House Bill 189 that would affect all condominium and homeowner associations within Ohio. If passed, this legislation would prohibit all community associations, through their rules or recorded declaration provisions from restricting the display of blue star banners, gold star banners, and other service flags.

This prohibition would be in addition to the restriction on associations prohibiting the American flag already found in Ohio law. The intent of passing this bill follows the common sense approach to patriotic flags that Kaman & Cusimano has advised its clients to follow in the past.  In these times of great national pride, associations should consider permitting such displays of patriotism to honor those serving in the armed forces and their families here at home, whether or not required by law. While the board for a community association may implement reasonable restrictions how such flags may be displayed, just as they do now with the American flag, an outright ban would be unreasonable and may lead to angry, upset owners and even negative media attention.

HB 189 enjoys broad, bi-partisan support with two sponsors and 25 co-sponsors. As a result, there is a significant chance that it will be approved in both the House and Senate and signed by the Governor this year. If, for some reason, it does not become law, we still recommend that all Ohio condominium and homeowner associations create reasonable rules for permitting service members and their families to display these patriotic flags.

To view a full copy of the bill, please click here.