SHORT SALES AND
UNPAID ASSESSMENTS

QUESTION: We have an owner who is selling his condo in a short sale. What happens to the delinquent assessments? Are they paid or do we have to write them off?

ANSWER: A "short sale" occurs when an owner of a property seeks to avoid foreclosure by selling the property for less than is owed on the mortgage. Because the lender is taking a loss on the property, a short sale requires the lender's approval.

Failure to Lien. If your association failed to lien the property for the delinquent assessments, it will receive nothing from the sale. The board can still pursue the delinquent owner in court for a money judgment. However, the judgment may be uncollectable.

Lien Filed. If the association filed a lien, then it has a good chance of getting paid. Even so, the board can expect to be pressured by the parties to waive the delinquent assessments and release the lien. That is because the buyer is offering less than is owed on the property. In other words, there is no equity--nothing "extra" in the transaction to pay the association.

For example, if the mortgage was $350,000 and the short sale is for $200,000, the bank is taking a loss of $150,000. If the association has a lien for $10,000, the sale cannot proceed until the lien is satisfied. Since there is nothing in the sale to satisfy the lien, the parties will pressure the board (sometimes with threats) to release the lien otherwise the sale will fall through.

No Duty to Release Lien. Despite the pressure, the board has no duty to release the lien until the association's claims have been satisfied. Even so, standing firm could cause the sale to fall through. This would leave the delinquent owner in possession (i) causing more delinquent assessments to accumulate and (ii) triggering a foreclosure sale by the lender, thereby wiping out the association's lien.

Negotiations. The better approach is to negotiate with the parties. If the board waives the association's late fees, interest and collection costs, the buyer could kick in a little extra money on his offer and the realtors could reduce their commission a bit. With everyone contributing a little, the association could recover something rather than nothing. In addition, it puts a dues-paying owner in the property.

RECOMMENDATION: Boards need to be diligent about filing liens on delinquent owners so as to protect the association's position. Without a lien, the association is unsecured and risks losing the entire amount.

MOBILE APP FEEDBACK

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Thank you, thank you! The download is complete and much appreciated! -Trudy M.

Huge, huge kudos for implementing the mobile app!!! -Craig L.

UNSIGNED
BALLOT ENVELOPES

QUESTION: What happens if owners forget to sign the outer envelope? Do they lose their vote? Can we return the envelope to the owner for signature?

ANSWER: Normally, the owner loses his/her vote. For an envelope to be valid, voters must sign their names in the upper left hand corner of the outer envelope.Civil Code 1363.03(e)(1). This allows the Inspector to verify a voter's eligibility. If the envelope is unsigned, that opens the door to voter fraud, i.e., anyone could have submitted the ballot. Accordingly, when an envelope is unsigned, the Inspector sets it aside unopened and uncounted.

Irrevocable. Once a ballot is received by the Inspector of Elections, it is irrevocable.Civil Code 1363.03(f). As a result, returning an unsigned envelope is not a good option because it can be changed or revoked. This creates a problem for associations because quorum requirements are so difficult to meet, they need every vote. In addition, people don't like the idea of losing their vote because they forgot to sign the envelope.

Possible Solutions. One solution is to notify owners who forgot to sign and have them go to the Inspector's office, show I.D. and sign the envelope. Unfortunately, this creates administrative costs for the association, and may be inconvenient or impossible for owners (especially those who are out of town). A solution implemented by Inspector Danielle Jones, owner of HOA Elections, involved the use of an affidavit (a signed declaration under oath). The declaration attests to the authenticity of the ballot. This is then attached by the Inspector to the envelope. The envelope is thus "signed" without changing or revoking the ballot. Since signed declarations can be done by mail, fax and e-mail (with a pdf attachment of the signed declaration), they are more convenient for owners.

Logistics. Inspectors of Election are not required by statute to enact any solutions to unsigned envelopes. Depending on the association, the time and cost of contacting forgetful owners may not be justified. For those associations who want a solution to the problem, boards should talk to their Inspector of Elections to find out if the Inspector can follow up with owners and what the costs would be.

INSURANCE FEEDBACK

President's Insurance. Your response regarding the president who charged the association for extra insurance is correct. It is more effective to increase the board's D&O policy than to pay for personal umbrellas. Personal umbrellas often refer to "serving on a non-profit board," which usually means serving on a tax-exempt 501(c) organization and not the board of a CID. Depending on the president's personal underlying policy (HO-6 for a condo/coop or HO-3 for a planned community), there may only be coverage for bodily injury and property damage but not for personal injury. There will be no coverage for "wrong acts," which is what the association's D&O is for. In this sense, the president's extra insurance is of minimal value. -Clifford Treese, President of Association Information Services.

Volunteers Should Pay. What is the purpose of providing D&O insurance for board members? These positions are voluntary. They should pay for their own insurance. -Margaret H.

RESPONSE: If you don't protect volunteers from personal liability, you won't get any volunteers. Moreover, board members are volunteering their time, not their money--they should not be required to pay for the insurance. Finally, governing documents routinely require that associations provide D&O insurance for their directors.

	Sincerely yours,      Adrian Adams, Esq.    Adams Kessler PLC