Community Association Issues… Where did EVERYTHING go?
Establishing a Record Keeping System For Your Condo or HOA Can Save You a World of Trouble When you need to Produce Them.
Here is a cautionary tale: A big wind comes and knocks off the roof of one of your condo or HOA buildings and you put in an insurance claim. The insurance company is very happy to honor your claim, but they need to see the last seven years of maintenance records for this roof or they won’t pay. Unfortunately, in the last seven years your board has changed five times and you have been through three management companies and six on site managers. Nobody remembers anything; some old board members have moved on, the management companies did not keep your records, and now your sure-fire claim will surely get denied.
Boards may change over time, but the safekeeping of all records does not. When a new board is elected, it is the obligation of the outgoing to board to return or hand over all community records. If a new management company is hired, they must obtain all the documentation and records from the previous management company. State laws require that community associations keep records for five to seven years. If you are a board member or an owner, ask your management company to produce records that go back five years. And it can be in relation to anything, such as maintenance records, meeting minutes, approved budgets, etc. This is a simple test that can be conducted by diligent board members to ensure their record keeping obligations are being met.
This can become a problem considering that community associations are required to keep a great deal of documents, much more than any individual director is accustomed to in their personal lives. So naturally the task falls on the management company, and failure to do this could have many negative effects.
Here’s another example: What if a board has decided to foreclose on Mister Delinquent for non-payment of assessments for the past three years (don’t be surprised some boards will wait before foreclosing). Mr. delinquent arrives in court and his lawyer asks the association’s attorney to provide the proof of mailing for the budgets for the last three years and they are nowhere to be found. As it turns out, the budgets are stone cold lost. The judge can very well rule in favor of Mr. delinquent (no association foreclosure) and even award him prevailing attorney fees.
…notes and everything else that can be put on paper fall into a deep dark abyss never to be found again…
Let’s face the facts and understand that community associations are volatile environments and quite dynamic. Boards of Directors change, emotions run high, management companies are dismissed frequently, as are attorneys, vendors and whoever else gets an opportunity to work for an association. Association’s filing cabinets or servers are (or at least should be) filled with vendor contracts, ledgers, insurance policies, minutes, proof of mailings, warranties, governing documents, proof of meeting notices, notes and everything else that can be put on paper fall into a deep dark abyss never to be found again. Sometimes by accident and often by design by disgruntled board members, dismissed employees (managers), or untrained office staff who may feel that the round file (garbage can) is for everything that is over a year old.
So now that a potential problem has been identified, what are the possible solutions? First and foremost, as mentioned above, the board of directors must establish a record keeping policy and protocol which involves voting on it and memorializing this in the minutes). Don’t lose those minutes and approve them at the next meeting. Said policy should identify all the records that an association must keep and for how long. This is easy because most states if not all of them require this issue.
We should now understand that sloppy or lackadaisical record keeping can have disastrous effects on community associations. It is the responsibility of BOTH the boards of directors and the management companies to ensure that they follow their state statutes in terms of how many years must be kept on file. The suggestion and is for a board of directors to develop a document retention policy, write a manual (it can be one or two pages long) and be sure that subsequent boards of directors and managers understand and adhere with this policy. It might not even be a bad idea for the board of directors to instate this policy in the rules of the association so that the next board can continue with good policy. Finally, when shopping for community association software or if you already have a software package it’s always a good idea to see what capacity these programs must store documents. This is a project worth getting to work on right away because bad things happen in the wink of an eye and having everything properly memorialized is your first line of defense.