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Articles by Bob Burton

03/09/2010, Robert D. Burton

Bob Burton presented an article, "Transitioning Property Owner Association Control" on March 6, 2009 at the 20th Annual Advanced Real Estate Drafting Course in Houston, Texas. A copy of the paper can be found here.

Bob also presented an article March 5th, 2010 entitled "Planned Community Governance: Serial, Expandable, Nested and Busted" to the 21st Annual Advanced Real Estate Drafting Course in Dallas Texas. A copy of the paper can found here.

Bob has been asked to prepare and deliver a paper entitled "HOA Assessments: Live and Lien" at the 32nd Annual Advanced Real Estate Law Course Seminar on July 7, 2010, in San Antonio, Texas.

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FHA Adopts New Approval Process for Condominiums

07/13/2009, Joshua D. Bernstein

On June 12, FHA announced major changes to its approval process for condominiums.  Under the new process, FHA will permit certain approved lenders to review condominium projects for FHA eligibility in-house without the need to submit the project to the Department of Housing and Urban Development for Processing.  Also, and significantly, detached condominium projects no longer require FHA project approval, meaning that FHA financing can be secured for detached condominiums in the same manner as for traditional single-family homes.  

FHA's June 12 announcement includes updated project eligibility requirements.  Among other things, FHA's new eligibility requirements now state that:

  • no more than 25% of the property's total floor area may consist of commercial property
  • no more than 10% of the units may be owned by one investor
  • at least 50% of the total units must be sold prior to issuance of any FHA-guaranteed loan
  • legal phasing is permitted for condominium processing, with the owner-occupancy requirement to be calculated on the first declared phase and cumulatively on subsequent phases
  • a current reserve study must be performed. 

Most of the new requirements take effect on October 1, 2009; however, detached condominiums are immediately exempt from the FHA approval process.  Please contact us if you would like a copy of the full text of the announcement.

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The History of The Association™

05/13/2009, Robert D. Burton

The Association™ was born of our desire to keep you informed of community association issues, whether old or new and to keep your abreast of emerging trends. In telling you the origin of The Association™, we thought it would also be interesting to outline the origin of the community association, whose importance in our communities and society has steadily grown over time.

Based on data compiled by the Community Association Institute, in 2006, 57 million Americans were members of a community association, a 2,614% increase from data compiled in 1970. The growth of community associations over the last 35 years is a response to changes in our society and our culture's conception of home ownership. In response to societal trends and competitive pressure, developers began to build specialized amenities and adopt specific rules for their developments. At the same time, municipalities began to focus on core services recognizing that there is a limit to the tax burden their constituents will bear. These two trends, among other factors, conspired to create a financing and regulatory gap for the community association to fill.

We spend most of our time with the day-to-day administrative and management needs of the community association. Let's step back for a moment and look at a few important events in the rise of the community association.

  • Late 18th Century: London institutes the practice of maintaining private parks with funds provided through subscriptions from or trusts composed of adjacent land owners.
  • 1831: Samuel Ruggles, a New York developer, lays out Gramercy Park. The park is conveyed to a trust for the benefit of adjacent lot owners who are charged with maintenance and upkeep.
  • 1844: 24 lot owners executed an agreement to maintain, in perpetuity, Louisburg Square in Boston.
  • 1871: Based on advice from Fredrick Law Olmstead, setback and construction restrictions were imposed on the Riverside residential development in Chicago, Illinois.
  • 1890: Edward Bouton incorporated use restrictions in the Roland Park development in Baltimore, Maryland.
  • 1914: J.C. Nichols created the first mandatory membership association in the Mission Hills development in Kansas City, Missouri.
  • 1929: The Ohio Supreme Court in Dixon v. Van Sweringen upholds the enforceability of private covenants.
  • 1934: Congress creates the Federal Housing Administration. The FHA, in conjunction with its mortgagee guarantee program, encouraged developers to incorporate deed restrictions and mandatory associations within their developments. The Veterans Administration, created in 1944, adopts similar recommendations.
  • 1951: Puerto Rico adopts the first condominium statute within the United States or its territories. The statute calls for the creation of a council of owners to administer and maintain common area.
  • 1962: Congress adopts the National Housing Act which makes FHA mortgage insurance available to condominium unit owners. FHA publishes a model condominium statute. By 1967, almost every state had adopted a legal framework for condominium ownership. Each statute calls for the creation of an organization to administer and maintain common areas.
  • 1978: Voters in California approve Proposition 13 which limits the ability of local government to raise property taxes to cover the costs created by new development. As a consequence, local officials require that certain local services be provided by private property associations. Trend in "load shedding" by municipalities spreads to other states.

So there you have it. Once the proverbial cat was out of the bag, new community services and amenities such as pools, sidewalks, parks, community centers, ball fields, etc. no longer were to be a burden shouldered by the taxpayers. Rather, such services and amenities would have to be paid for by the developer. But who would pay to maintain such items once the developer was gone? And how? The residents enjoying such benefits in their community through payment of mandatory dues to the community association administering such services and amenities became the new private "taxpayers" which have enabled community associations to grow and thrive.

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Avoiding the Paper Chase

05/13/2009, Carey Gunn Helm

Are you in a constant paper chase to locate various association documents? Are the minutes of the last board meeting intermingled with the association's quarterly newsletter? Are emails regarding the community barbeque from 2006 in the same file as the association's adoption of community rules? Could an incoming board member locate the association's insurance policy in the event of an accident at the community pool? Document organization and maintenance is crucial to the smooth and efficient operation of the association, yet, is often overlooked.

Property owner associations, like other businesses, generate a large number of documents. The continuous flow of documents to and from an association can quickly become overwhelming and unmanageable if left unattended. To avoid the constant paper chase, documents must be continuously managed in a uniform manner. The frequent turnover in board members only adds to the importance of the adoption of a uniform document retention policy.

Three important questions often arise when an association attempts to manage its documents:

  1. What documents should be retained?
  2. How long should retained documents be kept?
  3. What format should the documents be kept?

The first question is often the most important. In some cases document retention is dictated by statutory requirements, while in others it is based on customary best practices. For example, Texas law dictates that associations are required to maintain detailed records of their financial activity for at least three years. On the other hand, while there is no mandate that an association maintain certain notices to homeowners regarding a rule change, it is good practice to keep a copy of such notice in the event of a dispute with a homeowner over the rule.

Once the determination is made regarding whether the document should be kept, the association must determine how long it should keep the documents. As mentioned above, this question may be answered by governing law. In most cases, however, the length of time a document should be retained is based on customary best practices. As previously mentioned, Texas law requires the maintenance of financial records for at least three years. However, most accountants would recommend that any documentation supporting a tax filing should be kept for at least seven years. Corporate records such as minutes of association meetings, board resolutions and other actions taken by the association should be kept indefinitely.

Finally, the association should determine the best location and format for maintaining its documents. There is a general move in most industries to a paperless environment. As discussed in a previous post, associations are no different. Scanning and maintaining documents in an electronic format cuts down on physical storage needs. However, despite the convenience of the electronic format, associations should continue to purge documents pursuant to their retention policy. In certain instances, such as litigation, original documents should be maintained. The association should consult with legal counsel regarding when maintaining the original document is preferred.

A document retention policy will answer these questions and ensure that the association is in compliance with governing law. Furthermore, by formally adopting a document retention policy, future board members will have a uniform system in place for the management of important association documents. We can help your association manage the growing pile of documents by tailoring a record retention policy that meets your association's needs and complies with current law. We can also provide your association with the means of maintaining electronic copies of the association's records on our servers which can be securely accessed through this website, The Association™.

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Let's Talk About Sex....Offenders

05/13/2009, Carey Gunn Helm

A subdivision in West Texas made headlines recently when the developer of the community enacted deed restrictions banning any convicted sex offender from owning or living in any new home in future phases of the community. Of course, basic property rights dictate that such decision is the developer's prerogative. How such deed restrictions play out in the long run is yet to be seen.

While such deed restrictions may protect those residents from sex offenders in their community, such restrictions are not the norm. With so many news stories about sex offenders, an oft arising topic is whether a community association is responsible for disseminating information to its members about sex offenders living in their midst. Since so many people have access to instant online information about their association's financials and operational information, many people think that such access should extend to providing information on other topics as well, such as a community sex offender list.

Not so. The association's obligation to provide operational and governance information to its members and its choice of convenience to provide such information online does not create a wider affirmative obligation as to other non-association related community issues. And in fact, if a community association undertakes to provide the names or addresses of registered sex offenders living in the community to its members, it may run into two-fold liability. If a name turns out to be incorrect, the association can be sued for defaming the incorrectly named person. On the other hand, if the association accidentally leaves a registered name off the list and that person assaults another resident, the association can be sued for failing in its undertaken duty to warn and protect its members.

What is permissible? A community association may provide its members with information on how to obtain sex offender information on their own. For example, in the community newsletter, the association could provide basic information on how to go online and check for themselves whether there are any registered sex offenders living nearby by listing any applicable County Sheriff's or City Police's sex offender website. Another good resource to provide is www.criminalcheck.com - the only free, nationwide sex offender data base site on the web. As always, there is a fine line to walk, but a little thought goes along way to strike the right balance.

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Con Dos and Con Don'ts

05/13/2009, Robert D. Burton

Section 82.111 of the Texas Uniform Condominium Act includes insurance requirements often overlooked by the condominium association board and its management. If your condominium community has what the Act terms "horizontal boundaries," your association's property insurance should insure the individual units in addition to the community's common elements. "Horizontal boundaries" refer to boundaries separating "stacked units", i.e., a building with individual units above, or below, one another. The insurance covering the units need not include improvements or betterments installed by unit owners.

When you check the areas covered by your policy, also check your policy limits. While the Texas Uniform Condominium Act only requires 80% replacement cost coverage, retail underwriting loan guidelines require 100% replacement coverage. Maintaining less than 100% replacement coverage may jeopardize a purchaser's ability to obtain a mortgage and hence your members' ability to sell their unit. If your regime was established before January 1, 1994 (the effective date of the Texas Uniform Condominium Act), your project documents may have different insurance requirements. However, despite your project documents, the Act's insurance requirements apply.

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Case Closed

05/13/2009, Carey Gunn Helm

In Galveston, an owner wanted to construct a chain link fence. The deed restrictions required written approval from the ACC prior to constructing any improvements on the owner's lot. The restrictions also provided that “in the event the [ACC] fails to approve or disapprove the plans within forty-five (45) days after same have been submitted to it, approval will be presumed and this paragraph will be deemed to have been fully complied with.

The owner submitted a formal written application to the ACC to construct the fence, but the ACC denied the application. Because the owner believed the ACC had applied an erroneous setback standard, an ACC representative told her she could reapply with her objection and that a letter would be sufficient. The owner sent a letter outlining her contentions.

The owner never heard back from the ACC or the association. After 45 days, the owner sent a letter to the association explaining that since 45 days had elapsed, the ACC was presumed to have approved her application and she constructed her fence. The association then sued the owner for violation of the deed restrictions and removal of the fence. The owner countersued seeking a determination that the fence had been properly approved. The owner won. The court determined that the letter constituted a written application to the ACC and that the ACC failure to act within 45 days constituted approval. The court also awarded the owner her attorney’s fees.

Moral: The courts always lean towards the free and unrestricted use of an owner’s property so follow your documents not only in form but also in substance. If your documents provide for automatic ACC approval without a response in a certain number of days, DO NOT IGNORE any additional request you may receive in writing. It is better to be safe than sorry by promptly and courteously responding to an owner inquiry.

See:  Indian Beach Propertyowners’ Ass’n v. Linden, 222 S.W. 3d 682 (Tex. App. 2007).

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We Blog!!!

03/04/2009, Robert D. Burton

Notice any changes? We have added a blog to TheAssociation™ We want to share tips and information that will help you be a better developer, manager, director, officer, or member of a community association. Each entry is written by one of our Practice Group attorneys.

TheAssociation™ still includes client access to governance documentation at the click of a button. If this is your first visit to our site, be sure and take a test drive of the client access portal. Simply click the Client Login button above and type in the following username: client@abaustin.com and password: test123

We hope you enjoy the blog!!!

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FHA Loans -- Everything Old is New Again

03/04/2009, Joshua D. Bernstein

Until last year, homebuyers would have been hard-pressed to find a mortgage broker or lender advertising FHA home loan programs. The mortgage industry was awash in cheap money from other sources, and with myriad options available to those looking for mortgage financing, FHA financing had seemingly fallen out of favor. Almost anyone with a pulse could find a loan at competitive rates that required little or no down payment and poor credit and insufficient income were no obstacle.

With the meltdown in the mortgage and credit markets, everything old is new again. And FHA loans are once again all the rage.

These loans, which are insured by the Federal Housing Administration, have been available since the 1930's. They offer competitive rates, require small down payments, and are available to homebuyers with less-than-perfect credit. With the demise of the so-called sub-prime mortgage market, FHA loans have increasingly become the go-to financing vehicle for many homebuyers.

For condominiums, however, securing FHA financing presents some challenges. This is because FHA requires, as a condition to insuring mortgages on condominiums, that the condominium project satisfy certain requirements before FHA will approve the project for FHA-insured loans. In established projects, where the community's governing documents were drafted prior to the “rebirth” of FHA financing and without consideration for its requirements, homebuyers may find themselves shut out of FHA financing because the project's governing documents do not include all of the terms that FHA requires. For such projects, where FHA project approval and financing are unavailable, the pool of available homebuyers in the community shrinks considerably.

It is possible to amend a community's governance documents to bring them in line with current FHA lending standards. Upon amending the documents, the community can secure FHA project approval, thus making FHA loans available to the community’s homebuyers. We have recently had much success in assisting clients to secure FHA approval for their existing projects. While the process varies from project-to-project, the first step is always to review the community's governing documents to determine in what ways they fail to comply with FHA's requirements. From there, we can develop a detailed plan of action to ensure that FHA financing is made available to purchasers of the community's condominium units.

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Greening Your Community - The Paperless Association

03/04/2009, Carey Gunn Helm

Green governance issues and greening your community are hot topics right now for community associations. One major trend is having your Association go "paperless." Other than the obvious benefit of saving trees, there is a substantial savings in operational costs for your Association – less paper means less postage and supply costs which – if you have ever seen your Association’s annual budget – represent a hefty sum every year. Therefore, “being green saves green.” Having your Association completely paperless is not yet a reality, but as internet use and computer technology continues to explode, reality is right around the corner. So where are we now? This outlines some very real steps your Association can take right now to start seeing green:

Online Document Storage.Whether you maintain a website for your Association or utilize some other web-based electronic storage server, providing web-based document accessibility is the number one thing your Association can do to achieve a paperless reality. To be effective, your Association needs to provide online access to all of the Association’s governing documents, corporate records, meeting minutes, annual budget, financial statements, etc. In addition, commonly used forms such as ACC requests or common amenity reservations forms should be able to be filled out and submitted electronically. Other documents which could be posted online, and would substantially reduce the Association’s postage and supply costs, are a newsletter, a welcome packet or homeowner directory, and even event calendars or other community documents. If your Association does not have a website or sufficient web-based storage capacity on your website, our firm offers to our clients, free of charge, a web-based electronic storage server through this website The Association™. We work with our clients to structure their project page to have as much information posted as needed. In addition, we have the ability to structure various login and security levels so that certain documents can be restricted for viewing just by the Board or manager, or may be accessed by all owners pursuant to a generic login and password. To test drive this free client service, simply click the "Client Login" button above and type in the following username: client@abaustin.com and password: test123.

Internet Voting. This technology is relatively new, but is growing in popularity across the country. If your governing documents permit (or if your community amends its governing documents to allow) there are now available internet voting services which permit your Association to conduct its member voting online for a fee. The way it works is that if your Association allows online voting, the internet voting company simply needs all of the owner information, the issues to be decided on the ballot and the starting and ending dates of the vote to be taken. The internet voting company operates a secure site and provides owners with a password restricted login to a website, and then owners are provided the issues and able to vote on each issue online and in the comfort of their own home. The internet voting company then sends the results to the Board when the voting is ended and the results are tabulated. No more lack of participation or vote shortfalls for important community issues, and no more need for expensive postage for absentee ballots.

Email. Most of us are already hooked on this, and aren’t even aware of the benefit. One of the easiest steps you can take toward going paperless is to start using email for most of your Association’s communication. If you don’t have a website for your Association or otherwise post your community documents online, you can use email to distribute the community newsletter or new homeowner directory, or to communicate other information on news and events taking place in the community. Depending on what your governing documents allow (or if your community amends its governing documents to allow), your Association may also be able to use email to distribute the annual budget or notify owners of covenant violations or overdue assessments.

Electronic Invoices. Almost all vendors now will permit online bill access and pay or can bill you directly via email. As this cuts down on their paper use and postage as well, many vendors are happy to provide you with one or both of these options. In addition, if you post your documents online, the bills may be posted in a secure area accessible to the Board or manager only, so that they can be easily reviewed when needed.

Start being green to save green today!

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Published by Armbrust & Brown, L.L.P.

Copyright (c) 2009 Armbrust & Brown, L.L.P.. All rights reserved.

These materials have been prepared by Armbrust & Brown, L.L.P. for informational purposes only and are not legal advice. This information is not intended to create, and receipt of it does not constitute an attorney-client relationship. Internet subscribers and online readers should not act upon this information without seeking professional counsel. Please do not send us confidential information until you speak with one of our attorneys and get authorization to send that information to us. If you wish to initiate possible representation, please contact one of our attorneys.

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