A short sale is a common alternative to foreclosure when a delinquent owner owes lien holders on the property more money than the property is actually worth. A short sale can occur prior to the filing of a foreclosure action, but it is still a frequently used alternative to a sheriff’s sale in a pending foreclosure. In a short sale, each lien holder must agree to accept less than what the seller owes and agree to release all liens on the property in order to allow the sale. Typically short sales are facilitated by the first mortgage holder, but because all lien holders must approve the sale, boards are also involved if the seller owes the association money. Because each lien holder will most likely be accepting a lesser amount than is owed, several offers could be made through negotiation. Of course, there is no requirement that any party accept a settlement offer; this simply means that particular short sale will not go through.There are several factors for a board to consider w...
FHA Has Issued New Owner Occupancy Requirements for Condominiums
As explained in a recent Kaman Report, in July 2016, President Obama signed into law H.R. 3700, the “Housing Opportunity through Modernization Act of 2016.” This law allowed FHA 90 days to issue new regulations pertaining to the owner occupancy requirements when reviewing condominium associations for FHA certification. On October 26, 2016 FHA released Mortgage Letter 2016-15, which amends FHA’s Condominium Project Approval and Processing Guide.Mortgage Letter 2016-15 clarifies the definition of owner occupancy, which includes principal residences, secondary residences, or units that have been sold to purchasers who intend to occupy them as a primary or secondary residence. A principal residence refers to a dwelling where the owner maintains or will maintain their permanent place of abode, and which the owner typically occupies or will occupy for the majority of the calendar year. A secondary residence refers to a dwelling that an owner occupies in addition to their principal residence,...
Budget Approval Motion NOT Needed at Owners’ Meeting
As community associations hold their annual meetings, boards should be reminded that for most associations, owners do NOT need to approve the treasurer’s report or annual budget. The majority of association Bylaws provide an outline for the annual meeting agenda, which includes approval of last year’s annual meeting minutes by owners, reports of officers, and a board member election. A Bylaw provision requiring owners to approve the treasurer’s report or budget at an annual meeting would be extremely rare. However, boards often make the mistake of asking owners for their approval of these financial items at annual owners’ meetings. If no such owner approval is required by the Bylaws, owners may be confused as to their role within the association and assume a false sense of empowerment, especially regarding delicate financial decisions.All boards should carefully review the association’s Bylaws in preparation for the annual meeting. Organization and a clear understanding of the ap...
New Law Makes Changes to FHA Condominium Approval Process
Unless a condominium association is certified by FHA, lenders may not offer borrowers FHA-insured mortgages. In 2009, FHA implemented a number of changes to the agency's condominium approval requirements. As a result, the number of FHA-approved condominium associations has plummeted. In July 2016, President Obama signed into law H.R. 3700, the "Housing Opportunity through Modernization Act of 2016," which will allow more condominium associations to become FHA certified. However, the real test is the pending release of FHA’s updated condominium regulations.The Housing Opportunity through Modernization Act of 2016 requires FHA to issue new regulations according to the following: Make recertification substantially less burdensome than original certifications. The FHA must consider lengthening the time between certifications for approved properties and allowing information to be updated rather than resubmitted. Provide additional flexibility for associations with commer...
Can a Delinquent Owner Rent the Unit while in Foreclosure?
A question Kaman & Cusimano is often asked is whether there is anything an association can do if a unit is being rented while it is pursuing a Complaint for Foreclosure against a delinquent owner. The answer to that question is “Yes.” Ohio statutory law allows an association to have a receiver appointed to collect rent from the tenant of a delinquent owner. The receiver would then provide this rental income to the association to apply to the delinquent owner’s account.Specifically, both Ohio Revised Code Sections 5311.18(B)(2) and 5312.12(C)(1), state that the community association is entitled to the appointment of a receiver to collect the rental income in a foreclosure action. Additionally, many associations have governing documents with specific provisions that maintain that the association has the right to have a receiver appointed to collect rent while the foreclosure case is pending.The courts have recognized that it is inequitable for a delinquent owner to receive rental inc...
In case your board is unaware, virtually all community associations must file a federal income tax return. Associations must file or request an extension on or before March 15. As you prepare to file the association’s 2015 tax return, the board should discuss the filing options with the association’s tax professional. The two most common form associations file with the IRS are the standard 1120 form and the community association specific 1120-H form.The board should discuss these options with the association’s tax professional. The discussion should include more than simply a statement of the relevant tax rates and total taxes owed. The board should ask about (1) whether Association is eligible to file an 1120-H, (2) the potential risks and benefits associated with each filing option, (3) the risk of additional taxes and/or an audit associated with each selection, and (4) the proper accounting practices necessary to reduce both the association’s risk of audit and to limit its inc...
Condominium and Homeowner Federal Tax Returns again Due
Tax season is here once again! As nonprofit corporations, every community association in Ohio is required to file an annual tax return with the Internal Revenue Service. However, associations have the ability to choose between the filing of two different tax forms – Form 1120 or Form 1120-H. Form 1120-H is a short, simple, one-page form specifically designed by the IRS for community associations. In comparison, Form 1120 is a longer, more complex tax return, and is the standard form utilized by most corporations. Associations must meet certain qualifying tests by the IRS to file a Form 1120-H. The primary requirements are that 60% of the association’s revenues must be from member assessments, 90% of expenditures must be for the management, maintenance, care, and improvement of the common elements, and 85% of the community must be residential. If an association meets these requirements, then filing Form 1120-H is extremely safe and comes with virtually no tax risk. Any...
Every Association Must Complete and File 1099-MISC Forms
If an association retains the services of an independent contractor, it is important to know when a 1099-MISC tax form must be provided to the contractor and filed with the Internal Revenue Service (IRS). Generally, IRS regulations require that businesses and organizations submit a Form 1099-MISC for any independent contractor paid over $600 for services during a given year. In IRS terminology, payments to independent contractors are commonly referred to as non-employee compensation.If the following four conditions are met, a community association must report a payment to the IRS as non-employee compensation:1. The association made a payment to someone who is not an employee;2. The payment was made for services;3. The association made the payment to an individual, partnership, estate, or in some cases, a corporation; and4. The association made payments to the contractor of at least $600 during the year.An association must report payments for services on a Form 1099- MISC. The IRS requires nonprofit ...
Over $11,000 Collected for Association From A Tenant in a Foreclosure Case
Kaman & Cusimano recently collected over $11,000.00 for an association in a foreclosure action. To prevent the delinquent owner from collecting the rental payments from the tenant, the Court appointed a receiver to collect the payments directly from the tenant. For two years, the tenant remitted monthly rental payments totaling over $11,000.00 to the receiver until the delinquent account was paid in full. If your association has a delinquency and the home is occupied by a tenant, be sure to inform Kaman & Cusimano so that we may seek to have a receiver appointed to collect rents during the foreclosure process.
K&C Obtains $13,000 Refund in Property Taxes Improperly Charged to HOA
A homeowners association received a tax bill for more the $27,000 and paid approximately $13,000, which was due for the first half of the year. The association believed it was being improperly assessed but had been unsuccessful at convincing the County Auditor’s office to remove the charges allegedly due for City sewer assessments.Kaman and Cusimano investigated the tax history of the parcel to determine the charges were improper and contacted both the City and County demanding the charges be removed unless the City conclusively proved its entitlement to the assessment. Based on our efforts, the County Auditor removed the charges and is issuing a refund of the approximately $13,000 already paid by the Association.
Condominium Board Faced Discrimination Claim for not obtaining FHA Approval
Recently, a central Ohio condominium board faced a Fair Housing discrimination claim for not obtaining FHA approval. A potential purchaser of a unit within the condominium brought the action, alleging that the board did not cooperate in seeking FHA approval for racially based, and discriminatory reasons. While ultimately, the Ohio Civil Rights Commission dismissed the case for lack of evidence, every condominium Board must be diligent in evaluating whether to become or assist in becoming FHA approved. As the following article recommends, each Ohio condominium board must carefully weigh the pros and cons of being FHA approved: http://www.inman.com/2014/01/28/condo-boards-could-face-discrimination-claims-if-they-dont-at-least-consider-fha-certification/. If the board decides to not proceed with approval, the board should document specific reasons for not doing so. By proactively evaluating the association’s position and taking a position before a possible sale or refinancing ...
Funding Reserves by Percentage Does Not Work
Some board members misinterpret the Ohio Condominium Act and the Planned Communty Act to mean that condominium associations only have to put away 10% of the budget toward reserves. Not only does this misinterpretation expose associations to potential litigation, the 10% figure likely does nothing to achieve the primary goal of the law: to cause owners to be informed as to future repair and replacement costs that can lead to special assessments. Both condominium and homeowners associations must project future expenditures to determine an appropriate funding level for the reserves. Blindly putting 10% of the budget into reserves is arbitrary and will likely lead to special assessments.To address this issue, HOAPulse.com recently published an article entitled Funding Condominium Reserves by Percentage of Assessments. To view the article, please visit the following link: http://www.hoapulse.com/index.php/component/k2/item/12465-funding-condominium-reserves-by-percenta...
Condominium Fees Climbing
Recently, the Wall Street Journal reported that condominium fees are climbing, as a result of higher maintenance, operating, and reserve expenses, particularly in high-rise condominiums. Many Ohio condominiums have noticed similar rising costs as buildings age, operating expenses rise, and more amenities and services are offered.To view the entire story, please click the following link (subscription may be required):http://online.wsj.com/news/articles/SB10001424052702304791704579213960361674396?mod=dist_smartbrief
FHA Condominium Approval Required?
As FHA insured mortgages become more and more prevalant in the Ohio condominium lending market, many board members and professional property managers have inquired as to whether a condominium association has the duty to become FHA approved. As the article linked below from HOA Leader indicates, while there is no duty that condominiums obtain approval, many of the "smart" condominiums are doing so:http://www.hoaleader.com/public/Is-Successful-FHA-Certification-a-Fiduciary-Duty-Discussion-Forum-Followup.cfm
Community Associations are NOT Charitable Organizations Exempt from Ohio Sales Tax
Condominium and homeowner association board members often ask whether their community association has to pay sales tax or other taxes since the association is an Ohio non-profit corporation. Unfortunately, community associations are not considered “charitable organizations” and therefore do not qualify as tax-exempt organizations under Section 501(C)(3) of the Internal Revenue Code.The term charitable refers the public good or benefit and includes such causes as relief of the poor; advancement of religion, education, or science; erecting or maintaining public buildings or works; and defending human and animal rights. Although community associations are not-for-profit corporations, their purpose is to administer and maintain private communities for the benefit of owners who pay for such maintenance. Consequently, the term “not-for-profit” is not the same as “charitable.” Thus, community associations do not meet the requirements for tax-exempt status of a 501(c)(3) ...
Selecting a Reserve Study Company and Setting the Scope of the Study
In Ohio, to avoid litigation related to reserve funding, the choices are clear and the law is simple - adopt a budget that adequately plans for reserves, or obtain a waiver from the ownership. To help accomplish this, we strongly recommend that both condominium and homeowners’ association boards either do a reserve study, share its content with the owners, and budget accordingly or do a reserve study, share its content with the owners, and obtain a written reserve fund waiver each year from a majority of the owners. So you know that your association needs a reserve study, but it’s tough to know where to start. What type of reserve study do you need? Which reserve study company should you use? For step-by-step guidance check out these articles recently posted on HOA Pulse News Selecting a Reserve Study Company and Setting the Scope of the Reserve Study. For more detailed information on Ohio’s reserve requirements, visit our article Mandated Reserv...
Emergency Operating Expense Special Assessments
Ohio requires that condominium and homeowner association boards adopt an annual budget to build sufficient reserves to repair and replace major capital items, in the normal course of operations, without the necessity of special assessments. While those laws generally apply to capital items, such as roofs, roads, and recreational facilities, often communities also face shortfalls on operating expenses. Operating expenses are the expenses that the Association incurs every year to maintain and administrate the property, such as landscaping, snowplowing, utilities, insurance premiums, and professional fees. As boards learn about unexpected increases in these costs, they are often forced to levy a special assessment to cover an operating shortfall. HOAleader.com recently addressed this issue in the following article: http://www.hoaleader.com/public/Emergency-Assessments-Are-They-for-Real.cfm
Ohio Community Associations Dodge a Sales Tax Bullet
On February 12, 2013, a new budget and tax reform plan known as House Bill 59 was introduced. Under the proposal, Ohio’s sales tax rate would have been lowered from 5.5% to 5%. To make up for the lost revenue resulting from the lowered tax rate, all service transactions would have been taxable unless specifically “exempted” under the law. If passed, the new law would have taken effect on September 1, 2013. As all board members are well aware, most maintenance fee dollars are expended for services and as such, this proposed legislation could have had a significant negative impact on all community associations. Our office contacted innumerable legislators seeking “exempt” status for our non-profit community association clients. Under current Ohio law, the general rule is that ALL sales of services are exempt from taxation. The only way a particular service is subject to taxation is if current law specifically states that it is. For example, current law specifically...
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 provi...
Association Thief Released From Prison
30 Jun 2011
30 Jun 2011
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 includi...
Aurora Management Theft Leads to Prison Sentence
16 Jun 2011
16 Jun 2011
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...
Impact of “Robo-Signing” on Association Foreclosures
Recently, there has been significant media attention regarding banks’ “robo-signing” procedures and the impact on pending foreclosure cases. In response, many Ohio judges have imposed strict new guidelines for banks and their attorneys to follow in an effort to ensure accuracy of loan documents. On Monday, the Columbus Dispatch reported that multiple Franklin County Court of Common Pleas judges have joined with other judges from across Ohio to require banks and/or their attorneys to file certifications that their documents are accurate, or the case will be dismissed.In response to this news, many association board members and property managers have contacted our office questioning the impact on their associations’ pending foreclosure cases. To be clear, these requirements and the banks’ errors will not affect association foreclosures, provided the board followed Kaman & Cusimano’s recommendation to either file a foreclosure complaint or an answer and cross-claim.Kaman & Cusimano has strongly encourage...
NPR Columbus – Condominium/HOA Special Report
19 Jan 2011
19 Jan 2011
For those of you who were unable to listen live to Kaman & Cusimano, LLC Attorney Marie Rutkowski's appearance on WOSU Columbus, the show's archives are now available online. To listen and watch the round table discussion, please visit:http://www.ohiochannel.org/MediaLibrary/Media.aspx?fileId=128655&returnTo=CollectionOn Wednesday, January 12, Marie appeared with host Ann Fisher on “All Sides with Ann Fisher.” The topic discussed: “Condominium and homeowner association finances. Are condominiums still a good investment?”
Foreclosures Lead to Rise in Homeowners' Association Fees
Recently, WKYC Cleveland ran a "focus" story entitled "Foreclosures Lead to Rise in Homeowners' Association Fees" featuring Kaman & Cusimano, LLC Attorney David Kaman. The story details the plight of Ohio's associations in the event of a foreclosure and highlights the grassroots effort to pass a "Super Lien" in Ohio.When a unit goes into foreclosure and an owner stops paying the association's fees, the other members of the community often have to "foot the bill" to ensure that all necessary services of the neighborhood are carried out. According to Attorney Kaman, "[Ohio's] associations are bleeding bad debt, with no bank bailout to help them and so they have to act aggressively in foreclosures." A "Super Lien" would ease this burden on community associations by giving the association's lien six months priority over a bank's first mortgage. Joining the fifteen other states that have similar legislation, a "Super Lien" would not only pre...
Board President Convicted of Theft
12 Nov 2009
12 Nov 2009
According to an article in the Middletown Journal, an Ohio Association's board president was convicted of embezzling association funds. To learn about the steps your board can take to help protect your Association's assets, Kaman & Cusimano, LLC clients should read the article "Safeguarding Association Funds" by Attorney Darcy Mehling Good.Jail time for man convicted of embezzling $44KBy Denise G. Callahan, Staff WriterLEBANON — A 49-year-old Maineville man was sent to jail for 60 days and ordered to pay the remainder of the $44,029 he stole from the Fosters Pointe subdivision.Warren County Common Pleas Judge James Flannery gave Phillip Enrich a severe scolding before imposing the sentence, following Weinrich’s guilty plea Thursday, Aug. 27.“I’ve decided that sending you to prison in this case won’t be necessary,” Flannery said. “It’s justified, you deserve it, but I’m not going to impose that consequence ... You have shamed your children, your wife, your parents and the very good people wh...
Associations Left Empty-Handed After Foreclosure
This past weekend, the Cleveland Plain Dealer ran a front page story on condominium sales in Ohio. Stagnant condo sales often have a negative impact on the association and the surrounding condominium community. In response, Ohio's community association boards have been working tirelessly to preserve their community's property values and community spirit. Reporting on these actions, the paper published another story about how Ohio's condominium associations are asking legislatures for help by joining 13 other states and enacting a condominium "super lien." According to the story by Michelle Jarboe:CLEVELAND, Ohio -- Condo associations in Ohio want legislators to put them first in line for money when homes in their buildings are foreclosed upon.The recession, the housing slump and job losses have meant more foreclosures and delinquent monthly fees for condos. Owners pay these fees - ranging from a few hundred dollars to more than $1,000 a month - to cover landscaping, building maintenanc...
Associations Benefit from Bailouts
12 Aug 2009
12 Aug 2009
As many of Ohio’s condominium and homeowner associations face many financial challenges, there has been one indirect source of relief: federal bailouts. The positive effect this generates has been noticed by many local communities, and now the press. The following is an excerpt of an article published in the Columbus Daily Reporter on 8/10/2009:Homeowners Associations Indirectly Benefiting From Bank Bailouts, Insiders SayRICK ADAMCZAKDaily Reporter Staff Writer08/07/2009Many banks and troubled homeowners have been helped by the federal government's bank bailouts, but other beneficiaries of that assistance are homeowners and condominium associations.During the peak of the housing crisis, which was coupled with the onset of the recession, homeowners associations started to see their revenues fall as some of their members, who perhaps lost their jobs, struggled financially and couldn't afford to pay their association dues.In severe cases, home mortgages would be foreclosed upon.Homeowners assoc...
1500+ Board Members Attend Financial Crisis Seminar
The desire of volunteer board members to benefit community associations continues to amaze and impress. In April, over 1500 board members attended Kaman & Cusimano, LLC's spring seminar series entitled "The Financial Crisis - What Every Board Member Needs to Know." This seminar detailed ways for a board to manage the financial crisis and not let the financial crisis manage the board. Topics covered included a new investment tool known as "CDARS," FHA lending requirements and their impact on community associations, creative funding sources for community associations such as loans and donations, and successful collection techniques and policies.Community Association board members from all over the state of Ohio all share the common goal of financial stability and posses the drive to make that goal a reality. Through education, planning, hard work, and diligence, there is no doubt that Ohio's condominium and homeowner associations will emerge from this crisis in a stronger fisca...