A lot of people have been asking some very important questions in the wake of June’s sorrowful collapse of a condo. How could something like this happen? Who knew about it? How can we stop it from happening again?
Millions of Americans live in communities, which are run by more than 100,000 different associations.
Behind this tragic event a few things are apparent. It was a result of a supposed lack of risk assessment, risk management, risk mitigation and transparency from those in charge of managing the condo’s matters. We are seeing the direct consequences of a potential negligence from those who should be taking care of others’ properties.
If you have ever served on an association’s Board of Directors and have taken it very seriously like me, you will understand the amount of time and effort that goes into preserving the neighborhood you live in and protecting community property values.
Those who are on the Board of Directors of an association are volunteers who freely offer to play an important role in it. Most of the volunteer board members have this as a second job that takes time from their families, evenings and/or even their weekend.
If something doesn’t go as designed, many times fingers are pointed at the Board of Directors. It can either be a lack of communication when an owner purchases into a community and a misinterpretation of the association’s governing documents, or from the association’s side, it can be failure to use reasonable care and an irresponsible way to keep fees lower.
Chances are, as you are settling in for the evening for your favorite tv show or to catch you favorite sports team in action or to workout in the gym, your board members are enduring a 60 to 90 minutes board meeting:
- reviewing the upcoming budget;
- looking at additional bids;
- reviewing pending architectural change applications; or,
- EVEN postponing important matters or simply sweeping them under the rug in order to avoid high expenses therefore maintenance fees increase or future assessments.
Most board members have a great deal of integrity as there is a big responsibility with the community’s resources and facilities. However, usually they don’t have skills to manage risks and due to the fact they are performing a second job they fully rely (and trust) on the property manager that they work with, who is an employee of a property management company that is hired by the Association.
Even though many large property management corporations have compliance programs, they are not bringing them to the communities they manage. Associations in charge of running communities have to act now to ensure that management and board practices are ethical and transparent. Establishing a compliance program ensures risk assessment, internal controls, policies, and procedures, as well as a candid internal and external chain of communication.
Here are some additional reasons why Associations need compliance experts on their boards:
- The skills they develop over their career – communication, critical thinking, problem solving, project management – all help prevent the frequent issues that Associations face.
- They can increase focus on risk management and proper workflows.
- They can set control strategies and properly handle any necessary remediation.
- They can help prevent misconduct from anyone in the community – the management company, the directors, and the residents.
- They can work outside their comfort zone in a way many board directors don’t.
- As pre-purchasing due diligence becomes the norm, more than ever ethics and compliance are crucial in real estate transactions.
Beyond that, it is obvious that any Association with a Compliance Expert on their board will continue to attract buyers and be able to sustain properties’ value. Be the vanguard in this industry and implement a compliance program within your condo or HOA board!