Wednesday, August 31, 2011

Electric Cars: The Next Parking Issue in Your Community?

Remember when pick-up trucks were restricted in many community associations? That rule has fallen out of favor these days. How about motorcycles or their less intimidating cousin, scooters? Many associations now allow owners to park these types of vehicles in the community as their popularity has grown.



Far too many communities in Florida have parking accommodations and the restrictions relating to their use, dating back to a time when many families used only one car. Has your association changed its rules or policies in regard to these parking issues? Has your board peered into the future to discuss the next parking issue on the horizon so you can be part of the vanguard rather than playing catch-up? If you have, has the topic of electric cars come up and what their growing popularity might mean for your community?



Electric cars are hailed by some as the panacea to eliminate our country’s dependence on foreign oil. According to proponents, they are ‘green” which means they are planet-friendly (friendlier than our current gas guzzlers, anyhow) 2.4 percent of all cars bought in 2010 were electric or hybrid, with that projected to increase to 3.7 percent in 2011, 4.1 percent in 2012 and 4.8 percent in 2013. That reflects a twofold increase in electric and hybrid cars in a four year period. The federal government has set a target of at least 1 million electric vehicles in service nationwide by 2015. About 80 percent of charging is expected to occur at home which is where your association comes into the picture.



So what does that mean for your community?



Imagine coming home to your townhouse parking lot or underground parking garage and having to drive over extensions cords strewn throughout the parking area for cars recharging their batteries, or someone else’s car plugged into your electrical outlet in front of your townhouse? Who should pay for the electricity to charge a few owners’ electric or hybrid vehicles? How would you police "electrical theft" should an owner plug his or her vehicle into another owner's or the community's socket?



How will your association handle this potentially looming problem? Let’s take a look.



Charging Equipment for Plug-In Electric Vehicles



How fast a vehicle charges depends on the battery type and the type of charging equipment used. Level 1 equipment can charge an electric vehicle (“EV”) in 8 to 20 hours. Level 2 equipment performs the same task in 3 – 8 hours. DC Fast Charging does the trick in less than 30 minutes. The Electric Power Research Institute anticipates most EV owners will charge their vehicles overnight at home. For this reason, Level 1 (120 volts) and Level 2 (240 volts) charging equipment will be the primary options for homeowners.



Level 1 equipment provides charging through a 120 volt (V), alternating-current (AC) plug (up to 15 amperes and 1.8 kW). Level 1 EVSE is portable and does not require installation of charging equipment. On one end of the cord is a standard, three-prong household plug. On the other end is a connector, which plugs into the vehicle. Level 1 works well for charging at home, work, or when there is only a 120 V outlet, or "trickle charge," available. Depending on the battery type, Level 1 charging can take 6 to 20 hours for a fully depleted battery to reach a full charge. Unless an association installs a charging station as discussed below, EVs using this type of charging equipment may become a problem for an association. By plugging into a standard 120 volt electrical outlet, this type of charging is available wherever you can plug in an extension cord. However, the question remains as to how feasible this type of charging may be if it takes anywhere from 6 – 20 hours to fully charge a depleted EV battery.



Level 2 equipment offers charging through a 240 V, AC plug and requires professional installation of home charging or public charging equipment. Many available units operate at 30 amperes, delivering 7.2 kW of power. These units require a dedicated 40 amp circuit. Level 2 equipment can take anywhere from 3 – 8 hours to fully charge a depleted EV battery. There are numerous companies that can install Level 2 charging stations in your association. Some of these companies will install the equipment at no charge and share a percentage of the revenue generated with the association.



We know electric cars will be a more widespread purchase in the future. At my Firm, we have already had a few clients contact us regarding installation of Level 2 charging stations in their communities. Among other concerns, the following are some factors we discussed with them:



1) Is the installation of the charging station a material alteration that may require the vote of the owners to install?



2) How many charging stations would be required and where would be the most logical place to locate them?



3) Who should pay for the electricity to charge the EVs – the owner(s) or the association?



4) Does the association need to pass policies and rules regarding the use of the charging stations and limit or prohibit Level 1 charging which would tap into the association's common area electrical outlets?



5) Are there any liability and insurance concerns?



We will continue this dialogue in upcoming blogs. In the meantime, don’t be "shocked" when long orange extension cords crop up in your parking areas!



Tuesday, August 23, 2011

Just Who Does Your Insurance Agent/Broker Represent?

I am often asked about the issue of insurance agent allegiance and whether or not an individual is acting as an "agent" for the insurance carrier or as a "broker" for the insured. I have been informed that the term "independent agent" in this regard is really somewhat of a misnomer. The basic rule of thumb is that an agent of a carrier is someone that is appointed by the carrier and can accept an application on behalf of the carrier and has binding authority. On the other hand, a broker is primarily representing an insured in the insurance transaction.



Let's take a look at the standard distinctions between these groups:



Insurance Agents



Insurance agents are insurance professionals that serve as an intermediary between the insurance company and the insured. As a broad statement of law, an agent’s liability to their customers is administrative. That is, agents are only responsible for the timely and accurate processing of forms, premiums, and paperwork. Agents have no duty to conduct a thorough examination of your business or to make sure you have appropriate coverage. Rather, it is your obligation as an insurance consumer to make sure you have purchased the necessary coverage. This obligation weighs even heavier on representative boards.



Insurance agents can be either:



•Captive – A captive agent is an agent who works for only one company and is a “captive” of that company. A captive agent will sell policies only for that insurer.

•Independent – An independent agent is one who works as an agent for a variety of different insurers. An independent can produce policies from several insurers and offer some comparisons of different insurance policies.



Insurance Brokers



Insurance brokers can be best described as a kind of super-independent agent. Brokers can offer a whole host of insurance products for you to consider. Brokers are required to have a broker’s license which typically means the broker will have more education or experience than an agent.



Brokers also have a higher duty, in most states, to their clients. Brokers have the duty to analyze a business and secure correct and adequate coverage for the business. This is a higher duty than the pure administrative duty of the agent. However, this expertise comes at a price. Brokers typically charge an administrative fee or premium payments are higher when purchased through a broker.



Now that you know the difference between an insurance agent and an insurance broker ask yourself with whom you've been dealing and whether or not your expectations of him or her are truly in line with their function as a broker or an agent.



Special thanks to attorney Joel W. Meskin, Vice President of the Community Association Insurance Department at McGowan Insurance, for enlightening me on the distinction between agent and broker. McGowan has the leading D&O program in the US for community associations. For more information you can visit them at www.mcgowanins.com.


Sunday, August 21, 2011

Penny Wise and Dollar Foolish: Vendor Due Diligence

If you want to strike terror in the heart of your association attorney, you need only utter this sentence: "I signed a contract last week and want you to review it to make sure it's alright." Unfortunately, far too many boards underestimate the importance of having their contracts reviewed by legal counsel before signing them.



It is a near certainty that every board will have the opportunity at some point during its tenure to negotiate with at least one community vendor. Whether the project involves simple maintenance or complex reconstruction, the same basic principles apply.



Before spending money on legal fees, it is best for the association to negotiate the Business Terms of the contract. These include: "What am I getting?", "How much is it going to cost us to get it?" and "How long will this project take?". Once these basic Business Terms have been hammered out, it is the job of legal counsel to ensure that the Legal Terms of the contract match the agreed upon Business Terms.



Often an association needs help from other experts to understand what it is or should be getting. Many times, associations enter into contracts for more than what they need. If there is any doubt, it is best to consult with an expert. For example, if an association is modernizing its pool filtration system, it is best to get an expert opinion on what that entails so the association knows what to ask from its vendor(s) rather than having the vendor tell the association what is needed.



Most boards are not experts when it comes to contracts involving painting, concrete restoration, elevators, roofs, management, accounting, security gates, cable or wireless services or any of the myriad of projects associations routinely face. For this reason, experts such as engineers, attorneys, accountants or other consultants should be enlisted to help in the negotiation process. Resist the urge to rely upon the "resident expert" on the board who may not have worked in the subject industry for decades.



Boards must also be aware of their obligations to obtain competitive bids. ALL types of association boards (condominiums, cooperatives and HOA's) must obtain competitive bids for the following types of contracts:



1. Any contract that is not to be fully performed within 1 year after it is executed; and

2. Any contract for the purchase, lease or renting of materials or equipment or for the provision of services which requires payment by the association in the aggregate that exceeds 5% of the total annual association budget.



Boards do NOT have to obtain competitive bids for the following:



1. Contracts with employees of the association;

2. Contracts for an attorney, accountant, architect, community association manager, timeshare management firm, engineer or landscape architect;

3. Contracts with a business entity which is the only source of supply for the services needed within the county serving the association; or

4. Contracts for products and services supplied in an emergency.



Boards are not required to accept the lowest competitive bid received. Although contract price will always be a consideration taken into account when awarding a contract, it should NOT be the only consideration. Additional factors to be considered should include:



-Vendor Identification/Verification: Is the vendor authorized to conduct business in the State where the association is located? Florida associations can check out the validity of the vendor's busines organization with the Division of Corporations at www.sunbiz.org.

-Vendor Licensing: Does the vendor hold a valid license to perform the necessary work? Florida associations can check a vendor's professional licenses with the Florida Department of Business and Professional Regulation at http://www.myfloridalicense.com/dbpr.

-Vendor Referrals: How do the vendor's prior customers feel about their work? The association should always ask to speak with a vendor's most recent customers in order to get honest feedback on that vendor's qualifications and customer satisfaction. If the referral list provided to you contains old projects, it may be a warning sign.

-Length of Service: How long has the vendor been in business? The longer the track record, the better.

-Ability to Perform the Services: What are the vendor's resources? Do they have the correct knowledge, equipment and personnel to perform the services you are requesting or is the vendor going to sub-contract the work to other vendors?

-Insurance: The association should always obtain copies of the vendor's insurance certificates and ensure that the limits are acceptable.

-Bonding: A qualified vendor should not have any issue or problem obtaining the proper payment or performance bonding to complete the job.



In my next blog, we will talk about some common red flags that many boards overlook in the contract negotiation process and specific legal terms you need to know about in the event you choose to go it alone.


Monday, August 15, 2011

How does fraud take hold in a private residential community?

Fraud is certainly nothing new but in today's troubling economic climate, the chance that your community may be harmed by a fraudster, especially if you don't have a series of checks and balances in place, rises dangerously.



The Fraud Triangle has been used as a model to explain the fraud phenomenon as the first step in preventing its occurence. This Fraud Triangle consists of the following three elements:

  • Opportunity: presents itself when a person sits in a position of trust in a community which affords the potential fraudster with access (i.e. to the financial books and records) that is not available to outsiders.


  • Pressure:  presents itself when outside forces wreak havoc on the potential fraudster. This pressure is usually economic and usually arises in the form of a job loss, divorce, death or illness of a family member, gambling or other addiction problem. Some red flags evidencing the pressure side of the Fraud Triangle are a lavish lifestyle which does not fit the fraudster's income level or an employee who is very secretive and never takes a day off in years.


  • Rationalization:  allows the fraudster to avoid seeing himself or herself as a criminal who is stealing money from people. Instead the fraudster may see his or her actions as simply righting hte wrongs of the universe. Typical fraudster thinking in this regard usually falls along these lines:  "I am overworked and underpaid so this balances things out" or "I am just borrowing those funds and will return them at a later date" or "They'll never notice, they have so much money".
There are over 60 different types of fraud that can impact a community association including forgery, skimming, paying false payees or ghost employees, writing off accounts receivable as bad debt when the debt has been paid, reimbursing individuals improperly for personal expenses, falsifying accounts payable, bank statements and more. The typical fraud lasts for 2  years; at that point the fraudster starts getting weary or sloppy. By the time you become suspicious of a potential fraud you need to realize that it has probably been going on for some time.



Here are some things you can do to protect your community:

  • Always have a system of checks and balances in place. Require two signatures on your checks even if your bank will accept only one. Your internal association policy should still require two signatures and directors should never sign a blank check.


  • Always have more than one set of eyes on your books. No oversight of the person handling your association's books and an overly informal operation can set the stage for fraud.


  • Always properly screen employees in advance to weed out potential fraudsters. Some instances of association fraud involved collusion between association employees (in one instance the landscapers submitted false invoices for payment to the bookkeeper whereupon they split the amounts paid).  If an association employee pushes you to hire people he or she knows, do your homework first. When collusion amongst employees is present, the opportunity for a loss is multiplied by three!


  • Make sure your bank provides duplicate statements directly to someone else other than the person handling your books. Why do this? A case out of Michigan dealt with a bookkeeper who received the bank statements and then cooked up a duplicate set with new numbers on her home computer to present to the board. Having dual statements sent out would have prevented this fraud.


  • If you have an association credit card, keep the limits very low. Always check receipts against the statement and scrutinize receipts submitted for reimbursement to see if any personal or odd items are included in the reimbursement request.


  • Do not allow owners to make payments in cash or by checks made payable to anyone other than the association in order to avoid skimming.


  • Make sure your association's accountant reconciles your bank statements and never relies solely on bank statements provided to him or her.
These are just a few examples of steps your association can take to prevent your community from becoming a victim of fraud. If someone wants to steal from you, he or she can usually do it at least for a short while. However,  with some advance planning and foresight, you can make your community a much more difficult target for a potential fraudster. For more information about fraud prevention, you can visit www.acfe.com which is the website for the Association of Certified Fraud Examiners, the world's largest anti-fraud organization and provider of anti-fraud training and education.

Monday, August 8, 2011

Is it the right time to require mandatory board service?

What are some of the most common complaints we hear about community associations and the manner in which their board members are elected?



● The election process is rigged;

● The HOA board collects proxies and votes itself in year after year;

● No one cares enough to run;

● The ballots and the entire election process is manipulated; and,

● The same folks have been "in power" for years.



Whether or not these complaints are actually true in every case in which the accusations are made is a topic for another blog. In today's blog, let's discuss how the concept of a mandatory association board draft would do away with these issues.



Imagine if elections were no longer necessary because every member of the community would have to serve on the board when his or her "number" was randomly selected for such service? Most of the angst of running for the board would be removed because every association member would eventually receive his or her term. Of course, there would be new angst for those who don't really want to serve but would rather complain. For those folks, I envision a system not dissimilar to our current jury service system where the expectation is that it is your civic duty to serve unless you have a compelling reason (financial, health, personal situation, etc.) not to do so. Moreover, folks who would otherwise be ineligible to serve (due to a delinquency, felony background, etc.) would simply not be put in the pool.



Mandatory board service might result in the following:



● A greater appreciation for the time and energy it takes to run a private residential community on a volunteer basis;

● An assurance that there will be a board in place despite general apathy;

● An inability to argue that mandatory education for directors is not advisable lest there be a chilling impact on folks willing to run for the board; and

● A reduction in the often signifcant costs associated with board elections.



Is it unreasonable to expect otherwise able-bodied folks to contribute to the success of their communities by serving one term on the association board? Most folks grumble when they get that jury summons in the mail and the reason is clear; most people just don't like to serve others. That is why jury service is mandatory and not voluntary lest we wind up with the same jurors time and again. Has the time come to treat association board service in the same manner?



Monday, August 1, 2011

Will you be sunk by costly increases in sinkhole coverage?

Last week, Citizens’ Board of Governors approved a massive rate increase (made possible by SB 408) for optional sinkhole coverage, including rate hikes of more than 2,000% in some Tampa-Bay areas. Now, the Office of Insurance Regulation (OIR) must hold public hearings and vote on the proposed rates.

OIR will post the scheduled hearing date on its website: http://www.floir.com.

Insurance is about spreading risk across large numbers and those that are in higher risk areas should pay higher premiums than those that do not, but hitting some with 400%+ increase in one year seems harsh. Was any real thought given to at least spreading the impact over a few years? Certainly, this is a tough situation that will generate heated debate depending on your perspective because Citizens has suffered huge sinkhole losses. Last year Citizens took in $32 million in sinkhole premiums and paid out an estimated $245 million in claims.

For a good article on the topic see this article from Bloomberg: www.businessweek.com/ap/financialnews/D9OO7TA80.htm

How many folks who bought homes in high-risk sinkhole zones years ago (e.g. Escambia , Hernando, Pasco, Pinnellas and Hillsborogh Counties) do you think had any idea that their property was in an area prone to sinkhole issues? How many other sinkhole-prone areas in Florida have yet to be discovered.

While there are Florida and County maps of sinkhole events that have occurred, there is currently no sinkhole risk map analogous to the flood zone map developed for flood insurance; perhaps there should be? Unlike buying property on the coast, it is not always obvious when you are buying in an area that might soon require you to carry this kind of coverage.

Statewide:
http://fcit.usf.edu/florida/maps/pages/11100/f11165/f11165.htm

By County:
http://fcit.usf.edu/florida/maps/galleries/sinkholes/index.php

Moreover, here is what OIR has posted in terms of sinkhole information:

www.floir.com/sections/pandc/sinkholepage.aspx

Some legislators are encouraging OIR to deny the proposed rate increase; others, like Senator Mike Fasano, are in favor of getting rid altogether of this new law that permits large rate hikes in either a Special Session or during the regular 2012 Legislative Session.

You can email your comments to OIR at ratehearings@floir.com - be sure to include "Citizens" in the subject line.