Thursday, January 28, 2010

Recognizing the Fraud Triangle.

One of the areas I cover in my educational programs is teaching boards and managers to recognize the "Fraud Triangle" and what it can do in their communities if left unchecked.

The Fraud Triangle consists of: Opportunity, Pressure and Rationalization.
Opportunity presents itself when a person sits in a position of trust in a community. That trust allows the potential fraudster access which is shut to outsiders.

Pressure presents itself when outside forces wreak havoc on the potential fraudster. This pressure is almost always economic and usually arises in the form of a job loss, divorce, death or illness of a family member, gambling or other addiction problem.

Rationalization allows the fraudster to not see himself or herself as a criminal stealing money from people but rather as someone simply righting the wrongs of the universe. The typical fraudster thinking in this regard usually falls along these lines: "I am overworked and underpaid so this balances things out." "I am just borrowing these funds and will return them at a later date." "They'll never notice, they have so much money."

By the time you become suspicious of a potential fraud, it has usually been going on for quite a while. The typical fraud lasts for 2 years; at that point the fraudster starts getting weary or sloppy. So what can your community do to pick up on these signs and discourage fraud in the first place?

We could discuss this topic over many blogs but for now, here are some easy and preliminary steps you can take:

1. Always have a system of checks and balances in place. Dual signatures on checks, more than one set of eyes on the books, proper advance screening of employees;

2. Make sure you request that your bank provide 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 on her home computer to present to the board. Having dual statements sent out would have prevented this fraud.

3. 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.

4. Proper fidelity bonding is a must. Fannie Mae guidelines suggest carrying bonding in the amount of 3 months' of assessments plus any reserves on hand. Speaking of reserves, check those accounts religiously. If you've been told you have $50,000 in the painting reserve, make sure that it really true.

5. Not every Employee Practices policy is created equal. Some require that you successfully prosecute the fraud before you can recover under the policy. It is also important to remember that board and committee members are not considered employees of the association so you will need endorsements to your policy to cover that loophole.

If someone wants to steal from you, they usually can do it, at least for a while. However, with some advance planning and foresight, you can make your community a much more difficult target for a potential fraudster!

Tuesday, January 26, 2010

Why Boot Camp might make you a better board member!

We all know that communities function better when there are talented, knowledgeable people at the helm. We also know that there are a lot of educational resources out there for board members looking for information to help them navigate the minefield of association governance.

It is the rare person who has exceptional leadership and communication skills going into a job requiring those skills. No one disputes that every community would be very lucky to have that kind of person volunteering their time. Education specific to Florida board members can go a long way towards creating these kinds of directors. What might not be as readily understood is that such education does not need to be a painful chore.

I have met many board members who want to have the tools necessary to best serve their communities. Many have read books written by experts and attended legal seminars in the past. What strikes me the most is how little retention of that material exists after the seminar is over or the book is finished. I have attended and spoken at such traditional seminars in the past and there is just nothing compelling about a lawyer in a suit standing behind a podium droning on about 718.111(11).

I created a series called Board Member Boot Camp® to provide some of the tools needed by volunteer board members in a more lively, memorable fashion. Some of the topics covered at these free Boot Camps includes: Best Practices to Streamline Operations and Save Money; Collections and Foreclosures; Board Member Responsibilities; Preventing Fraud in Your Community; Legislation Impacting Your Community; Preparing For and Recovering From Natural Disasters; Negotiating with Vendors and Dealing with Difficult People.

Our hope is that if you enjoy yourself a little in the process you might very well retain more of the information needed to make your jobs easier. Our next Boot Camp will be held on Saturday, February 20, 2010, at the Knights of Columbus Hall, 600 Knights Road, Hollywood, FL 33021. The program will run from 10:00 am to 1:00 and refreshments will be served. Registration begins at 9:30 am.

The Boot Camp is FREE and open to all interested Board members and association managers. If you are interested in attending this upcoming Boot Camp please go to and check out our 3-minute video with highlights from our last event in Bonita Springs! Attendance is limited so you must register by February 12th in order to attend. You can also contact Drill Sergeant Schick at 954-315-0372 to register or via email at

Yes, you will get to see lawyers dressed up in fatigues and you will be put through your paces if you attend but isn't that half the fun?

Monday, January 25, 2010

Can the board check credit scores for potential purchasers and renters?

It is not surprising in today's economy that more and more boards are asking if they can check credit scores to determine whether or not a potential purchaser or potential renter in their community has the financial resources to meet their assessment obligations after moving in.

As with any other restriction or board action, the first step is to determine the source of such authority whether it is statuory or documentary. The common interest ownership statutes do not confer the right to check credit scores for potential purchasers and renters. We must then look to an association's governing documents to determine if such authority is conferred to the board.

Let's take the best case scenario (for a board wishing to do this) that the association's original recorded governing documents contained the right to check credit scores. The board in this situation would still need to obtain the consent of the potential purchaser or renter to check his or her credit. Any time a credit inquiry is made, the subject's score is affected slightly. A board that makes such an inquiry without first advising the subject that such action will be taken and getting consent to do so exposes itself to unnecessary liability. Many boards choose to include a statement on the application to purchase or rent form that must be signed by the applicant acknowleding and consenting to a credit check being run.

Even if all of the above is properly handled a board still has a complicated issue with which to contend when the credit report comes back negative. First, is a low score really indicative of the person's current fiscal fitness or is it the result of a traumatic life event (job loss, divorce, illness) which has since been surmounted with the ill credit effects simply lingering for a while? Moreover, some people fail to build up high credit scores because they don't like credit! These are the folks who don't have 10 credit cards, don't demand high limits on the ones they have and pay for most things in cash. Hardly sounds like an undesirable resident.

If the low credit score is truly indicative of a person who will be unlikely to meet their financial obligations to their neighbors after moving in, it is essential to speak with your association attorney to ensure that the association's governing documents allow you to reject an application based on such information. To add a further wrinkle to this equation, even if the governing documents provide for such action that does not always mean a court will uphold it in the event of a challenge. A knowledgeable community association attorney can walk you through this minefield.

One last thing you should think about when pondering whether or not it is necessary or even desirable to check credit scores for potential new association residents: how many of your long-term residents' credit scores would make you lose sleep at night!!

Thursday, January 21, 2010

Floridians being singled out for higher water rates!

The United States Environmental Protection Agency (EPA) recently announced that it is proposing new water quality standards for lakes and flowing waters in the State of Florida. To review the new regulations, please click here:

The EPA proposed this rule pursuant to Section 303(c)(4)(B) of the Clean Water Act. According to the Don't Tax Florida Coalition, Floridians can expect significantly higher water bills under these proposed regulations. According to the Florida Water Environment Association, the new EPA regulations could force utilities to spend $50 billion in capital costs that would then be passed on to customers through higher fees and fewer services. The Don't Tax Florida website ( reflects that a separate survey of nine (9) Florida water utilities estimated that a household's sewer rates would increase by $62 per month or more than $700 per year. This proposed EPA change could equate to much higher costs for your community association members at a time when they can least afford it!

In any event, the EPA is holding three (3) public hearings in Florida during the public comment period for the proposed rule. The public comment period will begin on the day the proposed rule is published in the Federal Register and will last for 60 days. These public hearings are your opportunity to make your voices heard. If you show up, you will have 5 minutes or less to put your position into the public record. You do not have to be present at the hearings in order to provide written comments to the proposed rule. If you click the link above which contains the proposed rule you will see the instructions to provide your written comments.

In addition to giving your public comment directly to the EPA as discussed above, I encourage you to phone, write or email every member of the Florida Legislature to let your elected Florida officials know how you feel about this change in federal policy. This is one of those rare opportunities when the government is asking for your comment before they make changes that impact your wallet; don't miss the chance to weigh in.

The dates and locations of the EPA's public hearings are as follows:

February 16, 2010: 1:00 pm to 5:00 pm and 7:00 pm to 10:00 pm at the Holiday Inn Capitol East, 1355 Apalachee Parkway, Tallahassee, FL 32301
February 17, 2010: 1:00 pm to 5:00 pm and 7:0 pm to 10:00 pm at the Crowne Plaza Orlando Universal, 7800 Universal Blvd. Orlando, FL 32819
February 18, 2010: 1:00 pm to 5:00 pm and 7:00 pm to 10:00 pm at the Holiday Inn Palm Beach Airport, 1301 Belvedere Road, West Palm Beach, FL 33405

If you have any questions about the public hearings, please contact Sharon Frey with the EPA at or by phone at 202-566-1480. When those rare opportunities are presented to you to make a difference, please seize them!

Tuesday, January 19, 2010

How to take on a bully and win!

What would you do if your community suffered millions of dollars in hurricane damages and your insurance company told you to get lost? If you are the 320-unit North Miami Beach Dome Condominium, you fight back!

The Dome Condominium suffered damage to their roofs, drywall, elevators, sliding glass doors, windows and mechanical systems as a result of Hurricane Wilma tearing through their community on October 24, 2005.

Their insurer, QBE Insurance Corporation, accused the condominium of committing insurance fraud and attempted to paint most of the damage as existing prior to Wilma. The association hit back hard by filing a breach of contract lawsuit against QBE. I'm proud to say that my law firm, Katzman Garfinkel Rosenbaum (KGR) took this case to trial on December 2-18, 2009 and, after deliberating for 8 hours, the jury returned a verdict of $3.867 million dollars against QBE. With pre-judgment interest and attorney's fees, the total should reach $5.5 million.
The jury concluded that Dome did not intentionally conceal or misrepresent facts to QBE or fail to comply with the QBE policy conditions. The jury further concluded that QBE breached its insurance contract with the association by failing to pay for covered hurricane losses.

It's not easy standing up to threats of insurance fraud that are tossed around by some insurance companies who don't want to pay their customers' claims but it can provide much-needed funds for those associations bold enough to do so. There is a five (5) year statute of limitations to pursue casualty claims in the State of Florida which means after October 24, 2010, associations who were also told to get lost will no longer have a cause of action or an opportunity to recover substantial sums of money that may be owed to them. How do you fight a bully and win? Ask Dome Condominium and the hundreds of other associations who have also done so and won. We have set up a special website to answer any questions those of you who suffered Wilma storm damage may have; please visit

Monday, January 18, 2010

Can directors pay themselves?

A Condo Law reader wrote to me the other day and asked the following question:

"Can the board of a homeowners' association in Florida vote to pay themselves?"
The HOA Act (Chapter 720 of the Florida Statutes) does not prohibit (or even mention for that matter)director and officer compensation. Absent any prohibition against such compensation in the HOA's governing documents and depending on what other limitations those documents may put on the board, it could presumably vote to compensate the directors for their service.

Section 718.112 (2) (a) of the Condominium Act provides as follows:

Unless otherwise provided in the bylaws, the members of the board shall serve without compensation.

Thus, if the condominium Bylaws specifically permit the board to be compensated, they may do so.

Many owners find such compensation utterly objectionable. The feeling from this quarter is that directors should selflessly choose to serve on the board and that compensating for such service could lead to (a) abuse and (b) the wrong individuals serving on the board. In other quarters, the feeling might be that if the governing documents properly permit compensation it should be allowed especially given the significant time commitment required for board service.

No matter where your feelings lie in this debate, it is always best from a cost-savings standpoint if otherwise eligible and worthy candidates willing to donate their time to board service are permitted to do so.

For those of you wishing to see specific topics addressed in the Condo Law blog, please send your suggestions to me via email at Your inquiries should be general in nature and not those which would require a review of your community's individual governing documents.

Thursday, January 14, 2010

Neighbors helping neighbors.

I met with a board the other day that told me something astonishing. They had set up a voluntary "rainy day" fund for neighbors to throw in a dollar here or there. Whenever a resident experienced unexpected trouble (job loss, health issue, divorce, etc.) he or she could apply to the committee in charge of the fund for some assistance.

The board informed me that a single mom had recently lost her job and the fund had been able to help with a portion of her HOA assessments. In past instances, fund dollars had paid for a week's worth of meals for the family of a resident who was hospitalized and for much-needed roof repairs for an unemployed man. If this sounds hard to believe, I'm right there with you! Who would possibly contribute to such a fund voluntarily when we are all experiencing financial difficulties these days? Who would determine the worthiness of an individual seeking help and how much to give?

This board advised that rather than creating dissension, the existence of the rainy day fund had actually brought their community much closer together. Rather than feeling resentful, many residents looked forward to reading in their newsletter about how the fund was being used to help neighbors in need. After all, the fund is voluntary; no common expenses are used for purposes to which the resident Scrooge might object.

Any charitable giving is to be commended, whether you are sending it to Iowa or Istanbul. That being said, giving back to your own community and seeing in person what can be done to help someone you may know through a rough spot is very special indeed!

Wednesday, January 13, 2010

Waiting for the bank to foreclose is not a viable option!

I often am asked to attend townhall and community meetings to discuss a variety of topics of interest to people living in common interest ownership communities. I recently attended one of the Broward Coalition's meetings where Broward County Chief Judge Victor Tobin was a member of our panel discussing the current mortgage foreclosure crisis and its impact on common interest ownership communities.

A member of the audience stood up and informed me that his association had started lien collection proceedings against a delinquent owner only to stop when the owner started fighting his lender's foreclosure efforts. Not surprisingly, the owner's attempts to work out a mortgage modification were not successful and the board member wanted to know what the association should do now that the owner was more than one year past due in his assessments.

My response was that had the association aggressively pursued their foreclosure action, it would have been at the finish line by now and not back at the starting gate. A lender filing a foreclosure action today provides absolutely no indication that the bank will actually pursue its foreclosure through to completion in a timely manner. Associations who wait around for a bank to take title to property in their community might be waiting forever.

Since a lender's liability is capped for past due assessments (6 months currently for condominiums and 12 months for HOA's) a lender can take years to foreclose, safely knowing the extent of their past due liability all the while having their collateral maintained by the rest of the paying association members. However, if that same lender proceeds to take title via foreclosure, they not only have to pay the statutory cap on past due assessments but they also have to start paying for all regular and special assessments from that point forward. Combine the fact that it's not easy to move these properties these days with the reality that lender's fees to file foreclosure actions were increased over 300% from last year and you should be able to easily understand why bank foreclosures are taking forever.

The age-old advice that you can't control what others do, only what you do holds very true in today's association foreclosure arena. Associations that proceed with their foreclosures are finding that they accomplish several important goals: (a) they have control over the property as record title owners and can keep out squatters, nuisance tenants, etc. (b) they can attempt to recoup amounts owed via renting or selling the property and (c) they are sending a strong message to the rest of the paying members that they are doing something and that delinquent owners are not getting a free ride at the rest of the owners' expense.

There are no easy or quick answers to today's complicated collection problems One thing, however, is for certain. Waiting around to see what the banks will or won't do is not a viable option!

Monday, January 11, 2010

Do you have a keyboard bully in your community?

In today's age of growing internet dependency, a new beast has emerged-the keyboard bully! Whether you have an association website, community chat room or you simply have an email address to which others have access, you may at some point be on the receiving end of an email communication from a keyboard bully.

What is this creature's modus operandi? Most keyboard bullies prefer to remain cloaked in anonymity for a variety of reasons including the mistaken belief that they can't be held liable for libel, defamation or harassment if no one knows who they are. Of course, today's laws are catching up pretty quickly with technology and internet service providers are being served with subpoenas regularly for those users abusing the process.

Even without taking that step, you have to ask yourself how much credibility should be given to a message if the writer did not have the strength of conviction to make his or her identity known. Association websites and blogs can be monitored to remove offensive or defamatory material. Some associations choose to do that and others leave the messages up there with the disclaimer that the association is not responsible for posted content.

Sometimes keyboard bullies don't hide their identity but proudly send relentless emails hoping to provoke a response. Responding to a keyboard bully usually only makes the problem worse. It is perhaps better to block the bully's email address from sending you mail and report it to their ISP to shut down their account if the behavior is egregious enough. Pursuing civil and criminal penalties is also an option, again if the behavior is egregious enough and a pattern has been established.

Bullies have been around forever; the keyboard variety simply makes an age-old nuisance a little harder to confront. People with valid concerns who seek resolution of same usually don't resort to these kinds of tactics. If you have been the victim of this kind of email activity, you can reach out to your county's Internet Crimes Division.

Friday, January 8, 2010

How does your association deal with process servers?

In this time of increasing foreclosure lawsuits, many communities are likely to see a new visitor at their gates-the process server!

Service of process is the official delivery of legal papers on parties, witnesses or other people involved in a case. Chapter 48 of the Florida Statutes is known as the Florida Certified Process Servers Act. This chapter lays out the qualifications for process servers as well as the various methods of effectuating service of process.

Some communities may be unaware that their current policies and procedures may impede the service of process. For example, a gated homeowners' association may require a "call ahead" to all owners before a visitor may be admitted. Most security personnel know to admit persons legally authorized to execute process in to the community but some still call ahead after raising the visitor gate. Doing so, may allow the person against whom process is sought to evade it.

Similarly, some condominiums with a concierge or front desk personnel may have policies that don't take into account the need to allow effective service of process to occur by those persons legally authorized to execute same. Interfering with persons legally authorized to execute process constitutes a misdemeanor of the first degree in the State of Florida. In this day and age of increased process server activity, it is important for gated communities and other communities with access control policies to review those policies with association counsel and advise their personnel accordingly.

Wednesday, January 6, 2010

The games insurance companies play.

I met with a potential new client recently and asked the same question I always ask communities as the 5-year Statute of Limitations winds down on the ability to bring a claim for Hurricane Wilma damage: Did you suffer any damage from Wilma?

The answer was a resounding YES followed by, "and we were ripped off by our insurance company"! After some more delving into the situation, this board (which was not the same board in place at the time the damage occurred 4 1/2 years ago) advised me that they were told by the insurance company's adjuster that they suffered $480,000 in damages which was, fortunately for the insurance company, less than their $500,000 deductible! Of course, the damage to the roof was not taken into account by the adjuster for a variety of reasons they did not clearly understand.

I advised the board that they not only had a claim that had exceeded their deductible but had probably exceeded it by well over a million dollars after damage to the roof, windows and structure was taken into account. They, like many other well-meaning volunteer boards, were duped into believing they simply didn't have a claim. Of course, it is better for business if insurance customers don't get pushy and demand to be made whole when they suffer a loss; even better for business if they are too scared of being canceled or having their rates raised to file a claim in the first place.

There is a 5-year statute of limitations in the State of Florida on casualty claims. If your community suffered damage from Hurricane Wilma in October, 2005 and you are not certain that your claim was properly handled, you owe it to yourselves and to your members to find out for sure before it is too late. If you were fortunate enough not to have suffered damage from Wilma, make sure you fully understand your rights and how the insurance industry operates before the wind blows again which it undoubtedly will. I have created a special website to inform Floridians about this rapidly closing window of opportunity to pursue Hurricane Wilma claims. Please visit if you are interested.

Monday, January 4, 2010

The parking space dilemma in today's condominiums and cooperatives.

Decades ago when many of our South Florida condominium and cooperative buildings were first constructed, the issue of whether or not there were enough parking spaces to accommodate the residents' needs was not an issue at all. The norm was one or two cars per family; a far cry from today's family with multiple drivers with multiple cars.

Parking today in many of these older condominiums and cooperatives can easily become one of those issues that pit neighbor against neighbor. Boards would be well advised to meet with association counsel to discuss the number of parking spaces available, the nature of each parking space and what reasonable rules and regulations can be passed to fairly address the needs of owners, visitors, workers and the handicapped.

Some communities are unaware whether their spaces are common elements (owners each have a pro rata or percentage share of ownership), limited common elements (reserved for the use of a certain unit or units to the exclusion of others as specified in the Declaration) or appurtenances to the unit (conveyed via deed or via the Declaration to a particular unit and thus, not subject to divestiture).

You must first know the answer to the question, (what kind of parking space is this?) before you can decide what steps the board is empowered to take to control its use. Some communities I see have extremely limited parking facilities; in those instances, it might be reasonable to limit parking use to one or two vehicles. Potential purchasers or tenants with more than the allotted number of vehicles must be told up front about the restriction and, as with any use restriction, it must be routinely and uniformly enforced in order to maintain its viability.

Of course, there a myriad of issues that touch on the issue of parking in a common interest ownership community. Who gets first dibs on the prime handicapped spot by the pool? Can unauthorized cars and disabled vehicles be towed? Can owners with certain parking spaces be forced to pay for maintaining and repairing those spaces? What should be done about the owner who parks a second or third car constantly in the guest spaces?

These questions should be discussed with your association attorney in order to formulate a parking policy that not only meets your community's needs and concerns but also withstands any potential challenges.