Community Association Seminar: Covenant Enforcement & Legal Remedies

This Tuesday, December 18, 2007 from 6 p.m. to 7:15 p.m. at the Belle Isle Library in Oklahoma City, Oklahoma, Matthew Winton will be hosting the final community association seminar of this year. December's seminar topic is Covenant Enforcement, Legal Remedies, and Conflict Resolution of the Association. The seminar discussion will include: covenant enforcement strategies; rules, fines, and penalties; collection of assessments; liens and foreclosures; proven conflict resolution techniques, question/answer. Light refreshments are provided.

Registration form may be found here. Cost per attendee is $20.00.

CAIRF Best Practices - Reserve Studies

At this evening's community association seminar, we discussed reserve studies and reserve funding. I mentioned Community Association Institute Research Foundation and their Best Practices Reports. Their website is found here, which includes among other great reports, Best Practices Reports on reserve funding and financial operations.

Matthew L. Winton, Oklahoma community association lawyer.

The profile of an effective board member

While this article from the Ford Foundation's CEO doesn't specifically deal with the community association setting, I thought her points would translate very well for the homeowner or condominium association board. See what you think.

Have a happy holiday.

Matthew L. Winton, Oklahoma community association lawyer.

HOA Seminars Notice - October 23

Each month, Matthew L. Winton offers a low cost, high information seminar to those interested in learning more and asking questions about community associations. This month's seminar will be held on Tuesday, October 23, 2007 at the Belle Isle Library in Oklahoma City (off NW Expressway and Villa). Seminar materials and light refreshments are provided.

October's topic is: Foundations of Associations. Seminar includes: overview of the basics of association organization documents, their meaning, and function. Association members will learn how to forecast drafting problems with their governing documents, garner consensus for positive change to the governing documents, and review illegal or impractical amendments. The discussion begins at 6:00 p.m. and always includes time for questions and answers.

Please pre-register to ensure the availability of written materials for you and the seminar. More information and a registration form are available here.

Matthew L. Winton - community association lawyer.

Tide turns for clotheslines...

For  years, certain real property covenant language represented mainstays in covenant restricted communities. For example, when satellite reception became available with the installation of a Volkswagen bug-sized satellite dish, many communities quickly adopted covenants restricting what some thought were unsightly, albeit entertaining, structures. Another typical restriction found in many communities represents clothesline structural and use restrictions. A clothesline structural restriction disallows the structure of a clothesline. A use restriction prohibits the use of real property for a certain purpose.

Given the current heightened awareness of people's impact on the environment, some are seeking simple ways to reduce energy usage - one method is to line dry your clothes. But what if your community's governing documents forbid clotheslines? One response might be to grow green with environmental indignation and ignore the covenant, of course at the person's own legal peril.

The first response should be to contact the homeowner association or condo association board and ask what the association's policy is on clotheslines. If the owner is not satisfied with the response, another course would be to seek legislative or municipal assistance. In some instances, legislatures and municipalities will adopt a law or ordinance that supersedes a real property covenant. For example, any covenant that seeks to restrict owners on the basis of race is void on its face. Likewise, any covenant that outright forbids any kind of satellite dish of any size is unenforceable.

Some communities (Davis, California for example) have adopted ordinances that expressly allow people to use their property to dry clothes. Other cities and states have adopted ordinances and laws that expressly allow the use of other energy saving items, such as solar panels and solar water heaters.

Given the relative difficulty of accessing one's elected officials, another course would be to simply amend the restriction to allow clotheslines. Since most covenants sit unamended for many years, it may be time for your community to form a "covenants committee" to review your community's covenants for their "greenness." Would your covenants allow someone to dry their clothes outside if they wishes? Would your covenants allow the placement of a wind turbine on a Lot? Would your covenants prohibit the installation of solar panels on a person's home?

In the past, these were not questions likely to be asked of our covenants. Perhaps the days are here when they should require mention on an agenda.

Matthew L. Winton - community association lawyer.

Using proxies to meet quorum requirements; Sample Proxy Form

Often, community associations (whether they are mandatory homeowner associations or condominium associations, or voluntary neighborhood associations) will have difficulty in obtaining a quorum for member meetings. A quorum is a number of members who must be present at the meeting in order for the association to conduct business. Typically, the bylaws to the association will provide the quorum number, often expressed as a percentage or a fraction of the total number of members. One method of increasing the likelihood of achieving a quorum is by proxy use. A proxy is a piece of paper signed by a member and given to another person (the proxy holder) so that the proxy holder can attend the meeting in place of the member. The bylaws to the association may contain a provision regarding proxies, such as when and to whom they must be given. If the association has incorporated, Oklahoma law provides that a proxy may be given, and unless the proxy provides otherwise the proxy will be valid for no longer than three years from the date on the proxy.

For a sample form of a proxy that is combined with a written voting ballot Download sample_proxy.pdf .

Submitted by Matthew L. Winton, an Oklahoma community association lawyer.

Minutes and Resolution Samples

For Oklahoma homeowner associations, condominum associations, and community associations, a sample corporate resolution may be found by Download sample_corporate_resolution.pdf .

For Oklahoma homeowner associations, condominium associations, and community associations, a sample form of annual meeting minutes may be found by Download sample_annual_meeting_agenda_and_minutes.pdf .

Provided by Matthew L. Winton, an Oklahoma community association attorney.

Important Oklahoma Law Update

On November 1, 2007 an important change in employment/taxation law will go into effect in Oklahoma. In an effort to penalize illegal aliens in Oklahoma and the individuals and businesses who utilize alien personal services, the Oklahoma Legislature passed HB1804. The pertinent text of the new law is set out below.

The summary of a pertinent portion of HB1804 is:

1. Any community association contracting with someone for personal services (landscaping/mowing, construction/repair work, etc) on an independent contractor basis (i.e., not as an employee of the association) must now verify employment authorization of the independent contractor.

2. The hiring entity (the association) must verify employment authorization just as if the association were hiring the contractor as an employee (completion of Form I-9 with supporting documentation).

3. The association must retain records of the employment authorization.

4. If the independent contractor fails to provide proof of employment authorization, the association must now withhold income taxes from the independent contractor just as if the independent contractor were an employee of the association.

5. IF the association fails to verify employment authorization AND withhold income taxes from an independent contractor who is not authorized for employment, the association may become liable for the income taxes that should have been withheld from the independent contractor.

Not only does this new law require employment documentation from even independent contractors used by the association, HB1804 will severely penalize the association for failing to meet the dictates of the law. I just hope HB1804 won't be applied to my local pizza delivery person, because I'm sure my family orders more than $600 per year in pizza from the local restaurant.

posted by Matthew L. Winton, Oklahoma community association attorney

Collection of condominium and homeowner association assessments

For both community association boards and the association members, it is important to know and understand the process for proper collection of association assessments. Because Oklahoma law for both condo and homeowner associations simply refers the researcher back to the governing documents, the first place to look for guidance on assessment issues is the declaration of covenants (however it is titled).

The governing document should outline a clear and fair procedure for:

1. Association budgeting;
2. Invoicing of assessments;
3. Notification of member's delinquency
4. Filing of liens to secure repayment
5. Recovery of association costs in the collection process

Some might say that an association that "collects" assessments from unwilling members isn't being very neighborly. However, when a person purchases property within a community association, they agree to join their neighbors in the mutual funding of the common expenses of the association. When one neighbor unilaterally opts out by refusing to join their neighbors in funding the association, their neighbors get to carry the financial burden for the unwilling owner. Some might say that isn't very neighborly.

So that the association can operate optimally, without having to specially assess owners for shortfalls, a fair and clear collections practice should be instituted by the association. Before the board contacts an attorney for collection of delinquent assessments, the board should make an attempt to contact the delinquent owner, apart from the routine invoicing of assessments. The board may want to determine if the owner is undergoing a medical emergency, has been called up to active military duty, or has some other circumstance that may warrant the board offering a payment plan.

In an instance of no contingency, and if provided by the governing documents, the board should secure repayment by the filing of a lien against the lot for which the assessment is owed. While some may have the impression that association liens cannot be foreclosed in Oklahoma, such impression is false. In Oklahoma, association assessment liens may be foreclosed, even to the point of the sheriff selling the subject lot. Because of this, it makes sense for association members to meet their assessment obligation realistically, without polemic or philosophic defenses. By meeting their assessment obligations reasonably, an owner will help make their neighborhood a community. In the same vein, a reasonable board will seek community through the association's collection practices.

By: Matthew Winton, an Oklahoma community association attorney.

ENA Summit Conference 2007

This Saturday in Edmond, the Edmond Neighborhood Alliance will host their annual summit on City of Edmond and community association issues. I will be presenting one of the break out sessions on updates in community association law.

If you are unable to attend, the powerpoint presentation slides are available here:  Download ena_legal_seminar_2007.ppt . You may need Powerpoint or its reader to view the file.

Matthew L. Winton
Oklahoma homeowner association and condominium association attorney

Taxation of the Community Association

Taxation of the Community Association: A Short Overview.

A common misconception is that community associations (condominiums, homeowner and neighborhood associations) are exempt from taxes. This myth may derive from the fact that many associations are nonprofit entities. However, simply because an association is a nonprofit corporation does not mean the entity is tax exempt. In fact, most community associations are subject to federal, state, and local taxes. The purpose of this article is to provide a general introduction to the various tax regimes to which a community association may be subject.[1]

Each association should apply for an Employer Identification Number by filing a Form SS-4 with the Internal Revenue Service. This number will identify the association on each of its corporate returns.

Local Taxation of the Association

Local tax takes the form of sales taxes and property taxes, also called ad valorem taxes. Property taxes are paid to the county on an annual basis for real estate owned by the association. If the association chooses not to pay these taxes, the county or an investor may ultimately own the real estate owned by the association, a troubling result for the association and its members.

Federal Taxation of the Association

Depending on whether the association employs various persons, the association may be required to remit income withholding taxes on behalf of its employees, as well as Federal Unemployment Tax Assessment, or FUTA. It is crucial for the association to understand its withholding requirements or employ an accountant to manage the taxation aspects of the association.

In 1976, Congress adopted section 528 to the Internal Revenue Code.[2] This section is an association-specific tax provision. Essentially, the section allows the association to calculate its income taxes either under the standard corporate taxation scheme (as reported on Form 1120) or determine the income tax liability under the section 528 provisions (as reported on Form 1120H). Further explanation of Section 528 may be found in the 1120H instructions found at www.irs.gov and in the interpretive regulations to Section 528 in the Code of Federal Regulations, Section 1.528-1 through 1.528-10.

In short, Section 528 takes the gross income of the association, reduces the gross income by the “exempt function income,” deducts certain allowable expenses, applies a straight $100.00 deduction, and taxes the remainder by a flat thirty (30%) percent.

The form must be filed by March 15 and must be signed by an officer of the association, and any paid preparer.

State Taxation of the Association

As with federal taxation of income, the association could incur state income taxation. This would be income tax owed on the unrelated business income of the association, such as interest or membership fees. In Oklahoma, the reporting form is 512E. If the association operates as a non-profit corporation, then franchise taxes will not be owed.[3] Finally, if the association operates as a limited liability company, then an annual certificate fee will be owed to the state.

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[1] The author is an attorney not an accountant or tax advisor. This article represents neither tax or legal advice nor an offer to provide either. The author highly recommends that each community association find a competent tax advisor.

[2] 26 USCA §528

[3] 68 O.S. §1206 exempts non-profit corporations from the payment of franchise taxes.