1. Membership is mandatory and automatic

2. Governing documents bind owner and association to each other

3. Mandatory assessments used to operate and maintain common property

A. What are the 3 types of community associations?  

B.  What are the 3 "other" types of communities?

A. 1. Planned-Owner owns lot, Community owns commons

     2. Condo-Owner owns unit and percentage of commons

     3. Cooperative-An individual owns stock or membership and

          holds a lease agreement on living unit

B. 1. Master (Umbrella)-more than one community assoc.

     2. Mixed-Use Development-residential & commercial

     3. "55 and older"-80% of owners are 55 and older

1. Is the disability covered under Fair Housing Act?

2. Is the request reasonable or does is impose undue burden (or

    require major alterations)?

3. Is the request directly related to the individuals disability?

1.  Recorded map, plat or plan

2. Declaration, CC&R's, master deed

3. Proprietary lease or occupancy agreement

4. Articles of Incorporation

5. Bylaws

6. Board resoutions

1. Community (spirit)

2. Government (protection)

3. Business (income value)

1. Behavior

2. Use of Common Property

3. Use of Individual Lots/Units

4. Appearance of individual Lots/Units

1. General

2. Administrative

3. Special

4. Policy

P.A.S.S.

P-Purpose-why the rule is being adopted

A-Authority-citing the primary source of a boards authority to

    make the rule

S-Scope and Intent-who will be affected, for how long, reach or

    range and extent of rule, penalty for non-compliance

S-Specifications-clearly explain what those bound by the rule

    are expected to do

What are the 6 basic steps of Due Process Procedure?

1. Call or send courtesy letter to resident

2. Issue formal letter

3. Issue hearing notice

4. Hold the hearing (or default hearing)

5. Issue decision 

6. Allow for appeal of decision

1. Suspension of voting rights

2. Suspension of use of common areas

3. Fines

4. Eviction

5. Self Help

1. Police/Fire

2. Animal Control

3. Zoning

4. Building/Planning

5. Health

1.  Property-tangible or intangible (real property: bldgs, land,

     info)  (personal property: inventory, furniture, supplies)

2. Liability-3rd party claim of personal or property damage

3. Income-net loss-reduction in income or increase in expenses

4. Personnel-claims by personell

(Property Insurance)

What are the 4 main risk control activities?

1. Exposure Avoidance

2. Loss Prevention and Reduction

3. Segregation of Exposures

4. Contractual Transfers

(Property Insurance)

Real Property vs. Personal Property

Real Property: 

buildings, land and EDP exposure (EDP is Electronic Information and Data Processing)

Personal Property: 

inventory, furniture, fine arts, equipment, supplies, machinery, valuable papers and records

(Property Insurance)

What are the 3 insurance forms that identify exactly what is covered by the policy?

1. Special

2. Broad

3. Basic

(Property Insurance)

What are the 5 coverages for property exposure to loss?

1. Commercial Package Policy (CPP)  

     a. Property 

     b. Liability

2. Mechanical/Equipment Breakdown Insurance

3. Ordinance/Law Insurance

4. Flood Insurance

5. Electronic Data Processing (EDP)

(Liability Insurance)

What are the 4 types of Liability Coverages and Endorsements?

1. Commercial Package Policy: (The Commercial General Liability (CGL) part of the CPP provides insurance coverage for legal claims from BI, PD, AI, and PI)

2. Hired and non-owned auto liability insurance

3. Commercial Umbrella insurance

4. Directors and Officers (D&O)

(Liability Insurance)

BI

PD

AI

PI

Bodily Injury

Property Damage

Advertising Injury

Personal Injury

(Liability Insurance)

Liability claims can be brought against a community association because of:

1. Property Damage-improperly maintained light pole falls on car

2. Bodily Injury-a slip and fall on a crumbling sidewalk

3. Personal Injury-libel, slander, invasion property, wrongful entry

4. Advertising Injury-misappropriation of advertising ideas or style of doing business or infringement of copyright, slogan or title

(Income Insurance)

What are the 4 Income Insurance Coverages and Endorsements?

1. Fidelity Insurance

2. Business Income Insurance

3. Assessments Receivable Insurance

4. Extra Expense Insurance

(Income Insurance)

When dealing with income loss exposure, what are 4 main sound financial practices?

1. Separation of Duties-for recording income and paying expenses

2. Multiple signatures-on bank and investment accounts

3. Monthly reconciliations-of bank statements with financial reports

4. Performance of an independent compilation, review, or audit of every managed association

(Income Insurance)  

Chart for determining what sources of revenue that can be insured:

Sources of Revenue                                    Insurance Availability

Assessments                                                                        Sometimes, in policy called                                                                                          "Assessment Fees Receivable"

Interest Income on Reserves                                                 Not Insurable

Fine and Penalties                                                                  Not Insurable

Clubhouse or Unit Rentals                                            Insurable by Business Income

Vending Machines                                                          Insurable by Business Income

Washers/Dryers                                                              Insurable by Business Income

Restaurant of Gold Pro Shop                                        Insured as Business Income

(Personnel Insurance)

What are the 2 common insurance coverages and endorsements for Personnel Exposures to Loss? 

1. Workers' Compensation Insurance

2. Employers' Liability Insurance

(Personnel Insurance)

What are 2 common contract issues related to minimizing an association's personnel exposures to loss?

1. Every Commercial General Liability (CGL) policy contains an exclusion for claims that should otherwise be covered under applicable state workers' compensation statutes.

2. Volunteers, including directors and officers, can only be insured through WC if the state statute permits coverage.  

1. The bidding process

2. Program Maintenance

3. Program Evaluation

1. CPCU-Chartered Property and Casualty Underwriter

2. ARM-Associate in Risk Management

3. CIC-Certified Insurance Counselor

4. CIRMS- Community Insurance and Risk Management Specialist

1. Exercise of ordinary and reasonable care.

2. Use of sound business judgement (due care, good faith, discretion

3. Maintenance of record keeping system

4. Payment of bills in timely manner

5. Collection of monies owed to the association in timely manner

1. What services and programs the community will provide

2. When they will be done

3. How they will be done

1. Federal laws and regulation

2. State statutes, regulations and court decisions

3. Local laws and regulations

4. The community's governing documents

1. FNMA (Fannie Mae)

2. FHLMC (Freddie Mac)

3. Federal Housing Administration (FHA)

4. Veteran's Administration (VA)

1. Revenue

2. Expense

1. Owner assessments or Special Assessments

2. Interest

3. Rent, late fees, fines, user fees

1. Operating

2. Major Improvements

3. Reserve Account

Total Assessments Required in Annual Budget (multiplied by) Percentage Interest as Found in the Declaration (divided by) Number of Installment Payments in a Year

1. Mandatory Line Items

2. Discretionary Line Items

1. Zero based budgeting-set to zero review every penny spent

2. Historical Trend Budgeting-go by whats happened in the past

3. Combined method-use zero based for discretionary and historical based for mandatory

What are the 3 ways to present historical information for supporting budget estimates for the coming year?

1. line graph

2. table

3. bar graph

1. Meets legal, fiduciary, and professional requirements

2. Provides for the planned replacement of major items

3. Equalizes the contributions of old and new owners

4. Minimizes the need for special assessments

5. Enhances resale values

*Employment contracts need not include:

A. Legal Sources

B. Interests

C. Termination

D. Notice

*What "duty" do the board members and the manager have to the members?

a. accountability

b. loyalty

c. service

d. conduct

You have a proprietary lease in XYZ development.  Which of the following best describes your interest in the property?

a. time share interest

b. divided interest

c. undivided interest

d. stock membership

Which of the following has the greatest regulatory influence on the management of a community association?

a. federal statutes

b. articles of incorporation

c. specific state statutes

d. general state statutes

c. specific state statutes...there may be specific state statues addressing regulations which effect the management of an association.

(if you picked d.)  incorrect because there are no general state statutes addressing regulations which effect the management of  associations

In the hierarchy of associations governing documents, which of the following is the highest authority?

a. bylaws

b. articles of incorporation

c. declaration

d. mortgage lender requirements

c. declaration...  the correct hierarchy of documents is as follows:

1. recorded deed or map

2. declaration or master deed

3. articles of incorporation

4. bylaws

5. rules and regulations

A significant decline in the amount of investments is most likely the result of:  

a. failure to invest association funds properly

b. seasonal timing of expenses

c. expenditures out of reserve funds

d. failure to collect delinquent assessments

The best reasoning for recommending the modified accrual accounting method is that, compared to cash accounting, it:

a. will make future audit work more accurate

b. more accurately reflects the associations financial condition

c. is more easily understood by board members

d. can be accomplished more quickly

Community managers must be familiar with federal income tax requirements and options because:

a. the IRS will intermittently interview the manager concerning tax filing status

b. states require managers to be knowledgeable in this area of community association finance.

c. under Federal tax code, all organizations are taxable on their income unless specifically exempted

d. the accountant will require input from the association when the tax return is prepared.

What are the two essential financial documents the board of directors should use to determine the amount of funds available for an unbudgeted expense?

a. statement of cash flows and accounts receivable report

b. balance sheet and statement for revenue and expense

c. statement of cash flows and check register

d. replacement reserve report and general ledger

Your association just completed the eighth month of its fiscal year.  Which financial report would be most useful to project year end expenses? 

a. statement of revenue and expense

b. balance sheet

c. statement of cash flows

d. accounts payable report

The interim financial report should, at a minimum, include a:

a. statement of changes in members equity, cash flow analysis, and notes to financial statements

b. statement of reserve funding, investment results, and accounts receivable

c. statement of income and expenses, account balance, and a balance sheet

d. statement of cash flow, balance, and bank statements

If you want to know the difference between actual and budget figures for a revenue account, to which documents should you refer?

a. balance sheet and budget

b. statement of cash flow and budget

c. statement of profit and loss

d. statement of income and expenses and budget

What is the primary source of requirements when developing the associations annual maintenance budget?

a. governing documents

b. state law

c. annual audit

d. reserve study

Which method is the best alternative to increasing assessments?

a. reducing mtnc expenses by deferring repairs

b. increasing income by charging higher user fees

c. reducing mtnc expenses by selling common areas

d. increasing income by opening a line of credit

Liability claims should be sent to the insurer:

a. requesting a public adjuster be assigned

b. without admitting fault

c. by the insurance trustee

d. within 72 hours of the incident

To provide for payment of the insurance deductible, you would:

a. pass the cost directly on to owners

b. negotiate with the hired contractor

c. allow for costs in the operating budget

d. budget as  a reserve expense

Which of the following types of insurance coverage is one of limited value to a community association?

a. liability

b. assessment fee receiveable

c. worker's compensation

d. commercial umbrella

-operating budget

-summary of reserve budget

-3-5 year cash flow report combining operating and reserve budgets

1. baseline funding

2. full funding

3. percent funded

4. threshold funding

1. Federal

     a. IRS-income/payroll

     b. EPA-hazardous waste removal requirements

     c. FHA-improvements needed to buyers to qualify

2.  State

      a. Replacement reserves 

      b. insurance

      c. workers comp insurance

3. Local

      a. property taxes

      b. recycling fees

      c. inspection fees

4. Association Governing Documents

       a. property mtnc

       b. mandatory services

       c. revenue sources

1. percentage method

2. equal method

1. rent from commercial tenants

2. rent from lease of units

3. charges for resale packages

4. collection on insurance claims or legal settlements

5. antenna rental

6. ad space in community newsletter

7. user fees (pool, parking, laundry, clubhouse etc)

8. late payment fees and fines

1. Extra-Judicial 

    a. late fees or interest

    b. require security deposit

    c. acceleration

    d. suspend owner's privileges

    e. suspend voting/participation rights

2. Perfect a lien on the unit

3. Foreclosure of the unit

4. Sue the owner for a Personal Money Judgement

1. chapter 7: "straight bankruptcy" or liquidation of an individual or corporation...prompt conversion of all property to cash and then to creditors to the extent possible

2. chapter 11: "corporate reorganization"...designed to allow for orderly payment to creditors while enabling corporation to continue to operate

3. chapter 13:  used to reorganize personal or non-corporate debt...a plan to pay off all or some of the debt over specified time frame while waiving other debt that may have been incurred prior to filing for bankruptcy.

1. levying special assessment

2. raising the regular assessments for the coming year

3. create a reserve for bad debts in the budget

4. cutting this year's expenses

1. Cash Basis:

Records revenue when received and expenses when paid (simple)

2. Accrual Basis:

Records revenue when earned and expenses when incurred 

(most accurate & recommended by GAAP)

3. Modified Basis:

Records revenue when earned and expenses when paid 

(most common)

Components of financial statement:

Revenue and Expense-records financial trans. for a period of time-keeps track of financial standings

Balance Sheet-snapshot of the financial condition at a specific time-shows the amount of money on hand

Subsidiary Reports 

     *bank statements

     *aged receivables

     *open payables

1. Under the federal tax code, all organizations are taxed on their revenue unless specifically exempted.

2. If your community association has significant non-owner revenue, it is to the association's advantage for you to consult with a tax professional to explore ways to reduce it potential income tax

-know the association's federal tax identification (FTI)

-use lock box for deposits

-require dual signatures for all withdrawels

-segregate and safeguard your assoc. replacement reserves

-require that all statements of operating and reserve accts are send every month

-check invoices against checks paid and original rcpts for credit card accounts

-shop around for bank services

-know the association's insurance company and consult with the agent

-insure the association's money

-do not combine funds with other associations

-regularly engage an independent CPA to conduct an audit

1. to provide users with the information needed to make appropriate decisions on behalf of or regarding the association

2. to enable the association board and manger to control the community's financial operations

-a statement of revenue and expense with a comparison to budget

-a balance sheet

accompanying information to the financial reports should include:

-bank statements with reconciliations

-aged receivables report (amount owed by owners)

-open payable report (amount owed by the association)

1. Balance sheet

2. Statement of Income and Expense (or revenue and expense)

3. Statement of Changes in Members' Equity (or Fund Balances)

4. Statement of Cash Flow

5. Notes to Financial Statements

6. Unaudited supplementary information on future major repairs and replacements

1. Audit: 

-examination of accounting records by a CPA to verify accuracy and completeness

-it is required

-it comes with an opinion letter and a management letter

2. Review

-less thorough, cheaper

-reviews associations financial activities

-agrees that reports conform to GAAP

-provides lower level of assurance than audit

3. Compilation

-presentation of financial statements by CPA without assurance that the info conforms to GAAP

-CPA cannot make any claims of accuracy or completeness

1. all assoc. must file federal income tax return every year no matter the circumstances.

2. an assoc. federal tax return is due 75 days after the end of its tax year.

3. if previous boards failed to submit tax returns, the current board is not absolved from filing a return for the current year and for any other year that it wasn't submitted

4. an assoc may be required to make quarterly payments of its estimated annual tax, depending on the tax filing method it uses and the amount of the potential tax obligation. 

-file as a regular corporation (form 1120)

-file as a homeowners association (form 1120H)