“Importance of Budgeting for Legal Expenses in Community Associations” – KSN attorneys Kerry Bartell and Pam Park discuss the importance of budgeting for legal expenses within community associations. They review board member roles, fiduciary duty, and more. (47 mins.)
The KSN Podcast examines various aspects of association law, landlord/tenant issues, property tax appeals, and more.
In each episode, KSN attorneys share their experience and knowledge as they discuss legal updates, best practices, industry trends, and more.
KSN Podcast episodes are available here: www.ksnlaw.com/podcast
Subscribe to the KSN Podcast where podcasts are found including:
For more info about our law firm and legal services, please visit www.ksnlaw.com.
Episode Transcription
Pam: Hi everyone. I see that we have a lot of people who are already on. We’re going to wait a couple more minutes before we begin but we do appreciate everybody’s attendance tonight for this seminar.
Kerry: Give it a couple more minutes to see if people are joining. It’s like people are still logging in.
Pam: And for everybody that is logging in right now, if you could please make sure to mute yourself so that we don’t pick up any background noises. I can’t really tell if we still have logging in or–
Kerry: It looks like we can probably get started.
Pam: Okay. Well, again I’d like to thank everyone for their attendance tonight at our seminar, the seminar is about the importance of budgeting for your Association’s legal needs. My name is Pam Park and I’m here with Kerry Bartell. We have both been at Kovitz Shifrin Nesbit for a little over 25 years. We both started just about the same time, and we are now both partners with the firm. While we have been with KSN, we have specialized in all areas of the practice of condominium, townhome and homeowner association law and we are excited to share some of our experience. And I would just like to remind everybody if they could mute themselves and as we go through the point of the meeting, of the seminar this evening, we will be responding to everyone’s questions at the end. We ask that you share those questions in the chat, and we will try to get to those at the end as time allows. But really to start, what we do want to begin with is that we all know the importance of passing a careful and comprehensive budget for the associations we work with. And there are several factors that go into the preparation of a budget. So we do want to focus on those factors, including the legal requirements for a budget.
So obviously, a thoughtfully prepared budget takes into account associations annual revenues, which are the assessments that are being collected and paid by the owners. Now we all know how owners can react to unexpected special assessments. So, it’s always our advice and our recommendations that associations try to set their budget to include assessments that will not only take care of the Association’s current operating budget, but will also take into account the associations capital reserves and the long term capital expenses, which should be held in that separate reserve account. So the amount of an Association’s budget that should be set aside for reserves should take into account any reserve studies that may have been performed to inspect the Association’s buildings and looking at the Association’s structures in order to determine the average length of time each of these component parts of the building will last, and then what the overall cost will be to repair them. That can be a significant amount for the Association’s budget and oftentimes when associations do not take into account or do not set aside enough money for their reserves, that’s when you start seeing these special assessments popping up.
As well, there are some new requirements by Fannie Mae lenders that just went into effect at the beginning of the year, January 1st, 2022, that places new requirements on associations that have five or more attached units. And for those associations that fall under this requirement, Fannie Mae lenders are looking to make sure that associations have allocated 10% of their budget for reserve funding. We can go into that a little bit later, but the reserve funding overall kind of shows what the long term financial strength of the association will be. But the main point of the Association’s budget is really to address the Association’s operating expenses and a thorough review of the Association’s operating expenses is required and that includes expenses for insurance for the association, maintenance, legal services, management. The review of all of these factors will help the association plan for its security and will ensure that the association is complying with all of the relevant association laws within the state of Illinois.
Now, in going to the next slide, we can see that there are specific legal requirements for the preparation of any budget and in preparing a budget, a review of the associations governing documents is always required. Those governing documents are the declaration, the bylaws, and these documents will include basic requirements for the association, including what an Association’s fiscal year is. Many times an Association’s fiscal year, which is their budget year, it doesn’t always follow the calendar year. And it also sets forth requirements; when the board is required to prepare the budget for all of the unit owners but the main budget process is really set forth in the Illinois community association laws, including the Illinois condominium property act and the Illinois common interest community association act, which is also abbreviated and known as CICA. Both the condo act and CICA requires that the board provide copies of the budget to owners within a specific period of time, and also sets forth requirements regarding how the budget is to be delivered to unit owners and also has very specific requirements as to when owners are notified of when budgets will be reviewed by board members at a board meeting and when they will be passed by the board.
So while the board has the authority to adopt the budget by a majority vote of the board members, the board also needs to be aware that both the condo act and CICA provides owners the ability to challenge a budget that has been approved by a board in the event that new budget exceeds a certain amount of assessments. So, really what everybody should understand with these legal requirements for the budget is that they can be confusing. They’re very specific and it’s really important that these provisions are followed. And we do recommend that along with all of the costs that the association is setting aside for the operation of the association, you also include the legal needs for the association to consult with attorneys especially on these budgeting issues because– Well, some boards may find legal costs to be expensive and sometimes burdensome, we know. Our hourly rates can be high. A board’s failure really to follow these legal requirements for a budget can sometimes cost an association much more in the end because what you’ll end up having is a budget that may be unenforceable and that could then lead to assessments not being collectible. And obviously this would result in the association having a much more expensive and burdensome process in the end. I guess we would like to remind everyone again just to mute themselves and Kerry, if you wanted to go through maybe the next section regarding the board’s duty.
Kerry: It sounds like a couple people or one person might have their computer not muted or it’s alive. So if you could turn on your mute, that’d be great, just cause we’re kind of hearing the conversation. So, a couple of things that our board members need to keep in mind generally, but particularly with the budget and the budget process as Pam was saying, there’s a lot of guidance in the statutes with regard to what boards need to do in adopting and preparing the budget but also within the Association’s declaration. And then overarching all of that is this idea that board members are fiduciary, right? As a board member, you have a fiduciary duty to the association. So we always like to talk about, and kind of remind everybody what that means. If you are a manager, one of the things that you’re often called to do is to sort of poke the board and remind the board that they need to comply and abide by their fiduciary duty in order to make sure that they’re protected individually but also so that the association is protected from potential liability.
So, underlying the obligation to comply with the fiduciary duty is that most of our board members, all of our board members are volunteers. It’s very infrequent where a board member is an attorney or is in some sort of situation where they understand what a fiduciary may be or that they are a fiduciary in some other capacity. So it’s good to remind them as volunteers that they do have legal obligations to the association and that this fiduciary duty kind of overrides everything that they do. So what is fiduciary duty? Just kind of succinctly, if I could say that word board members are required to act in good faith with due regard to the interests of the association. Another way to put it is that the community’s interest or the Association’s interest has to come before the individual board member’s own interest. I always like to explain it to my board members that you can come to the board with your own expertise, you can come to the board with your own opinions or particular issues facing the association that are important to you. That may be why a person runs to serve on the board of directors but once you are on the board, that board member has to make sure that they are looking through the perspective of the association and what is best for everyone, or the vast majority of the owners when they are making decisions.
They can certainly incorporate their own opinion, they can certainly incorporate their own preferences and their own background, but at the end of the day the decision has to be on behalf of the Association. When that comes to the budget process and adopting a reasonable budget, as Pam said, the board has a fiduciary duty to ensure that the budget is accurate and it sufficiently supplies the association with funds to do the work that the association needs to do. And one of the things that goes along with that is making sure that the association has the funding to engage whatever experts or other information they need in order to make, in some cases, very significant and can be costly decisions. So, in the state of Illinois the board members of any corporation that includes an association are presumed to be acting in the best interest of the association. Unless there is some set of facts or documentation that shows that the board member or board members acted in bad faith.
So what does that look like? The association needs to engage like I said, they need to engage and work with their experts and their partners to be able to make an informed decision when they’re acting on behalf of the association. This can include property managers. This can include accountants. It can include consultants or maintenance personnel, and certainly it can include the Association’s legal counsel. I always like to point out too that the case that we all talk about a few years ago the Palm case, it became a four letter word in most of our offices but it did provide some good guidance for board members with respect to performing due diligence and this idea that they have an obligation to gather information from those that are providing opinions to them. The court found that the board has a duty to ask; they need to ask questions of their experts and be informed, and do their due diligence. So, the idea that, well, we know our attorney told us to do this many years ago, but we never got anything in writing and it’s just the way it’s always been done and the court said, that’s not enough. You need to make sure as a board member that you are asking the questions and then the second part of that, which is just as important, is that when you are given an opinion, you need to follow it.
So, as property managers, or if you’re a board member, you need to be engaging your expert to include legal counsel and when they provide you with an opinion, make sure that it’s in writing. I know when I get phone calls or I’m at a meeting with a board and they ask me for an opinion, I always try to follow it up with a written email, confirming what we talked about. That’s for the board’s benefit, so that they can have that opinion in writing, they can refer to it and if an issue ever comes up later down the line, they’ve got something in writing to refer to. It also helps me because then I remember A, what we talked about and B, that I gave them an opinion to move forward. The associations board needs to make sure again that they are making reasoned and well thought out decisions as Pam said. So this is a great way to do that and engaging legal counsel, I think, is really a critical part of that process. So this kind of brings us back to the budget discussion, which is we need to make sure that associations and the board understand the importance of budgeting for legal opinions.
They also need to budget for other expert opinions. I tell my clients all the time, if you’re doing a large capital project, spend the extra money and have a consultant or an engineer or other type of consultant or expert to provide you with the specifications and to bid out the project for you, it will save you so much money on the back end if you engage those experts upfront and budget for those experts to help you walk through that process. We can undo or avoid a lot of pitfalls for an association if we’re brought in at the beginning. So just make sure that you’re budgeting for those additional costs as part of the project. I think it should be part of that whole process. Okay. Pam, you want to take it over.
Pam: So, with that and in considering the legal needs of an association, it’s really our opinion that the legal needs of an association is dependent on the relationship that the Association’s attorneys may have with board members and with property managers and overall it’s been our experience and with Kerry and I now having been specializing in this area for now over 25 years, it seems that the more closely we work with board members and with property managers, the less large legal problems an association may have in the future. So it really is our opinion that having good board communications and having attorneys attend board meetings is very important and is vital to an association being successful in making sure that they comply with Illinois law and in order to avoid large issues in the end. Again, with regards to attending board meetings, with COVID and the pandemic, it certainly has become very interesting as to how all of our roles have shifted and the fact that many of us, including myself, may be sitting in your basement on zoom right now and attending this seminar and while that has made a lot of our jobs much easier because obviously we don’t have the travel time and that the commitment that comes with attending meetings in person it still is my opinion, especially that an in person attendance at a board meeting can often resolve many different issues that an association may be facing.
I can’t tell you how many times I’ve attended board meetings and board members or property managers have come up to me at the end of the meeting and they said all of the owners have been on such good behavior, I don’t understand. And from my perspective, I’d like to think it’s because I have such a huge threatening or intimidating presence, but I know that’s not it, but really what it is, it’s my ability and all of the attorneys within KSN’s ability to communicate with the owners and to kind of put, I guess, the words that I’m thinking of is to put down or to try to counteract whatever positions some of the owners may have and whatever crazy legalese they may be relying upon. It’s always been our experience that we’re able to rely upon specific cases, specific statutes in order to explain to owners not only why they’re wrong, but really why they’re most likely in violation of the association’s governing document and try to get them to a point where they can see how their actions are affecting maybe the association as a whole.
Doesn’t always happen, but sometimes it does and when it does, I feel like that’s a big win for the association because really in the end, it’s avoiding having us getting involved in sending out violation letter or possibly filing a lawsuit against an individual and we all know that lawsuits can be quite costly for associations. And if we can have these relationships with the board members and with the property managers through board meetings, through regular board communications, we think that that benefits the association more because it is avoiding costly and lengthy legal problems for an association in the end. Would you agree that that’s been your experience too, Kerry?
Kerry: Yeah, absolutely. And I always make the joke that kind of like what Pam was saying when I go to a meeting and everybody’s like, oh, it’s going to be a crazy meeting and everybody’s mad and yelling and screaming and we are able to go in as a neutral party and be able to kind of give a level of calm to the meeting but also to be available to answer questions from the owners that sometimes the board or the manager is not comfortable responding to. But I also think too, when you have some of those larger meetings where there’s a special assessment or a large capital project or you’re adopting a huge budget increase, or some of those more controversial types of meetings, it helps the board to have their experts in the room because it allows the board to say that, look, we thought this was important enough, we thought this was serious enough to have our experts with us. The same is true if you’re doing a capital project, have your engineer in the room, have your finance guy if you’re getting a loan. But it takes some of the heat off the board and I think it can be very valuable for the board and for management to have us present. So, yes, absolutely.
Pam: With that relationship as well, the general counseling services that we are providing to property managers and to board members where opinions are being provided for associations, with regards to the interpretation of the governing documents. So, that includes not just the maintenance responsibilities and who is responsible for what maintenance or repairs of a specific item within the association, but you’re looking at violation issues, maybe insurance claim issues, which can get very complicated and can really kind of spiral out of control if it’s not addressed properly from the very beginning. So again, we would recommend that regular communications between the association’s attorneys and board members and property manager should be a careful consideration for all associations in order to assist the association in operating and putting forth the duties that they are required to do.
Kerry: So, next I want to talk about three areas where if the association is going to budget for legal services, these are the three areas, actually, there’s two more on the next page where the association, I think, can protect itself the most and avoid the most potential for liability. The first is review of the governing documents. So, Pam keeps reminding everybody that we’ve been doing this for 25 years. But as we get older in this business, most of the associations that we represent, their governing documents are getting older. I’ve reviewed association declarations literally from 1972. It’s now, I don’t even know the math, 50 years later and they’re still operating from those original documents. Well, as most managers know, many of the board members know the Illinois condominium property act has been revised numerous times over that span and even in the last 10 years, we’ve seen a lot of statutory activity with respect to the Illinois condominium property act. For non-condo associations, in the last 10, 15 years, we have had a brand new statute, we have CICA and many of the association declarations are not in compliance with those documents. So one of the things that can happen for a board is they are sitting there reviewing their declaration and bylaws, they’re trying to be good and do their due diligence, understanding what their governing documents say and low and behold, their governing documents are not in compliance with current law.
So they inadvertently or mistakenly do something wrong or don’t comply with the notice requirement or don’t comply with the procedural requirement related to the budget. So it’s really important, I think, for board members associations to ensure that they’re updating their declaration. It doesn’t have to be done every year but it needs to be done certainly probably every five to 10 years. It is something that will help the board and management make sure that they have the most Up-To-Date information and they’re relying on accurate procedural requirements for their association. The same is going to be true for rules and regulations. One of the things that we do quite often is review an association set of rules that the board has drafted or committee has drafted that they want to adopt for the property. We need to make sure that those rules and regulations are in compliance with the statute, they’re in compliance with the declaration and bylaws, but they also need to be in compliance with other laws that are sort of one shot deals. You have the FCC regulations, you have fair housing act amendments that you have to make sure are reflected.
So the review of the rules and regulations before they’re adapted I think are really important to make sure that the board is sort of protected and they’re operating properly and when they go to enforce a rule and regulation that it’s actually enforceable, and they’re not going to get themselves in trouble in some other way. So if your association has older documents I think it’s really important for you to have a conversation with the Association’s counsel to see if they recommend doing an update, and then you get a budget for it. These are in many cases, 50 or 60 page documents. So it is not a one hour piece of work, but I think it is a good use of the Association’s funds. The next place where we see the most potential for liability and frankly where association boards get the most frustrated when we tell them no, they can’t do that is with respect to the contracts. This is that area of the law, I don’t know if Pam agrees with me where I tell my associations, if you can only spend attorney’s fees on one thing, this is it because 99% of the time, and I hope there’s no contractors on this zoom 99% of the time a contractor’s contract is heavily weighed and favored on their benefit. Their contract was drafted by, in most cases, their attorney.
So it’s going to benefit them and in many cases, leave the association exposed to a lot of liability. A lot of contracts also will have provisions that they’re entitled to recover attorney’s fees in the event of a dispute, but the association does not. Some of them have crazy renewal clauses where the association is not able to get out of the contract, even though they don’t want to be associated with that contractor anymore. I’ve seen contracts come in that are for multi hundred thousand dollars projects, sometimes even million dollar projects and as one page. I can guarantee you that one page is not enough for a contract of that size, probably any size, but particularly larger contracts. So, we strongly recommend that associations are having their attorney review pretty much every contract that goes through or that the board signs. I do think there are some exceptions, if you have a plumber that you’ve worked with for 25 years or whatever it is, and it’s a $500 work order, they’re just coming in to fix something quickly, that probably doesn’t need to go to the attorney. The exposure to liability can be pretty small but for the most part, certainly with service contracts, large construction projects you want to have those reviewed by counsel.
The last one on this slide is rule enforcement and dispute resolution. This unfortunately happens in every association I would guess. I always say the vast majority of associations have that one owner that’s just not going to comply and is a thorn in the board and management side. The association needs to make sure that their budgeting is able to deal with rule enforcement and dispute resolution matters. You’ve got the guy who refuses to pick up his dog poop, or the roommates who think that having a party every night till 3:00 am is a great idea. Certainly with COVID at least in my experience and I think all of us at the firm have noticed the rule enforcement and the violations complaints and issues that are brought to us have increased dramatically. Everybody’s home and they’re pissing each other off, is basically what it is. So, the association needs to give itself wiggle room and budget to be able to deal with that rule enforcement issue when it comes up and to be able to engage counsel to help them with resolving those disputes. Again, hopefully without having to resort to litigation. The idea is being able to get the attorney involved so that it can be resolved quickly and without too much other expense with regard to litigation.
Pam: That actually kind of leads us into the last couple of issues that associations do need to consider when budgeting for their legal needs. Obviously the assessment collection there are a lot of different remedies that are available to associations to collect assessments, but we think one of the most important things that an association can do is to create a very specific collection procedure for the association so that it spells out specifically within the rules and regulations exactly what the steps of the collection process will be, so that there really will be no surprises to any unit owners who fall behind in their assessment and with assessment collection and with that procedure, the main thing that we like to focus on is consistency. As long as association is consistently collecting those assessments, not only will that benefit the association, because you’re able to ensure that these assessments are being paid and that will obviously help all of the other owners in the long run, but it will also avoid any claims that individuals are being discriminated against or that they’re being treated differently because these collection actions are being brought against them.
Again, if an association has a specific collection policy and procedure in place and has that established and is able to consistently enforce it then in the long run, we do want to see that the associations assessment collections is relatively small in the end because they are able to deal with it in the process and in the procedure laid out in the Association’s rules and regulations.
Kerry: Pam, if I can interject, one of the things I think that we found our collection is that if the attorney or our office gets involved with a collection matter early, so usually it’s after two missed payments the likelihood that the association in our office are able to collect the balance due from the owner without having to go through the entirety of the lawsuit or even evicting the owner and all of that, that likelihood goes up very much. And the reason is that from an owner’s perspective, if they’re delinquent $600, cause they’ve missed two payments, that’s a lot easier to pay than if an association is waiting six or seven months and now all of a sudden I’ve go to pay $2,100. So the smaller the amount or the sooner we can get involved in the process, the easier it is for the association to collect that money and avoid a larger legal expense later. But you want to be sure that the board and the association are, as Pam said, consistent with assessment collection and hopefully that will have a deterrent effect. I’ve been watching sort of what’s been going on in our office and collection and delinquent accounts are starting to go up again.
They were obviously very quiet during COVID with all of the moratoriums, all of those moratoriums are over and a lot of the additional federal assistants for owners are expiring or have expired. So we are seeing an uptick in collection actions being turned over to our office, but also now foreclosures and some bankruptcies. So if your boards have been kind of quiet on them or holding off on doing anything with collection I do think people need to start getting those back up and running.
Pam: I would absolutely agree with that. The last section that we have here regarding the association’s legal needs are with regards to lawsuits and litigation. Many times an association will unwillingly get involved in lawsuits and litigation matters and they feel that it’s important to kind of stick to a principle that they believe is very important to the association, which is why they want to continue or go forward with a lawsuit or with a claim and in my experience, I did practice litigation for really the first half of my career. I can tell you that 95% of lawsuits end up settling before they get to trial. And so, if an association and if board members can understand what the costs of a lawsuit may be, not just in the legal expenses, but the time and the energy and as well, you have to think about how litigation may even affect the value of units because in every disclosure statement, when there is a sale of a unit, boards are required to disclose any pending lawsuits or litigation that may be filed or that they may be involved in. And what we see more often than not is board members trying to resolve these cases, if for nothing else, then to be able to have the association be more marketable and really to allow lenders to be more willing to provide mortgages to potential buyers who are interested in living in the association.
So, it kind of all ties into really the overall responsibilities of board members when they’re looking at the budgetary concerns and issues for the association and they’re looking at the fiduciary duties that they uphold as board members. Really the main thing is that you do have to look at board members acting in good faith and really with the community’s interests above any other interests that they may have. This also includes discrimination charges, which I personally specialize in and again we’ve kind of seen an uptick in discrimination charges being filed against an associations because a unit owner, a resident they may be claiming discrimination for not over discriminatory conduct, but really because they’re being harassed or they feel that they’re being treated differently as a result of their protected status. And if we can provide boards with the legal knowledge and with the statutory reliance that we look at in evaluating whether or not an association should really proceed with a case, I think it’s very helpful in the end for associations to avoid large litigation costs.
Kerry: Pam what do you– I know you handle all of our reasonable accommodation requests and related issues for association. So is that something that the board can kind of do a blanket policy? This is what we’re going to do, or how should they be handling those causes that often involve our office as well.
Pam: And what Kerry is referring to is the fair housing act. Many times a person who has a disability will request an accommodation in the association rules, policies, or services that they claim that they may need in order to use and enjoy their unit in the same way as a nondisabled owner. And so, with that we get many accommodation requests being made by residents and owners to the association. A frequent one that we’ve all seen is requests for emotional support animals or service animals in associations that have no dog or no pet rules and restrictions in place. And with the fair housing act, while I would love to have a blanket policy where I could maybe set forth the specific criteria of what to look for with every request, it’s very clear that all requests for accommodations need to be handled on a case by case basis. That means all of the facts, all the circumstances, the individual’s specific disabilities, there are specific disability related needs for that accommodation.
All of that has to be taken into consideration when you’re dealing with these accommodation requests and really this is a cost of doing business for associations because any legal costs that may be incurred with an accommodation request cannot not be passed on to unit owners and again it is the cost of doing business, but it is important as well because while I can advise associations this is what we can do, this is what we don’t have to do, it really avoids maybe a larger discrimination complaint being filed against the association in the future.
Kerry: Awesome. Thank you. I think that was– was that everything we–?
Pam: I think so.
Kerry: So we’re going to take some questions. I’m going to go through the chat just real quick, cause I think it’s an easy one. There’s a question about where other board members can see the video. My understanding is that this will be posted on our website which is www.ksnlaw.com. Probably give it a few days, but it should be under our education– I think there’s an education tab and you can find it in there along with many other seminars and webinars and other things that we’ve done. There’s great information on our website. If you can’t sleep or you have a particular issue feel free to check it out.
Pam: It may help you to sleep as well.
Kerry: So one of the questions was with the new law on January 1st, of 2022. I’m assuming these are the lending requirement questions. What happens if an association doesn’t have the means to put 10% into reserves? So this is what Pam was talking about briefly and this is a whole other seminar that I’m sure a bunch of people are doing cause it kind of hit us all out of nowhere. The Fannie Mae lending guidelines right now provide as a hard rule that an Association’s budget must provide for a contribution of at least 10% of the budget towards reserves. If you cannot do the 10% contribution, right now, the way that Fannie Mae is reviewing them a buyer in an association or even a current owner who is trying to refinance that is a Fannie Mae loan, or if the lender wants to be able to sell it to Fannie Mae that would not qualify. What we are seeing and again, this is a whole other seminar is that there has been a push to sort of scroll back some of those harsh guidelines. So maybe we’ll see if that gets lessened a little bit, or at least it’s not a hard line rule but for now associations should be talking to their attorney and making sure that their budget is or has the 10% contribution and if not, how they go about changing it.
Next question, are the HOA fees tax deductible? So my understanding is that they are not, assessments are not tax deductible. In some cases, if it’s a capital improvement, you may be able to claim it if you itemize, but I always say no, don’t plan on that and then an owner would need to talk to their accountant. Pam, you want to take the next one, given the emphasis, governing document and contract reviews, go ahead.
Pam: Do you believe it’s beneficial for an association to have an attorney on a retainer agreement? Within our firm and I believe other firms do as well, they do offer a retainer program to associations where specific services are provided to an association on a monthly basis for a set monthly fee and a lot of times that’s where you’ll get your contract reviews in and you’ll get those attorney opinions and you’ll get that regular communications with your board and with your property managers, because again, I mean not to put down our profession, sometimes our hourly rates can be expensive. So, if an association is signed up with a retainer agreement with our firm, it does benefit the association because they know that even if you do have several questions in one particular month, you’re not going to have this huge cost at the end of the month because it’s not going to be bill at that hourly rate, it’s just going to be billed at that set retainer price for an association. So, yes, in my opinion, I think in Kerry’s opinion as well, I don’t want to talk for you, it is beneficial for an association to be on a retainer agreement.
Kerry: Yeah. I think it helps the board set their budget for the most part. Other than the few outside issues, litigation, collection, you’re able to set your legal fee budget and I think that that can be really helpful for the board. The other thing too, as Pam said, is I think it takes the sort of hesitation for the board to be able to contact the attorney or contact us at the start of a problem because they’re not worried about the clock running and that’s the point where we can say, you can do this, but you can’t do that rather than getting an issue 10 steps down the line where there’s potential litigation or some other issue and now we’ve got a whole bunch of work that we’ve go to undo which is more time and more money. So, I think the retainers are quite helpful. It also allows us as attorneys to get to know our clients. We’re getting those day to day questions, so I understand what went into the special assessment cause I’ve been hearing about it for six months and it is a lot easier for us to–. How often should the rules be updated? That’s a good question. Pam, you want to take it?
Pam: Well, I feel that, it benefits an association to have rules be reviewed at least every seven years, but maybe even more frequently between three to five years because again there are changes with regards to cases and statutes that may affect how specific rules are written and applied and something that we may have advised associations 15 years or ago, yeah, that’s a good rule, we would look at now and say, oh, you know what we need to change that and maybe, get some different rules in place for the association.
Kerry: Yeah. That’s a really good point and the other thing too is that there’s new issues coming up. Five years ago, I didn’t talk about drones. We just didn’t deal with it. In the last couple years, security, doorbells.
Pam: I was just going to say that the video doorbells, it’s a huge issue.
Kerry: So there’s constant– the technology impacts us. What are our rules for electronic meetings and electronic elections? So, yes, I think it is always a good idea to update your rules every couple of years, three to five years, seven years, that’s fine. And certainly if you are going to update your declaration, if you’re doing an amended and restated declaration, that’s also a good opportunity to update the rules because things will change in that document. So the next two questions are with regard to delinquent assessments and liens. So this is an interesting question and I do get it often. So when an owner is delinquent in the payment of their assessments, an association can record a paper lien and file a lien with the count against the unit so that if the unit tries to sell or refinance it comes up on their title. So we used to as a firm, and this is probably 15 years ago we used to file a lien for delinquent assessments and then also pursue the collection action or the litigation for where the association is entitled to get not only a monetary judgment against the owner, but also a monetary judgment against the unit itself and that’s that lien right.
We stopped filing or recording paper liens because it doesn’t really add any additional protection that is not otherwise there and let me explain that a little bit more. When you look at the Illinois condominium property and even CICA, unpaid assessments or the assessments that are charged against a unit in a community association, those are what we call an automatic lien against the property. So, what happens is when you have a sale or a refinance, the unit owner the buyer and or the title company will request that paid assessment letter from the association and that paid assessment letter will say the assessments are paid in full, or there’s a balance of $500 on the assessment account that needs to be paid prior to closing. That paid assessment letter is essentially the release of a lien. And so, we don’t actually need to record in addition to that a paper lien with the county, because you have that paid assessment letter in the 22.1 disclosure. There are a number of disclosures that happen where those assessments will be collected and the title company would issue a check to clear the title. So, we stopped doing them because it’s an additional expense frankly, for the association and again, it doesn’t really provide any additional protection for the board.
Pam: As well, what I saw when I was doing collection actions, when I first started at KSN is that those liens that were being placed against the property, because it was being done at the very beginning of the collection matter, it didn’t really accurately reflect the full amount that was due and then it also created one extra step and one extra expense, and then having to release the lien if the owner was able to pay off all the assessments and fees and fines that may be assessed against their account. So, again, because the statutes in place create that automatic lean against the units, the paper lien is really unnecessary in our opinion at this point.
Kerry: So it looks like we’re about our hour point. So that ended perfectly. Nice job everybody. If nobody else has any questions I do on behalf of Pam and myself, want to thank you for taking an hour out of your evening on this gorgeous day, why are we not all outside? But if you have questions or your associations have questions, Pam and I, and the rest of us here at KSN are more than happy to help. I know times are changing and we’ve all got different issues coming up. So thank you very much for joining us and hopefully we’ll see you soon one way or the other. All right.
Pam: Thank you. Have a good evening.
Please note the material contained on the KSN Podcast is for informational purposes only and does not constitute legal advice. No attorney-client relationship is established by your review or receipt of the information contained on the KSN Podcast. You should not act on the information discussed on the KSN Podcast without first obtaining legal advice from an attorney duly licensed to practice law in your State. While KSN has made every effort to include up-to-date information on The KSN podcast, the law can change quickly. Accordingly, please understand that information discussed on the podcast may not yet reflect the most recent legal developments. Material is not guaranteed to be correct, complete, or up to date. KSN reserves the right to revise or update the information and statements of law discussed on the podcast at any time, without notice, and disclaims any liability for your use of information or statements of law discussed on the podcast, or the performance of the podcast generally. The KSN Podcast may be considered advertising in some jurisdictions under applicable law/s and/or ethical rules/regulations. © 2022 Kovitz Shifrin Nesbit, A Professional Corporation.