"55 and Older" Community

-Must have one person 55 yo or older living in 80% of occupied units to qualify

-legally prohibits children

-limits occupancy to certain ages

-HUD must approve before construction

Abstention

Acceleration

-the collection of all assessments due through the end of the year

-collection technique used on habitually delinquent owners

Accrual basis of Accounting

-accounting system that records revenue when its earned and expenses when they are accrued.

-required by GAAP

Action Item List

- a list of actions to be taken before the next board meeting

-consists of tasks created by decisions made at current meeting or in between

Actual Cash Value  (ACV)

Ad hoc committee

-appointed to deal with one-time issues such as renovations or review of parking regulations

-makes recommendations to board within specific time frame.

Advertising injury

- a risk management issue

-provides coverage to the association against "misappropriation of advertising ideas or style of doing business" or "infringement of copyright, slogan, or title"

-associations with newsletters that contain ads online or in print without reprint permission have this exposure

Agenda

- tool used to list meeting activities in a specific order

- based on parliamentary procedures

Aggregate Amount

- total amount the insurance company will pay out 

- common feature of liability insurance policy

Agreed Amount Endorsement

- to have full insurable replacement cost protection, it is       

  necessary

- provides for an agreed upon limit of property insurance

- it suspends the coinsurance clause

Alternative Dispute Resolution (ADR)

- an effective way to resolve serious disputes

- reaches out to trained 3rd party to help the parties reach an

  amicable solution (not a judge)

-can be arbitration or mediation (binding or non-binding)

Appeal

Arbitration

-when a 3rd party (called the arbitrator) renders a decision as to

  the respective liabilities of all parties

- object is not to reach settlement, but to make a ruling

- binding - cannot be appealed

- non binding- decision does not have to be followed

Architectural Guideline

- a rule that applies to the exterior of lot, home or unit

- examples: fencing, decks, patios, landscaping, doors, windows,

  color of exterior, etc.

Articles of Incorporation

- a document that brings a corporation to existence

- defines basic purposes of business, tells whether shares and

   stocks will be uses as well

Assessment

- owners financial obligation to association 

- aka: maintenance fee

- annual assessments may be paid on a monthly, quarterly, or

  annual basis

Assessments Receivable Insurance

- type of insurance that applies to situations when a covered loss    happens to the property, and the association is unable to collect 

  assessments from owner

- housing cooperatives use "Loss of Rents" coverage, a type of

  business income

Assets

- anything owned that has value

- unlike commercial businesses, actual land and buildings are

  not considered an asset

- cash is usually the only asset

Assignability Provision

Association-employed manager

- directly employed by association to manage operations

*provides leadership to board and community

*fosters community awareness and spirit

*develops body of leadership thought committee structure

*provides tools to board to make wise decisions

Audit

- CPA examines accounting records to verify accuracy and

  completeness

- annual audit may be required

- external verification of financial records is a sound business

  practice

Bad Debt Write-off

- recording an uncollectable debt as an expense that the

 association has to absorb

- usually requires resolution of the board

Balance Sheet

-summary of financial condition of association

-shows what is owned, what is owed and what the net worth is

the balance sheet shows the amount of money on hand in all association accounts as well as that allocated to reserves at a given point in time

Ballot

Baseline Funding

- the establishment of a reserve funding goal that keeps the reserve cash balance above zero

- risky because it brings potential for special assessments or bank loans if something happens

Bid Request

Bid Specifications

- provided to the contractor

- detailed instructions about products or services requested

- all contract terms should be included in bid request

Board Liaison System

- director observes committees and reports back to the board 

- system used to make sure activities and dynamics are working

  properly

Bodily Injury (BI)

- insurance term indicating some type of injury to a person

- example: slip/fall on crumbling sidewalk

Bond

- investment option for an association to generate additional

  revenue over time

- bonds can yield more or less than their stated rate of interest

Budget

- annual financial plan 

- establishes what services the association will provide, when

  they will be done and how

Building Ordinance Insurance

- type of insurance available by endorsement to standard commercial property policy to insure against loss caused by enforcement of ordinances or laws regulating construction and repair of damaged buildings

- has 3 components:

*contingent liability

*demolition

*increased cost of construction

Business Ethics

- knowing what is right or wrong in the workplace and doing what is right

- applies to deliveries, relationships with customers, employers, vendors, and colleagues

Business Income Insurance

- type of insurance that covers the loss of certain types of business income

-  can be used for covering rental income or income producing clubhouse or vending if destroyed by a covered loss in commercial package policy (CPP)

Business Judgement Rule

- a standard to which board directors must conform while conducting association affairs

- board must show how they reached a decision with good faith, loyalty, and due care

- the court decides if board has exercised reasonable judgement

Bylaws

- formal regulations for the administration and management of an association

- they are usually included in the original set of governing documents prepared by the developers attorney

- addresses such topics as:

* requirements for membership 

* requirements for meetings

* voting rights

* how to elect the board and what qualifications are required

* how to elect officers

Cash Basis Accounting

- records revenue when collected and expenses when they are paid

- simple and easy to use but not 100% accurate for overall picture of financial conditions

CC&R's

-Covenants, Conditions, Restrictions

- used for planned communities

- spells out the essential elements of ownership

- binds owners together to maintain, govern, and fund the development

Cease and Desist Letter

- tool used to handle rule violations

- must be sent by certified mail

- must contain:

*specific description of violation

*action required to resolve

*specific times to correct

*penalty can be imposed after a hearing if not corrected

Certification of Deposit

- Investment option or association to generate additional income

- when CD is reinvested together with its accumulated interest,

  the ultimate yield will be higher than the stated rate of interest

Default Hearing

- a hearing held when alleged violator fails to appear to initial

   hearing

-holding the meeting is part of the due process procedures

Due Process Procedure

Eviction

-process of removing tenant (not owner) from property

-involves courts system

Hearing 

-a step of the due process procedures

-hearing panel conducts a fact finding session and an inquiry into allegations to conduct investigation

-hearing panel gives written decision with in time frame set by 

 governing documents

Hearing Notice

-written notice sent to alleged violator that a hearing will be held for violation

-includes details for time and location of hearing

-includes details of alleged violation and its possible sanctions

Mediation

-form of alternative dispute resolution (ADR)

-involves 3rd party to come up with a "win-win" resolution

-can be binding or non-binding, depending on what both parties

  agreed to prior to the session

Resolution

-motion formally adopted by the board

-Types of resolutions are as follows:

*Policy-owners rights and responsibilities

*Administrative-internal operation

*Special-applying policy or rule to individual owner

*General-routing events

Rule

-a specific statement of required behavior or action

-violation of which carries penalty

Self Help

-one of several internal resources an association uses to promote

  conformity

-when association takes action to correct violation

-not recommended without consulting your attorney

Claims made by Coverage

Coinsurance

-property policy that obligates the insured to maintain a certain amount of property insurance on the entire property or per structure

-based on a stated percentage (usually 80-90%)

-if they don't maintain required percentages, they will not be reimbursed for the full loss of the property

Commercial General Liability Insurance

-coverage against wrongful acts such as:  property damage, bodily injury, personal injury, and advertising injury

-civil legal claim must be brought to be held liable

Common Declarations

-part of the commercial package policy (CPP) which combines property and liability insurance

-title page includes basic information, names, amount of coverage, details items covered and time covered

Contingent Liability

-a component of ordinance/law insurance which brings construction to current code so a building can be eligible for occupancy permit

-covers the value of any undamaged portion of a building that may have to be replaced b/c its impossible to tie in the remaining section to the rebuilt section due to changes in building codes over the years

Contractual Transfer

-type of risk control activity

-involves entering into a contract that will transfer the association responsibility for any loss

Covered Cause of Loss

Deductible

-the amount that the association or owner must pay on each loss

-they can be split between covered causes of loss

Demolition

-1 of 3 components of ordinance/law insurance

-covers cost of demolishing any undamaged portion of a building

Directors and Officers (D&O) Insurance

-insurance that covers wrongful acts that do not lead to:  property damage, bodily injury, advertising, injury, personal injury

-example: failure to file taxes, collect assessments, maintain reserves, deliver core services

Electronic Data Processing (EDP)

Employers Liability Insurance

-coverage for personnel exposure to loss

-provides protection for claims made by injured employees (and their spouses)

Exposure Avoidance

-risk control technique

-avoiding circumstances that would expose the association to certain types of loss

Employer Liability Insurance

-coverage for personnel exposure to loss

-provides protection for claims bade by injured employees (and their spouses)

Exposure Avoidance

-risk control technique

-avoiding circumstance that would expose the association to certain type of loss

Extra Expense Insurance

-coverage for income exposure to loss

-applies when a covered loss either increases operating expenses or diminishes the income produces by normal operations

Fidelity Insurance

-coverage for income exposure to loss

-protects against employee dishonesty that may lead to the theft of money, securities or property

Flood Insurance

-coverage for property exposure to loss

-available through National Flood Insurance Program (NFIP) if a building is in a flood plain

-if building is not in a flood plain, premiums are more reasonably priced and can be in the Commercial Package Policy (CPP)

Hired and Non-owned Automobile Liability Insurance

-coverage for liability exposure to loss

-covers legal claims arising out of the use of autos that are not owned by the association, but used while acting on behalf of the association

-3rd party injuries or property damage may be covered

-damage to employee or volunteer vehicles or persons is not covered

HO-1, -2, -3, -4, -5, -6 policies

-types of homeowner insurance policies

-HO-1, -2, -3, -5 refer to policies for owner-occupied single family home

-HO-4 is tenant policy

-HO-6 is for condo or cooperative unit owner

Income Exposure to Loss

-1 or 4 types of sudden, accidental and unexpected losses to which an association is exposed

-income loss is reduction in income or increase in expenses

Increased Cost of Construction

-1 or 3 components of ordinance/law insurance

-covers construction costs due to changes in building codes

-example: wider door frames, sprinklers, etc.

Inflation Guard Endorsement

-a common insurance contract option designed to minimize an associations property exposure to loss

-automatically raises coverage to keep up with inflation

Insurable Replacement Cost

Insurance

-the transfer of financial burden of paying for certain losses to a 3rd party

-a contractual agreement between 2 parties that is enforceable by law

-4 types: *property *liability *income *personell

Liability Exposure to Loss

-1 of 4 types of exposure to loss

-include damage to non association property or to a person, arising through legal claims against association

Loss Prevention

-risk control technique to reduce potential loss

-example:  weekly fire inspections for flammables

Loss Reduction

-risk control technique to reduce severity of potential loss

-example: installing sprinklers where flammables are stored

Mechanical Equipment Breakdown Insurance

-common coverage for property exposure to loss

-covers items such as: elevators, pool equipment electrical transformers, computer equipment, security stystems, etc.

-Commercial Package Policy (CPP) does not cover

Medical Payments Insurance

-common in associations liability insurance policy

-an accident policy that pays 3rd parties for limited medical expenses without injured party having to file lawsuit

Occurrence

Ordinance Law Insurance

-coverage for property exposure to loss

-brings construction to current code so building is eligible for an occupancy permit

-3 components: *contingent liability *demolition *increased cost of construction

Personal Injury (PI)

Personal Property (PD)

Personnel Exposure to Loss

-1 of 4 types of exposure to loss

-involves claims of employees regarding discrimination in hiring, firing, harassment, or other allegations

Property Damage (PD)

-a liability exposure to loss for an association

-the commercial general liability (CGL) part of the commercial package policy (CPP) provides insurance claims for legal claims from bodily injury (BI) property damage (PD) advertising injury (AI) personal injury (PI) 

-example: improperly maintained light pole falling on a car

Property Exposure to Loss

-1 of 4 types of exposure to loss

-tangible association property-buildings, contents, etc.

-intangible property- information, proprietary websites, etc.

Real Property

Risk Control

-a way to treat the primary exposures to loss for association

-risk control activities are:

1. Exposure avoidance

2. Loss Prevention and Reduction

3. Segregation of Exposure

4. Contractual Transfers

Risk Management

-a way to minimize adverse effects of accidental losses upon the association

-may consist of using risk control techniques and maintaining insurance policies

Segregation of Exposure

-risk control technique

-establishing some type of back up to prevent a loss

Waiver of Subrogation

-insurance contract endorsement designed to minimize association property exposure to loss

-prohibits an insurance carrier from recovering the money they paid on a claim from a negligent 3rd party

-an association may require this endorsement from their vendors to avoid being held liable for claims that occur on their job sites.

Waiver of the Transfer of Recovery Rights

-insurance contract endorsement designed to minimize association property exposure to loss

-deletes the right of the association to seek reimbursement for a covered loss from the owner who caused the damage

-or "waiver of subrogation"

Workers Compensation Insurance

-covers personnel exposures to loss

-loss of services due to injuries received while working on behalf of the association

Employers Liability Insurance

-coverage for personnel exposures to loss of services due to injuries received while working

-provides protection for claims made by injured employees (and spouses)

Wrongful Acts

-legal claims brought against an association based on the manner in which it conducts business

-example: failure to file taxes, collect assessments, maintain replacement reserves, etc

Chart of Accounts

Discretionary Budget Line Items

Expenses

-Cost of goods and services to operate and maintain the community's property.

-3 types: 

1. Operating: occurs on a routine basis

2. Major Improvement (or capital): not required for daily operations, but enhances value

3. Replacement funding: amount set aside for future replacement of existing major components

FHA (Federal Housing Administration)

-(1 of 4) a federally established secondary mortgage institution who sets requirements for associations to meet in order to participate in the financing or repurchase programs

-a government sponsored enterprise (GSE) that buys mortgages from lenders, but they require certain types of insurance to be in place

FHLMC  (Federal Home Loan Mortgage Corporation)

-(1 of 4) a private agency backed by the federal government that insures mortgages, paying the lender if the borrower defaults

-regulates amount of insurance an association must carry

-regulate procedures on an association must follow to dissolve and keep up property

-Freddie Mac

FNMA (Federal National Mortgage Association)

-(1 of 4) a private agency backed by the federal government that insures mortgages, paying the lender if the borrower defaults

-regulates amount of insurance an association must carry

-regulate procedures on an association must follow to dissolve and keep up property

-Fannie Mae

Full Funding

-Setting a reserve funding goal of attaining and maintaining reserves at or near 100% funding

*higher reserve contribution

*higher reserve balances

*low chances for special assessments or loans

Historical Trend Budgeting

-budget preparation that assumes existing line items are needed without justification

-amount of funds allotted are adjusted for expected changes

-assuming previous year trends will continue, the amount for coming year should be increased by 8%

Mandatory Budget Line Items

-budget items based on community and owner needs

-obligations such as taxes, management fees, repairs, utilities and maintenance

Major Improvement Expenses

-budget items not required, but added to improve the quality of life for the residents, appearance, or enhance value reflected in resale value of units

-lasts more than one year, involves large amount of funding

Operating Expenses

Percent Funded

Reconciliation of Expenses and Revenue

-identifying the difference between expenses and revenue

-to "reconcile" means to bring together after a difference

-decided if expenses exceed revenue, you may need to raise assessments, get special assessments and weigh in discretionary expense items

Reserve Account

-funds put aside, in reserve, for replacement of major components of a community's common property

-example: asphalt paving, sidewalks, roofing, pool, tennis court, elevators, etc.

Reserve Cash Flow Statement

Reserve Specialist

Reserve Study

-budget planning tool so the association can plan for money needed for ongoing deterioration and inevitable future expenses

-address all major common physical components of property the association must repair, replace, restore, or maintain

Revenue

-a representation of the earnings of the community association

-typical sources are:

*owner assessments

*interest earned from invested replacement reserves or excess operating cash

Special Assessment

-a one time assessment

-voted on by owners

-covers major expense that was not included in annual operating budget or reserve

Threshold Funding

VA (Veterans Administration)

-1 of 4 entities that have impact on association insurance obligations

-regulate procedures on an association must follow to dissolve and keep up property

Zero Based

-method of budget preparation where all amounts are set to zero and budget amount must be justified instead of assuming the line item is needed

-requires analyzation of the reasons for actual amounts spent

-example: lawn care may be low because of a dry season, but you assume the following year will be just as dry

Commercial Reporting Method

-used for interim financial reports

-combines operating and reserve activities in same column

Comparison to Budget

Compilation

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

-CPA cannot make any claims about the accuracy and completeness of the financial statements

CPA

Deficit in Members Equity

-a situation when a community's liabilities exceed its assets

-indication of inadequate level of assessments or overspending

Engagement Letter

-contract between CPA and Association describing:

1. nature of work

2. type of reports needed

3. fee for services

4. time frame

5. disclaimers about what services are not included

Excess of Revenues over Expense

-the amount left after deducting expenses from revenue and expense statement

-aka net gains

Expense

FDIC

-Federal Deposit Insurance Corporation

-a government agency that guarantees investors deposits in member institutions (insurance)

Fund Balance

-another term for members equity

-found on balance sheet

-fund balance = difference between the associations assets and liabilities

Fund Reporting Method

-an accounting method of segregating resources in to categories

-used to identify both the source of funds and the use of funds

GAAP

-Generally Accepted Accounting Principles

-purpose is to provide uniformity among financial reports

-requires use of accrual accounting

-requires the following year end financial reports:

1. balance sheet

2. statement of income and expense (or Revenue & Expense)

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

4. Statement of Cash Flow

5. Notes to Financial Statements

6. Unaudited supplementary info on future major repairs and replacements

GAAS

-Generally Accepted Auditing Standards

-auditing standards that establish the format and wording of a CPA's opinion letter

Income

Investment Liquidity

Investments

Investment Safety

Investment Yield

Liabilities

-1 of 3 major components of a balance sheet

-consists of what is owed to others or collected in advance

Management Letter

-report from CPA that comes with audit or review

-narrative about any weaknesses in financial audit

Members' Equity

-aka fund balance

-the difference between assets and liabilities = members equity

-there are 3 major components of a balance sheet

  *assets  *liabilities  *members equity

Modified Cash Basis Accounting

Net Revenue

Net Loss

-when expenses exceed revenue 

-loss is indicated by parenthesis on a statement of revenue

Notes to Financial Statements

-Narrative information that is an integral part of financial statements

-necessary for a comprehensive review of information

Opinion Letter

Representation Letter

-CPA provides to the association but is executed by the board officer or management company

-it states that the info the association provides is true to the best of it knowledge

-describes the steps the association has taken to provide for the preparation of accurate and complete financial statements

Revenue

Review

-year end report by CPA

-less thorough and cheaper than an audit

1. no external verification

2. no confirmation of transactions

3. no inspection of records

4. an analytical review of financial procedures for comparison from previous year

5. interviews of management personnel

6. some assurances that financial statements make sense

7. no opinion letter but report that no material or changes ar needed

Statement of Cash Flows

-year end financial report that shows the flow of funds

-shows how changes in balance sheet accounts and income affect cash and cash equivalents

*the statement of cash flows reconciles an associations operating, investing an financing activities from the basis of accounting used (generally accrual) to a cash basis to reflect what caused changes in the cash balance during the year

Statement of Changes in Members' Equity (or fund balances)

Statement of Revenue and Expense

 the statement of revenue and expense shows the activity in all budgeted line items over a period of time.

-purpose is to track the financial activity of association

-3 major components:

1. revenue

2. expense

3. excess revenue over expenses

Treasury Bills (T-bills)

-short term instruments that mature in 13, 26, 52 week periods

Treasury Bonds

-an investment option that matures in more than 10 years

-issued in denominations of $1k to $100K

-interest bearing-interest paid every 6 months

-when bond matures, buyer receives full face value

Treasury Notes

-an investment option that matures in 1 to 10 years

-issued in denominations of $1K-$100K

-interest bearing-interest paid every 6 months

-when bond matures, buyer receives full face value

Proprietary Lease

Accounts Receivable Report

Check Ledger

-aka disbursement ledger

-shows the amount of money paid out to other parties, ie. service providers, vendors, etc.

Replacement Reserve Report

shows the flow of funds into and out of funds set aside for the future repair or replacement of major (capital) components for which the association is responsible

General Ledger

1. legal requirements

2. owner's needs and desires (mandatory vs. discretionary)

3. committee and owner feedback

4. reconciliation of revenue and expenses-(no net profit or loss)

5. financial forecasting and analysis (past financial activity)

Liabilities-2 definitions:

Statement of changes in Member's Equity

Employment Handbook

Employment Agreement

Employment at Will

Fiduciary Duty

-requirement that directors act in best interests for community

-board members are required to avoid conflicts of interest and acting out of self interest

-act as reasonable people in managing association affairs

Job Description

Management Audit

-a way for board of directors to evaluate performance

-it reviews governing documents, polices and procedures, current condition of property, owner/resident satisfaction, fiscal operations

Management Contract

-document that establishes scope and duties of the manager

-used for management firm

Management Plan

Mandatory Committee

-a committee that is required by the governing documents.       

-typically such as elections, nominations, architectural standards

Performance Evaluation

Performance Planning

Performance Goals

Performance Standards

Personnel Manual

Progressive Discipline System

Standing Committee

Transition

-general process by which control and responsibilities of the board are transferred from developer 

-multi stage process until declarant no longer has any financial obligations to association

Turnover

-A written report from a committee highlighting recommendations for board decisions.

-supporting research should be included

-must be clearly stating the actions they want to be taken

-a term used in parliamentary procedure for discussing a motion or issue

-direct all remarks to president

-stop speaking when president speaks

-stay on topic

-avoid using names

-avoid attacking members motives

-the president should warn a member about a serious offense

-a closed/ confidential session of board to make sensitive decisions

-such as litigation, contract negotiation, or personnel matters

-no minutes, bc it is for discussion only

-document that reports on the community's financial condition and activities

1. provides internal and external users with info needed to make appropriate decisions on behalf of assoc.

2. enables assoc and manager to control the financial operations

-at a minimum, interim financial reports should include:

1. statement of revenue and expense with comparison to budget

2. balance sheet

-accompanying info to the financial reports should include:

1. bank statements with reconciliations

2. aged receivable report (amount owed by owners)

3. open payable report (amount owed by the assoc)

-report on the associations current management and administrative activities

-opportunity to update the board on action items of interest and to demonstrate all the accomplishments the manager performed on the associations behalf.

-distribute with the agenda in advance of meeting

-the permanent record of the board

-kept to document the actions and decisions of the board of directors

-reflect what actions were taken, not what was said

-an announcement of an upcoming association meeting

-must be in writing

-sent out at least a week before a meeting

-attach the agenda and management report 

-a set of rules for conduct at meetings

-popular version is "Robert's rules of order"

-the number of members required to be present for the board to legally conduct the business of the association

-an open forum for owners and residents to speak, typically held at the beginning of a board meeting.

-gives them the chance to raise items for future board consideration

-list of meeting items with a period of time assigned to each

-once the time limit is reached, the group either votes or moves on to the next motion

the general and technical standards for integrity and objectivity, professional courtesy, conflict of interest, use of client funds and limitations of practice.

-a situation in which an individual's duty to one leads to the disregard of a duty to another...

1. make full written disclosure prior to any dealings that could appear to be a conflict of interest for you

2. obtain specific authorization from the board in writing before proceeding with any action that may look like conflict of interest and get it put in to the minutes

3.  after full disclosure, avoid any actions that could be perceived as conflict of interest

-aka fiduciary duty

-a fiduciary is any party that administers the assets of another

-duty requires the fiduciary to act in the other party's interests when administering its assets

-statements defining how values such as respect, honesty, fairness, and responsibility are applied

-aka as ethical principles

-values that guide how we ought to behave

-these include values such as respect, honesty, fairness, and responsibility

-the rules or standards that govern the conduct of members of a profession

-the special expertise demonstrated by members of the profession holds them accountable to a higher standard of trust by others