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Report F E AT U R E S

Community Association Legislative Update & Industry Challenges Cover Your Assets: Protecting Your Association’s Money from Fraud The Economy, Financing & Capital Improvements for Community Associations Contracts Critical in Bad Economy Illinois’ First Smoke-Free Condominium

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Inside this Issue…

Illinois’ First Smoke-Free Condominium Condominium owners at 1418 N. Lake Shore Drive have voted to become Illinois’ first smoke-free condo building by prohibiting cigarette, cigar, pipe or any other smoking in the property’s common areas and individual residences.

table of contents COVER STORY


03 condo lifestyles state of the industry Report By David Mack

12 cover your Assets: Protecting your Association’s Money from Fraud by Pamela Dittmer McKuen


07 community Association legislative Update & industry challenges By Mark D. Pearlstein Levenfeld Pearlstein, LLC


15 the economy, Financing & capital improvements for community Associations By David Mack 18 editors Message 19 directory Advertising 26 industry Happenings Compiled by Michael C. Davids & Sherri Iandolo BOARD BASIC

28 contracts critical in Bad economy By David Mack PROPERTY PROFILE

32 illinois’ First smoke-Free condominium By DeBat Media Services EVENT HIGHLIGHTS

34 condo lifestyles state of the industry






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coveR stoRy

By David Mack

CondoLifestyles State-of-the-Industry As the close of the first decade of the 21st century approached on the calendar, the chicago cultural center was once again the venue for Mcd Media’s condo lifestyles state of the industry program, this being the 15th iteration of that annual event.


pening the proceedings, editor & publisher Mike Davids thanked all in attendance for their participation. “We’re glad you’re all here with us today, braving the cold weather and taking time to participate in today’s program,” he said in welcoming the audience of property managers, board members and other professional colleagues of the community association industry. Recognition Event committee members Tom Skweres and Natalie Drapac of Wolin-Levin, Inc. as

well as Bonnie Escalante of Heil, Heil, Smart & Golee helped Davids in thanking the various sponsors (see complete list on page 35 for the support they had given to the occasion. Davids also acknowledged the continuing effort that has been made by the MCD Media Advisory Board in working closely with MCD in a number of areas, mentioning several by name and noting that, “some couldn’t be here but they are with us in spirit and demonstrate their support over the course of year.”

Outstanding Leadership Moving on to the awards segment of the program, Davids mentioned some of the past individuals who had been cited for Outstanding Leadership and identified two new categories for the honor - Property Supervisor and Colleague-that had been added this year to that of Property Management Executive. First to be recognized as one of this year’s winners was Micky Tierney of Community Specialists. “We selected her for a number of reasons,” said Davids, “She’s been very active on a lot of our committees. Mickey has helped us identify key subjects for stories in our magazines. She’s been very helpful to MCD and has done a ton of work behind the scenes. We congratulate her and are pleased to present her with the Outstanding Leadership Award.” In her acceptance comments Tierney


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Nordquist, her first supervisor in the association management business. Referring to Community Specialists, she used three words that to her best described the company headed by Rosemarie Wert & Ron HickmanIntegrity, Support and Respect. Also honored for his outstanding leadership abilities in the category of Colleague was attorney Mark Pearlstein of Levenfeld & Pearlstein LLC. “I’ve known Mark since 1989 in my very early publishing days,” said Davids. “Mark has always struck me as a very fair and straightforward person with a great sense of humor. “He identified the numerous positions Pearlstein has held over the years, including the Chairmanship of the Illinois Legislative Action Committee and his role in drafting provisions of

(LtoR) Shown here during a Q & A session are Sheila Malchiodi - QCI Restoration, Marla Jackson - The Habitat Company, Gladys Monetemayor 7306 N. Winchester Condominiums, David Hartwell -Penland & Hartwell.

recalled she had become involved with MCD and Condo Lifestyles a little over six years ago primarily for the networking possibilities that connection made possible and grew more enthusiastic about her participation with Davids in the efforts MCD Media was making to educate the community association industry and promote professionalism. “I didn’t realize how good it could be to work with Mike and his organization,” she said, adding also that she wanted to thank John

the Illinois Condominium Act. For years he had done a regular newspaper column for the Chicago Tribune that is now called “Condo Advisor.” “It’s with great pleasure and pride that we present our Outstanding Leadership Award to Mark.” In accepting the tribute, Pearlstein said, “I’d like to thank MCD Media and Condo Lifestyles for their efforts to unite us all in this industry to help us grow and prosper,” noting that he thought the award was really a testament to the association industry, which he felt was only going to enhance the real estate market in Chicago. “I thank you again for the award and I salute all of you.” Chicago Condo Task Force Next on the agenda was the first panel discussion. Moderator Diane White of The Habitat Company introduced Ellen K. Sahli, First Deputy Commissioner of the Chicago Department of Community Development who spoke about Chicago’s Condominium Task Force. “I’m very happy to be here today to talk about legislation affecting condo conversions in Chicago,” she began, pointing out that condominiums provide stability to a community


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coveR stoRy

that doesn’t always exist with rental housing, which is a plus for condo conversions. “On the other hand, (conversions) have been a threat to our affordable housing stock in our community.” Another negative was the fact that a lot of times first time home buyers in conversions didn’t understand what they were getting in to and didn’t know the right questions to ask developers and their sales staffs. To correct that situation, “we were charged with coming up with a comprehensive plan as to what should be done in our community,” Sahli said. A task force was set up, which Sahli co-chaired with Alderman Ray Suarez and which included representatives of every field of interest from real estate developers to tenant advocacy groups. “There was a range of people around the table looking to come up with a set of recommendations.” The Task Force met ten or so times over a period of eighteen months and generated several proposals. A registration and notice program was necessary to require developers to formally advise the City of their conversion plans. “We didn’t have a good way of tracking what was happening in the market,” said Sahli,

“We had no idea of what was lost (in rental units) and what was gained (in condos).” Developers would also have to provide proof that the existing tenants had been given an extended notice of the conversion plan and a modest amount of relocation assistance was to be made available to assist tenants who chose not to buy and needed financial help to move elsewhere. Disclosure Requirements The Task Force report also proposed strengthening developer disclosure requirements so prospective buyers could be more fully informed in making any decision to purchase a converted condominium. “This is a consumer protection component, a more transparent way for people to know what they are buying,” said Sahli.

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Conversion Ordinance Proposed She explained why Chicago was moving forward now with a conversion ordinance considering the sluggishness of the real estate market. “We wanted to get the City systems in place so that when the market comes back, things can move forward swiftly and get us the best results.” She added that a major purpose of the pending law (it hasn’t been enacted yet by the City Council) was to educate the three principal groups involved and affected by conversions- developers, existing tenants and

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ellen K. sahli First Deputy Commissioner, Department of Community Development ellen sahli is the First deputy commissioner of the city of chicago’s department of community development. Ms. sahli directs the city’s comprehensive housing objectives summarized in the Mayor’s fourth Affordable Housing Fiveyear Plan including overseeing more than $500 million in annual housing investment; leading the comprehensive strategy to rehabilitate vacant and foreclosed homes; directing a holistic approach to foreclosure prevention; and managing the department’s strategic commitments of local resources and aggressive advocacy for state and federal assistance. Ms. sahli previously served as the commissioner of the department of Housing and also served as the Mayor’s liaison on Homelessness and supportive Housing. A social worker by profession, Ms. sahli holds a Master of social Work from the Jane Addams college of social Work, University of illinois - chicago.

prospective buyers. “We are committed to continue to work with these groups to see that all necessary information will get out to them.” Sahli concluded her remarks by saying that while the task force tried to strike the right balance between the rights and interests of the three groups affected by conversions, its recommendations might be tweaked by the Council before passage of an ordinance. Legislative Q & A Session The next speaker Mark Pearlstein did offer some supporting comments on the task forces’ proposals that Sahli had spoken about. They, “will eventually result in productive legislation,” he said, adding that as he saw it the need for some form of conversion policy and program was necessitated by past abuses by developers. Most of Pearstsein’s other remarks regarding various national and local legal issues impacting associations are covered in a separate article on page 7 in this issue. We do, though, offer here a question and answer colloquy between Pearlstein and audience members after his formal presentation. Some elaboration of both questions and answers has been made for clarification but the essence of the thoughts has not been changed. FHA Financing Q/ What advice do you have for boards that don’t want to allow FHA financing in their associations because of the so-called stigma the agency has? A/ FHA offers a realistic way of making mortgage financing available. it’s a means of facilitating the sale of units in your buildings.

Right of First Refusal Q/ Is the Right of First Refusal in a declaration still unacceptable to FHA? A/ the law prohibits you from applying it when individuals are applying for FHA financing.

Allocating Reserves Q/ Can associations allocate parts of their reserves for specific units? A/ in one decision a court found that one building out of several in an association could be allocated only part of the reserve for replacing windows and the residents of the building had to pay the balance of the cost themselves. the portion of the reserves that could be used in a case like this would be the percentage that is equivalent to the percentage the affected units are of the total units in the association.

What’s On Your Mind? A second session entitled “What’s on your Mind?” featuring a different panel of speakers was next up on the agenda. It was continued on page 36 6

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s P e c i A l F e At U R e

By Mark D. Pearlstein - Levenfeld Pearlstein, LLC

Community Association Legislative Update & Industry Challenges the year 2010 was a lesson in how associations deal with a recession. the economy forced directors and unit owners to deal with tighter budgets with less assessment income and greater scrutiny by unit owners who were facing economic challenges. 2010 also was a continuation of a declining sales market, tighter lending and refinancing standards, and again the absence of any significant new construction. Financial Challenges Perhaps the greatest challenge to the association operations are the number of units in control of lenders. the slow movement in foreclosing unit mortgages and paying assessments as new owners, has created a significant impact for many associations. new developments are now taking the form of properties in default by the original developer and the transition to a new group of owners retained by a lender to sell out remaining

units. existing owners find themselves caught in distressed condominium projects. Associations continue to pursue an increasing number of collection problems and monitoring the higher number of foreclosures. With reduced assessment income, Boards are turning with greater frequency to lending as the means to finance major projects at the lowest cost. Boards and owners also continue to struggle with limitations on leasing as they seek to maintain values and qualify for government insured mortgage pro-

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grams to increase unit sales.

STATE LEGISLATION Against this backdrop of tension in the market, just as 2009, progress has been made on the manager licensing program; 10 Bills were introduced in the last session of the illinois General Assembly pertaining to community associations; and four measures were adopted and signed into law. the proposed legislation covered a variety of subjects ranging from regulation of community associations, manager licensing, smoking in units, solar energy and assessment collections.

Manager Licensing the community Association Manager licensing and disciplinary Act technically became effective on July 1, 2010. Managers have to obtain a license within one year after the licensing rules have been adopted by the state. over the past

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condo liFestyles year, the division of Professional Regulation (from the department of Business and Professional Regulation) has appointed a licensing and disciplinary Board. the Board consists of seven members, five licensed managers and two members of Association Boards. the licensing Board represents a cross section of illinois residents from chicago, schaumburg, Rock island and Peoria. our major trade groups are also represented with members from cAi, ABoMA, iReM and ActHA on the Board. this group is engaged in the first step in the licensing project, namely the adoption of rules and regulations for the licensing program. the Board has held two meetings and is on their third draft of the licensing rules. the rules will include continuing education requirements, the format of an examination, the procedures for background checks, and production of fidelity and errors and omissions insurance by managers or their management companies. technically, a community association manager who has been working in this profession for less than five years will have to pass an examination to obtain a license. Persons with five or more years’ experience will automatically obtain a license if they submit the requisite application. once rules are formally adopted, both sets of manager candidates must take steps to obtain their license. the current draft provides that persons will

qualify for a license without the examination requirement if they have been practicing for a period of five years or less if they received the following designations: AMs; PcAM; cPM; and cMcA. in the area of education, the Board determined that ethics courses would be included in the twenty (20) hours of education required for persons seeking to qualify for a license. Approved examinations for the license include the cMcA test; the M100 test; and the iReM ARM test. the Board has not decided on the schedule of fees, including licensure fees, renewal fees and examination fees. that information may be determined when the department has a better idea as to the number of licensing applicants. At this point, the best information indicates that there will be 1,500 to 2,000 licensees. the Board may convene a separate subcommittee to develop a management code of ethics. these standards may be a consolidation or combination of ethics rules from cAi, iReM and other sources. one bill relating to manager licensing was adopted in the last session. Given the concerns about the character of manager candidates, Public Act 96-0993 states that the state will determine the moral character of an applicant for licensure by

taking into consideration whether the applicant has engaged in conduct that would constitute grounds for discipline under the Act. essentially, this means than candidates with a background of financial mismanagement, be it misdemeanor or felony, may not qualify for a license.

Non-Condominium Associations two other significant pieces of legislation include Bills dealing with non-condominium associations. Public Act 96-1400 is the common interest community Association Act which will regulate associations not governed under the condominium Property Act. the new law essentially gives to owners in these communities the same rights as condominium owners such as a minimum of four open board meetings, access to records, disclosure of budgets and an annual accounting, voting in person or by proxy, or mailed ballot, and a basis to challenge assessment increases. While certain modifications will be made to this legislation, particularly relating to the selection of board members, the law does clarify a question often raised in this area; namely what law governs the operation of non-condominium associations. like past condominium legislation, this measure arose from complaints by owners in these communities that boards of directors were not listening to the

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s P e c i A l F e At U R e concerns of their constituents. Associations have obtained substantial economic relief under the condominium Act provision that allows them to collect up to six months’ assessments upon the resale of a unit by a lender. similar legislation was proposed and enacted as Public Act 96-1045, which now permits non-condominium associations to collect the same six month assessment recovery from foreclosures of townhome and other units in community associations.

Solar Rights to address environmental issues, the legislature adopted the Homeowners solar Rights Act as Public Act 96-1436. While the new law does not apply to a building more than 30 feet in height, it requires ”smaller associations” to adopt a policy concerning the location design and architectural requirements of solar energy systems and devices.

NATIONAL DEVELOPMENTS At the national level, the major activity was association compliance with secondary mortgage market guidelines. As you are aware, Fannie Mae purchases mortgages in the secondary market. FHA guarantees mortgages with down payments as low at 3.5 percent up to a certain monetary

level, which in the chicago area is $417,000. Both programs facilitate mortgage lending based upon increased mortgage limits and low down payment requirements in FHA programs, and access to the secondary market through Fannie Mae for banks to sell their loans. the FHA program covers approximately 23 percent of all mortgages written in this country.

FHA Guidelines to satisfy the requirements of both Fannie Mae and FHA for both sellers and buyers, associations have to exercise more discipline to meet the guidelines. An association must fund reserves in an account representing 10 percent of the total budget. With the ten percent level as a threshold, the FHA questionnaire specifically asks the Association to state the amount of its reserves and certify that the fund is adequate to prevent deferred maintenance, i.e., future major expenses. no more than 15 percent of the total number of units can be more than 30 days past due in assessments. one entity may own 10 percent of the units. to meet FHA standards, the owner-occupancy ratio must be at least 50 percent. Associations that do not insure interior units and betterments, which is the case with most associations, must require their borrowers to purchase a Ho-6 policy for walls in

coverage. the FHA spot loan program was eliminated at the end of last year. this change means that individuals cannot separately qualify for FHA financing. Rather, their associations must qualify either as a building under the HRAP program or through a lender under the delRAP program. to qualify for either program approval, associations must now pay close attention to the amount of their reserve funds, assessment delinquencies, and the number of leased units, particularly blocks of units owned by one party. A particular problem for associations and individual borrowers seeking secondary market financing, is litigation. Both agencies don’t like it. We have seen associations lose financing qualifications and individuals experience denials of mortgage and refinancing applications simply because the association is engaged in litigation.

CHICAGO Condo Task Force At the city level, ellen sahli, First deputy commissioner of the department of development led the chicago condominium conversion task Force. the task Force presented a proposed ordinance that provided a longer notice period for condo conversion notices; penalties for developers who fail to provide conversions notices and property

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condo liFestyles ordinance. reports; rental relocation The Illinois Appellate Court held in financial assistance; and a Chicago Vacation separate cases this year that a consystem to educate conRental Ordinance sumers on their rights the city vacation Rental dominium association was entitled during the conversion ordinance was adopted by process. As a member of to compensation for use and occuthe city council on June 30, the task Force, i saw first 2010. the ordinance hand the manner in which pancy of a unit pending outcome of requires condominium unit members representing difowners to obtain a license an eviction action to collect unpaid ferent constituencies and pay a $500 license fee worked to achieve the main to use their unit as a vacaassessments (Board of Directors of purpose of improving multi tion rental. However, the family housing in the city. ordinance also requires the Warren Boulevard Condominium the city ordinance does association by-laws to need to better inform and Association v. Milton) permit short term rentals. protect condominium Most condominium docubuyers from condominium ments prohibit this use for business purposes. conversions. the ordinance should track new and Illinois State Court Litigation converted condominiums, and require developers to comply with the notice and disclosure requireA number of court cases were developed this ments for a conversion. year which have relevance to association operaWhen units were selling more frequently, many tions. the illinois Appellate court held in separate smaller developers ignored their disclosure cases this year that a condominium association was responsibilities and too many condo buyers were entitled to compensation for use and occupancy of not aware of their right to a property report. As a unit pending outcome of an eviction action to the market returns, clearly there is a need for more collect unpaid assessments (Board of directors of oversight, greater education of consumers, and a Warren Boulevard condominium Association v. simplified more user friendly version of the city Milton). A construction company, who was not the


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developer, could be held liable for breach of warranty to owners who suffered water infiltration and mold. (1324 West Pratt condominium Association v. Platt construction Group, inc.) An association could only assess unit owners for limited common element improvements to those who have the limited common element areas, but these owners could use part of the association’s reserve fund for the repairs. Ridenour and Mcnamara v. carl sandburg village no. 7 condominium Association. Unit owners who had to leave their unit because of a defective heating system could not recover damages against a service company and the Association for “discomfort and inconvenience” because of defective heating against a service company and the association unless they can show a specific monetary loss. Mayer v. chicago Mechanical services, inc.

Smoking Bans in the civil rights area, we note the lawsuit filed by the Attorney General of illinois on behalf of a condominium unit owner who lived next to a smoker and whose association was charged with failing to accommodate her disability by taking steps to stop smoke infiltration into her unit. People of the state of illinois on behalf of loretta Barborek v. the timbers in Palos condominium Association.

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s P e c i A l F e At U R e

The major challenge for associations continues to be funding operations at assessment levels owners can afford. As we recognized last year, owners continue to be vigilant and even skeptical about requests for assessment increases, which boards must clearly justify.

Distressed Condominiums Much has been featured in real estate news about the concept known as the “distressed condominium”. this does not describe the state of directors facing angry or frustrated unit owners. Rather, it describes the transition of property from default by the developer, lender take-over by deed in lieu of foreclosure or a foreclosure sale, the hiring of a new “developer” or a new third party to sell the units, with a new marketing program at lower prices. to make distressed projects succeed, lenders and the new developer/seller must understand that associations have incurred a decline of assessments

and, in many cases, significant unpaid bills. By the same token, owners will not benefit from their unit unless the project is sold out and they must provide the lender and the new seller with some flexibility to turn the project around. this working partnership as i described last year, is the key to a successful turnaround of a distressed project. in summary, challenges remain; particularly with the backlog of foreclosure cases. Associations are learning to deal with less and over time, the excess inventory of condominium units will decline, and the market will return to some sense of normalcy. Y

Challenges For Associations the major challenge for associations continue to be funding operations at assessment levels owners can afford. As we recognized last year, owners continue to be vigilant and even skeptical about requests for assessment increases, which boards must clearly justify. owners continue to submit petitions to vote on assessment increases. Generally, associations are doing a good job of adjusting their budgets to account for the decrease in collections from units with assessment delinquencies and foreclosures. We have seen greater evidence of the impact on foreclosures with the increase in these cases with 50,000 foreclosure cases filed in cook county alone as of december 1, 2010. A combination of the large volume of foreclosures and perhaps the reluctance of lenders to begin a foreclosure case or take it to sale knowing that the lender will have to pay assessments, is causing a backlog of cases and, ultimately, units from which an association is not receiving assessments. in these situations, the answer continues to be the responsibility of the board to follow the 60 day rule, which is to institute legal proceedings when a unit is more than 60 days past due. While owners may be sympathetic to individual situations, the association as a whole cannot ignore its legal obligation to collect assessments.

Leased Units Associations continue to show concerns about the number of leased units, but the solution has become more complex. As was the case last year, associations are considering leasing restrictions. However, the focus seems to be to maintain leasing at current levels, rather than reduce the number of leased units in the current environment. While courts throughout the country, including illinois, support the authority of associations and boards to enact leasing restrictions, imposing limits by a unit owner vote is preferable but often difficult to obtain required owner approval in these uncertain times.

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condo liFestyles

by Pamela Dittmer McKuen

Cover Your Assets:

Protecting Your Association’s Money From Fraud Where there are community associations, there is money. some associations have amassed huge sums to pay for major capital projects that will come up in future years. Other associations squeak by from month to month. Whatever the bank balance, even mere petty cash for postage stamps, it is a precious asset. Associations, just like any other business, are susceptible to fraud, embezzlement and theft of their funds. It’s a devastating occurrence. Often that hard-earned money is gone forever, leaving boards to break the news to unhappy owners that they need to collect more. But crimes such as these don’t have to happen—or might be discovered sooner—if appropriate prevention and detection measures are followed. In fact, it’s the board’s duty to protect their association’s assets, said

attorney Kerry Bartell of Kovitz Shifrin Nesbit. “Their Number One responsibility is to make sure they are overseeing the expenses and income of the association as they would their own,” she said. “That’s the definition of being a fiduciary. They have to put the interests of the association first, and they must be prudent as a business-person in managing the finances.” Additionally, she said, in today’s economy, life is a little more desperate for some people. Knowing that forces boards to be on top of association finances more frequently and more carefully.

Kristen Saranteas, senior manager of treasury sales at Wintrust Commercial Banking , said the complex corporate structure of associations requires greater diligence when it comes to financial matters. Associations are run and operated by multiple board members, managers, employees and vendors. They come together from varying backgrounds and don’t necessarily have the same allegiance to each other or to the association as family members or corporate partners might. “There are definitely more players at the table than in other environments,” she said. Internal and External Fraud Associations can be defrauded in myriad ways, but most frauds fall into one of two broad categories, internal and external, said


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s P e c i A l F e At U R e

Barry Katz, president of Omnibus Services Inc. Boards must implement policies and controls to address both kinds. He explained: Internal fraud is committed by board members, owners, managers, employees and others who have an intimate relationship with the association. Those who have direct access or control over the funds are especially subject to concern. External fraud is committed by people outside the association. Service providers and contractors might submit fictitious bills, possibly with the participation of those who handle the association’s funds. They could bill for services never rendered or parts never installed. Labor charges could be inflated. Even attorneys could conceivably collect from delinquent owners and fail to remit the funds to the association. The Fraud Triangle Knowledge of the Fraud Triangle can help boards identify possible fraudulent behavior and show them where they need to implement additional controls. The Fraud Triangle has three points—Opportunity, Motiva-

tion and Rationalization. Here’s how it works, as elaborated by certified public accountant and fraud examiner Arlen Lasinsky, director of litigation and forensic services for Frost Ruttenberg & Rothblatt : In an association, opportunity exists where segregation of duties does not; for example, when one person signs checks, deposits receipts and reconciles the bank account. Then that person needs additional money for some strong reason, perhaps alcohol, drugs, gambling, ego, medical bills, romance, job loss or impending mortgage foreclosure. That reason becomes the motivation to act improperly. The person rationalizes the behavior. Common rationalizations are “I deserve the money for the hard work I put in” or “I’m only borrowing the money” and “I’ll pay it back.” “If you’re a self-managed association, one person should not be in the position of consummating, recording and reconciling the transaction,” he said. “If you have a management company that is performing those tasks, they should be getting the proper approvals from the board and documenting everything

they do.” Warning Signs of Fraud Lasinsky also offered a few warning signs that indicate a fraud might have occurred. One is a lifestyle change by someone who has opportunity, or access to association funds. “If an employee who makes $10 an hour shows up with a BMW, does it mean they stole something? No,” he said. “But how did they get it? Maybe they won the lottery. Maybe an aunt died and left them $2 million. But it could be a warning sign.” Another warning sign is a person who is overly protective of his or her work or files, and doesn’t share them. If it takes four hours to get a report that should take 10 minutes, perhaps data is being changed. Other red flags include no bidding process for major work; missing receipts; financial summaries rather than actual financial statements; employees who won’t take vacations; and no accounting firm oversight. Check Fraud In terms of dollars, check fraud is the biggest form of fraud. The fastest-growing


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check fraud is electronic, said Saranteas. To deter check fraud, she recommends the following banking products: One is ACH (automated clearinghouse) Debit Block, which permits only designated electronic transactions to go through and blocks all others. The other is Positive Pay for written checks. The way it works is that you send the bank a list of checks that have been issued. As the checks come in, the bank cross-references them with your list. If the two differ, the bank holds the check until the discrepancy is resolved. You also can arrange to have electronic alerts or warnings sent to designated recipients when, say, the account falls below a certain amount or a Positive Pay transaction is flagged. “One of the biggest things associations can do is be the signatory on their own account,” said Bartell. “Many don’t. If something happens, they can’t get access to their own funds to tell the bank to change the signatory or to take the rest of their money out so no more can be taken.” Saranteas reminds associations that if a


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check fraud is committed, time is of the essence. Consumers have 60 days to review their banking statements and report disparities in order to have recourse, but corporations and associations have only 48 hours. If you review your association’s account online today, you’re looking at transactions that hit yesterday. You’ve got one day left to react if funds left your account that shouldn’t have. It’s a good idea to have more than one person check the account on a daily basis. Insure Yourself Another protection is to insure the association against fraud and other crimes of financial impropriety. The Illinois Condominium Property Act requires associations with six or more units to purchase fidelity coverage, also known as crime insurance. A rule-of-thumb amount, according to insurance broker Tom Panos of Rosenthal Brothers, is three times the association’s monthly assessment income plus its reserves. The policy should cover board members, volunteers and property managers, although property managers should carry their own policy as well.


“We’re also starting to see, as society becomes more computerized, more and more cyber-fraud,” he said. “It’s a much easier and cleaner way to steal than to hold someone up with a gun.” Computer hackers can access an association’s account numbers, passwords and money. But that’s not all. They can collect sensitive owner-information such as bank, Social Security and credit card numbers, which can lead to identity theft. In response, a few insurance companies have begun to offer cyber-fraud policies to help associations recoup their losses and recovery expenses. The terms and costs vary. “These things are going on these days,” said Panos. “It’s a mistake to be naïve or unaware of them. Associations need to protect their assets. At one point or another, somebody is going to get them.” Y

No part of the publication may be reproduced whatsoever without written consent from the publisher. All material herein is copyrighted 2011©.

M A n A G e M e n t tA l K s

By David Mack

Safeguarding the Association’s Assets Here are some additional ways to protect your association’s assets: » certified public accountant should conduct annual audit, review or compilation » separate operating and reserve funds » Management should not be a signatory on reserve funds » Management should not comingle funds of multiple associations » Require two signatures on checks » Assign multiple people to review accounts online daily » Rotate employee and board duties » Use checks with security features » send assessments to a lockbox » Regularly scan computers for spyware and viruses » Regularly back up computer files


The Economy, Financing & Capital Improvements for Community Associations condo lifestyles surveyed a number of professionals in the management field in an attempt to determine how badly the economic recession has affected the ability of community associations to have major repair and renovation projects done for their properties. e wanted to find out if such work had been stymied in any significant way because associations could not raise the funds for work that was necessary due to tighter credit standards set by lenders or as the result of enacting separate assessments that residents would claim not to be capable of paying because of their individual economic distress. (on that latter point, i sat in the audience of an association in which i own a unit when the board adopted a separate assessment of over $3000 per owner and rumblings amongst the crowd gathered for the meeting indicated that many would not be able to pay it.)


Had any contractors begun work and then had to stop because they couldn’t carry the expense of continuing the job from their own resources or find lenders willing to extend them credit if they ran into financial trouble? or had work been contracted for and begun but then halted as associations found themselves unable to make periodic payouts to contractors because expected sources of their financing had not materialized due to loans not coming through or separate assessment collections proving to be inadequate? Had the credit climate been so dire that it forced some contractors out of business? these were the kinds of questions we posed to our professional sources.

Work Tabled?

Problems Not Widespread

on the other hand, we also wanted to ascertain if work projects had been tabled because of the difficulty of finding qualified contractors to submit bids due to their own credit and financing issues.

Well as much as we had expected there to be problems in these areas, it appears that while there have been some, they are not significant or widespread, being more the exception than the rule.

What Is Stopping You From Getting

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With a few restrictions here and there, business has not slacked off much since before the recession hit, although being a large enough contractor to provide your own interim financing, an association with plentiful reserves or an ownership body that can afford separate assessments seem to be the keys to getting major work done in tough economic times. Financing issues seem to generally not have measurably reduced the pool of qualified contractors that usually respond when associations take bids. tairre dever sutton, President of tairre Management services, has not found this to be a problem. “i have not had any issues getting bids from any vendors with my large projects,” she said. “Most have the financial means to bid and start the projects i have going at this time.” Brian Kelly of chicagoland Management and property manager for the Malibu condominiums, has been having the same experience as sutton. “i have not had issues getting qualified bidders,” he said. things haven’t been any different either in this area for Bonnie escalante of Heil, Heil, smart &Golee, who when asked whether there was any shortage of qualified bidder candidates for major work projects managed by HHs&G, answered, “not that i can tell,” adding that some contractors working for those associations have been able to provide their own financing so being turned down by lenders is not hampering them. the associations managed by Barry Katz, head of omnibus Management services, have had no difficulty attracting qualified bidders who have been able to obtain necessary interim financing. “even though we have been doing a fair amount of work at some of our properties, we have yet to experience a problem,” he said. “Maybe that’s because we use and recommend experienced and long standing contractors.” or, he added, “maybe we are just lucky.”

Terms Have Changed Kelly said, in general, the more robust companies he has dealt with routinely have not had financing issues but smaller ones have had to tighten normal terms of payment by associations to avoid money problems. they have told me, “the means by which they (want to be) paid have changed, requiring 30% down and only allowing 5% retention.” sutton said contractors she deals with have been able to carry their jobs but want faster turn around on invoices by associations. “Most of them are still getting the projects up and running but want payment turned around a lot quicker than a few years ago,” she explained. “My façade project was billed out less than 2 weeks ago and i have already had calls about payment.”

Katz has been told by a contractor that has worked at one of his associations that, while he is not having any credit or financing problems, some

condo liFestyles

contractors that have been employed for work at associations have, with few exceptions, been successful in completing their endeavors. none hired for Katz’s associations have failed to complete their


work assignments. Kelly has had the same good fortune as has escalante. shoshoo said, “so far every contractor we needed to retain for various work projects (has) been able to fulfill their agreements.” Added sutton, “i have not had this happen as of yet,” but has heard of another association that encountered temporary difficulty with a masonry contractor. that company, “went bankrupt in the middle of the project but they (association and contractor) were able to complete the project by both parties working as a team.”

Why Do They Fail? some contractors that have worked for associations have had to shut down their operations but businesses fail even in the best of economic times so it is hard to say why some contractors have failed now. Kelly pointed to the construction company that had expanded Malibu’s exercise room. “they are gone now (but i’m) not sure what happened.” shoshoo does know of a few that have dropped out of the construction business or are just barely hanging on waiting for an improved economy. But neither Katz nor escalante could specifically identify any construction firms that had done work for associations that they knew had shut their doors but the latter did think it was a possibility that some had.

Size is a Factor in sutton’s experience, size is an important factor when it comes to a company being able to sustain itself in the current economic climate. “there are some smaller contractors that are having issues but most of the (larger contractors) we work with are doing ok at this time,” she said. combining operations is the salvation of a few. “i know of some companies that are actually selling and/or merging with larger companies.”

What About Associations & Funding?

Most Projects are Successful

Problems Do Exist


of his competitors in the contracting business are being impacted by them. some have been prevented from proposing on work because of that. “He knows of contractors who have had difficulties and are unable to bid some jobs, especially ones when they are unable to get meaningful deposits from the associations.” samuel shoshoo, President of distinctively chicago, has experienced a few problems too. some associations he manages have not been able to attract as many qualified bidders as they would like to ensure real competition for work they need done. one of the problems has been that only a few can provide their own financing. still, according to shoshoo, some contractors, who have had difficulty obtaining interim financing to carry their costs until payment by associations, have found ways to push through with the work and make ends meet until money began to flow to them from their association clients. their financing problems proved not to be insurmountable.

What about associations? Are they holding up their end of agreements by paying contractors promptly and in full for work satisfactorily completed? of the managers consulted, only shoshoo

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M A n A G e M e n t tA l K s

has seen associations fail to pay their contractual obligations on major work. “this has happened because of associations that had to do a special assessment,” he said. “they relied heavily on everyone to pay and used the first few payments (by unit owners) to start the project with the contractor but when the others did not pay there was a lack of available funds to finish.” Julie Guidry of Waldman engineering consultants noted one association at which work had been started to replace the siding before the board had received final approval of a bank loan. When the loan was not given by the bank, the contractor halted work. “the board for the association did not want to wait until they had complete approval from the bank,” explained Guidry. “they had received the initial commitment and the bank ok’d the start of the project.” the association was at a 13% delinquency in assessment collections and was not able to lower it to a level the bank would accept. As of now, “the work has been halted since the end of september and has not yet resumed (this was at the end of november).” sutton has not seen any boards turned down for bank loans for associations she manages but she has been dealing with only one banking institution. “i have secured more than $1,000,000 in

loans this year and not had any problems.” neither has Kelly seen any significant tightening of credit standards and Katz’s associations are sufficiently endowed financially to be able to finance improvements with their own money. “Most used reserve funds or special assess as needed,” he said.

While there are some problems in

Work Continues

in wrapping up this article it is interesting to note that one property managerepair work, they are not so ment company President, tracy Hill of Property specialsignificant or widespread to have ists inc., has experienced caused any appreciable disruption in none of the problems discussed above. contractors the plans of most associations to are bidding, getting financing, completing work complete necessary work at their and associations are obtaining financing through Lenders are properties. loans, reserves or separate More Cautious assessments and paying But both escalante and their bills at the properties his firm manages. shoshoo believe lenders are being much more so overall, while there are some problems in cautious in the economic decline, making it more the area of financing renovation and repair work, difficult for associations to borrow. they are not so significant or widespread to have Guidry was more emphatic in asserting that caused any appreciable disruption in the plans of lenders are being more selective with their money, most associations to complete necessary work at forcing associations to search around for banks that their properties. Y are more lenient with their underwriting proce-

the area of financing renovation and

dures. “lenders have tightened up their standards and as a result many associations have had to look to lenders with (fewer) restrictions to be able to meet the lending qualifications (to be able) to push their capital improvement projects through.”

In Memoriam... Wayne Warren Dister, Property Manager for Draper and Kramer passed away quietly from heart failure on October 13, 2010. Wayne had over 20 years experience in the industry and managed multiple properties over the years, most recently Erie on the Park Condominium Association. Wayne was a dedicated worker having earned his AMS and PCAM designations in the early 1990s. Wayne was the loving father of Sarah, Anthony and Bradley Dister; proud grandfather of Haley and Ellana Dister; and caring brother of Bill Dister, Donna Parker and Myrina Spell. Wayne was an Army veteran having served in the Special Forces as a Green Beret in the 1960's. Through his hard work and dedication, he achieved the rank of Sergeant. Wayne greatly enjoyed what he did for a living. He was a hard worker, trustworthy and traditional in his approach to his life and in his relationships. He was tough-minded with the kind of "stick to it" attitude that earned the respect of all who knew him.

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From the Editor


ell, 2011 is here and 2010 is in the history books. the cold weather typical of chicago winter arrived early this year and seems to be staying in place. the chicago Bears



▲ Mike Davids

have also re-arrived as the darlings of chicago with their winning football ways. i hope that 2011 brings you good health, happiness and prosperity (and hopefully it brings us Bears fans a super Bowl!). if your community association is running smoothly or recently achieved some significant accomplish-

JANUARY 2011 | VOLUME 14 | NUMBER 4 Editor & Publisher Michael C. Davids

ments, please share your story and the reasons for your success. if your association is facing significant challenges this year, feel sure that there is hope and help for you. you should also know that the problems you are dealing with are not that different than the challenges faced by others at some point. in addition to the arti-

Vice President Sherri Iandolo Art Director Rick Dykhuis Special Events Coordinator Mary Knoll Contributing Writers Pamela Dittmer McKuen, Jim Fizzell, David Mack, and Cathy Walker

cles and resources that we are making available to you in this issue, we also wish you a renewed spirit and faith to help you and the others involved cope with any challenges you may be facing. our cover story features information and perspectives provided at our “condo lifestyles state of the industry” program. our coverage of this program includes comments from two terrific panels of experts that addressed various issues including budgeting, financing, assessments, collections, emergency planning as well as recent legal activity concerning community associations. Additionally, attorney and columnist Mark Pearlstein’s overview of industry trends and legislative update for community associations (including an up-

Circulation Arlene Wold Administration Cindy Jacob and Carol Iandolo Condo Lifestyles Magazine is published quarterly by MCD Media, a wholly owned subsidiary MCD Marketing Associates, Inc. For editorial, advertising and subscription information contact: 935 Curtiss Street, Suite 5, Downers Grove, IL 60515. 630/663-0333.

date on manager licensing) is summarized A special feature article in this issue focuses on protecting your association’s money from fraud while another feature article discusses the economy, financing & capital improvements for community associations. our Board Basics column offers insight on the importance of contracts in a bad economy. We also offer a property profile on 1418 north lake shore drive, a vintage chicago building that purports to have recently become chicago’s first smoke free condominium. our regular industry Happenings column also appears.

Circulation: Condo Lifestyles is available for a single issue price of $8.95 or at a $30.00 annual subscription. Distribution is direct mailing and delivery direct through authorized distributors to over 5,000 officers and directors of Common Interest Communities, 500 property managers, 400 realtors, 400 developers and 400 public officials. Total Circulation is 7,000. Condo Lifestyles attempts to provide its readership with a wide range of information on community associations, and when appropriate, differing opinions on community association issues. All material herein is copyrighted 2010©. No part of the publication may be reproduced whatsoever without written consent from the publisher.

MCD Pool Party to feature Condolympics Games the 15th annual Mcd Pool Party will be held on March 11, 2011 at the Pyramid club in Addison. tournaments will be held for 8-ball (billiards) and darts. Bean bag toss and other events for condolympics competition will also be held at the Mcd Pool Party. the condo lifestyles condolympics donations will again benefit special olympics. other Mcd special events include our annual golf outing, which will be held on July 15 at eaglewood Resort in itasca, and a luncheon at Arlington international Racecourse in late summer. We will provide additional information, as details are available. thanks to the many new subscribers that have found our publication useful and informative. special thanks to the firms, associations and groups that are Authorized distributors of condo lifestyles. those of

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is issued with the understanding that the publisher is not engaged in rendering legal or accounting services. If legal advice is required, services should be sought.

you who are not current subscribers can obtain subscription information on our website at www.condo-

Advertisers assume liability for all content of advertisements printed, and also assume personal liability for any claims arising therefrom against the publisher relating to advertising content. The publisher and editors reserve the right to reject advertising or editorial deemed inappropriate for the publication.

some advice on how to avoid a problem or failure, please call our office at 630-932-5551 or send us an e-mail


condo liFestyles or by contacting us. As we welcome in another new year, we encourage you to make your association and your community all it can be. if you have an idea that would benefit other community Associations, a success story to share, or ( Y

Michael C. Davids Editor and publisher


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servicing chicagoland for 37 years contact George K.

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CONTECH MSI CO. 847-483-3803


Fire detection & signaling systems Fire Alarm systems chicago life safety evaluation solutions security systems/cctv card Access systems see our ad on page 13


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BROUWER BROS. STEAMATIC (800) CLEAN54 All types of environmental cleaning. (708) 396-1477

FOREST AGENCY 708-383-9000

state licensed Private detectives All types of investigations specialization in Foreclosure Process service and eviction notices on Foreclosed Property


QCI RESTORATION 847-891-2929 866-832-6724

Cost efficient Janitorial & Maintenance services for homeowners associations. carpet cleaning, pressure washing, snow removal, etc.


E.L. JOHNSON INVESTIGATIONS, INC. (312) 583-1167 (312) 583-1169 FAX

FIRE/FLOOD RESTORATION commercial Painting & cleaning steam cleaning • Power Washing


SIMPLEX GRINNELL (630) 948-1235

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Personal & condo specialists david Klans or dan Browne


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Property casualty • employee Benefits Workers compensation

HAYES MECHANICAL (773) 784-0000 2007 iReM vendor of the year

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CLEAN AIR SCIENCE (847) 344-0607

Myrna ordower

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Corridors • Elevators • Lobbies Hospitality/Meeting Rooms • Lighting

Mold & Water damage experts RESIDENTIAL-COMMERCIAL-INDUSTRIAL Asisstance with insuance claims Post Remediation Assessments & occupancy studies

MOLD REMEDIATION BROUWER BROS. STEAMATIC (800) CLEAN54 “All types of environmental cleaning”




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energy efficient lighting with simple Payback Programs

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MAILBOX WORKS (630) 355-9989 (773) 528-3111


large variety of commercial and Residential Mailboxes intercoms and tele-entry Address signage & engraved nameplates installation services

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KINSELLA LANDSCAPE, INC. (708) 371-0830 creating lifestyles From the outside in…™

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ABC DECO INC. 773-701-1143




LEGUM & NORMAN MIDWEST (312) 944-2611

Painting & Wall Repairs Hardwood Floors/ tile installation Kitchen cabinetry sale & installation "Serving Community Association's for over 10 Years" Contact: Mike Chinte

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MCGILL MANAGEMENT, INC. (847) 259-1331


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PROPERTY MANAGEMENT SPECIALISTS, LTD. (847) 845-6067 “A Management company with values” contact: James Krech

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Industry Happenings

Chicago Police Award

ABOMA ABoMA recently held it’s annual meeting and holiday luncheon on december 3, 2010 at the east Bank club, chicago. Among the organization’s many contributions to residential property management, ABoMA represents over 425 communities in chicago in negotiating on behalf of management and property owners, collective bargaining with the doormen, Janitors and Garage Attendants in residential buildings. ABoMA counsel Steve Adelman Locke Lord Bissell & Liddell LLP

ABOMA Officers for 2011 are: ABoMA President ABoMA trustee local 1 training Fund Thomas A. Skweres Wolin-Levin, Inc.

ABOMA Directors for 2011 are:

ABoMA 1st vice President William O’Leary DK CONDO ABoMA 2nd vice President Christine Friend The Parkshore ABoMA treasurer trustee local 1 Health and Pension Fund John Bieg Draper & Kramer, Inc. ABoMA secretary Robert Wiggs ABOMA

John Aykroid ABOMA Trustee Local 1 Training Fund Tony Briskovic Chicagoland Management and Realty, Inc. Judy Cole ABOMA Trustee Local 1 Training Fund Community Specialists Robert DeCelles ABOMA Trustee Local 1 Health and Pension Fund

Robert Graf ABOMA Immediate Past President Trustee Local 25 Health Fund Sudler and Co., L.L.C.

Lou Lutz Legum & Norman Mid-West Ron Osicek Wirtz Realty

Diana Julian-Pittro RMK Management Company

James Watts ABOMA Trustee Local 1 Health and Pension Fund Leasing & Management Company, Inc.

Brian Kelly Malibu Condominium

Rosemarie Wert Community Specialists

John Leanse Draper & Kramer, Inc.

Douglas Woodworth ABOMA Trustee Local 1 Health and Pension Fund Mulford Square Preservation Corporation

Thomas Hamilton Draper & Kramer, Inc.

Dean Lerner Sudler Property Management Robert Levin Wolin-Levin, Inc.

MCD Pool Party to feature Condolympics Games

On November 16, 2010, the CAPS office honored a select group of companies whose efforts have directly or indirectly assisted the Chicago Police Department's community policing efforts. According to William Townsell of the CAPS program, "we very much appreciate MCD Media's assistance with our "Condo Block Club" as well as their help in informing residents about our initiatives." Shown here is special guest presenter Robert D. Grant, Director of the Chicago office of the FBI presenting editor Michael C. Davids with the CAPS Special Recognition Award.

the 15th annual Mcd Pool Party will be held on March 11, 2011 at the Pyramid club in Addison. tournaments will be held for 8-ball (billiards) and darts. Ping Pong, Bean Bag toss and other events for condolympics competition will also be held at the Mcd Pool Party. the condo lifestyles condolympics donations will benefit special olympics. For more information visit


condo liFestyles


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indUstRy HAPPeninGs

Wolin Levin, Inc.

Wolin Levin, Inc. is pleased to announce the addition of the following new employees: Brandon Barnett, Josh Cutone, and Ilir Mehmeti recently joined the company as Portfolio Supervisors. New on-site managers at Wolin Levin, inc. are: Chon Lemon - 740 Fulton, The Pointe at Lincoln Park, Jennifer Bastidas; Museum Park Place South, Lisa Schiewe; Museum Park Place, Jhoanna Cochico; Century Tower, America Moyeno; Walton on the Park, One Museum Park West, Joy Murphy; Surfside, Valerie Mrak; Tower Residences, Carole Grudzien; Lake Hinsdale Village, Allison Fetchko; Lake Hinsdale Village, Nicholas Bartzen; Winston Towers No. 5 New Assistant Property Managers at Wolin Levin, Inc. are Frances Bohm; Winston Towers No. 5 and Sara Koperdak-Meekins; Delaware Place. The company also announced the following new community management assignments: Lake Hinsdale Village, 1516 N. State Parkway, Tudor Gables, Walton on the Park, 1464 S. Michigan, and Century Tower.

Industry Happenings 2011 CondoLifestyles Advisory Board Baum Property services, ltd. Michael d. Baum

Heil, Heil, smart & Golee Bonnie escalante

orum & Roth Mark d. Roth

chicagoland Management & Realty tony Briskovic, Brian Kelly

Hillcrest Management Joel Garson

tairre Management tairre dever-sutton

Kovitz shifrin nesbit Jordan shifrin, Ryan shpritz

Property specialists, inc. tracy Hill, cathy Ryan

legum & norman Mid-West lou lutz

Wolin-levin, inc. Bob levin, elena lugo, tom skweres

community specialists Rosemarie Wert Habitat company diane White, Marla Jackson

omnibus services, inc. Barry Katz

Baum Property Services Baum Property services has moved to new offices located at 540 W. Galena, Aurora, il. the company held an open house for over 300 people on Friday, october 1, 2010.

FirstService Residential Management & Wolin-Levin FirstService Residential Management (FSR), North America’s largest residential property management organization recently announced that it has named Jennifer Feldman CEO of Wolin-Levin, its Chicago division. The company also announced the promotion of Tom Skweres to President of Wolin-Levin. Jennifer Feldman previously served as Director of National Training and Education at FSR. In her time with the company, she led various initiatives that positively impacted the

organization. These included the development and launch of the FSR School of Professional Development, the company’s proprietary educational curriculum, and the creation of standardized operational programs to ensure consistent, customer-centric service delivery throughout the organization. Tom Skweres, who previously served as Vice President, Operations of Wolin-Levin has been promoted to President.

Dickler, Kahn, Slowikowski & Zavell, Ltd. ~ concentrating in ~

Condo & HOA Representation Corporate • Real Estate • Litigation • Wills Personal Injury 85 W. Algonquin Rd., Ste #420, Arlington Heights, IL 60005

847-593-5595 No part of the publication may be reproduced whatsoever without written consent from the publisher. All material herein is copyrighted 2011©.


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condo liFestyles

By David Mack

Contracts Critical in Bad Economy As is generally known, contracts are legal arrangements between buyers and sellers of goods and services that are binding between the parties and designed to protect the interests of the signatories.


ow, probably more than in better economic times, association lawyers are insisting that these legal documents with contractors be very carefully prepared to safeguard their clients’ positions. “The lawyers are really protecting the associations (when drawing up) contracts,” said Tairre Dever Sutton, President of Tairre Management Services. “I spend more time now on legal (issues) and contracts than ever before.”

Baum Property Services, AAMC


Contact Michael D. Baum, CPM, PCAM



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Protecting the Association Counsel has to draw up a tightly written contract to protect the association from potential adverse consequences affecting its interests. While this procedure is always important, it is even more so in a down economy, which can challenge the viability of some contractors, even those that have been in the business for a long time and have a credible record. Some contractors might offer bare bones agreements that give them the upper hand in disputes with associations. Without the necessary protections in a contract and a legal review to confirm that they are included, associations may end up signing one-sided (the contractor’s), one page contracts that provide for little more than payment to the contractor without any standards or time tables and with few obligations imposed on the contractor, explained Marshall Dickler a principal in Dickler, Kahn, Slowikowski & Zavell, Ltd. “Particularly in these times because of the risk that a contractor could become insolvent, these protections are necessary,” he said. “When they are not in place, we see shoddy or no work and the association out of pocket often times in five and six figure amounts before they recognize that they have been taken,” adding that by that time meaningful recovery from the contractor through legal means is generally improbable.


Legal Review Important To ensure that an association’s interests are unequivocally addressed in a contract, a legal review is, therefore, necessary. Always for all contracts? While some attorneys may say some routine agreements can be exempted from that rule, Dawn Moody of Keough & Moody P.C., is not so quick to agree with that conclusion. “I would argue that all contracts should be reviewed by legal counsel, however as a practical matter an association is not going to send every contract to the attorney for review,” she conceded. Large dollar or long term contracts should always be submitted to counsel for analysis, if not actually prepared by the association’s legal rep. But she advised associations that are hesitant to send all contracts out for inspection because of the cost of doing so to at least do a cost-benefit analysis, comparing the expense of the attorney’s analysis to the dollar amount of the contract. How much money can potentially be lost if the association accepts a contract that conceivably can put it in financial jeopardy if a dispute arises with the contractor versus what does it cost for an attorney review? Like Preventive Maintenance Moody likes to frame the legal review of contracts as a form of preventative maintenance, which all associations should practice. “Part of that preventative maintenance includes having contracts reviewed (by counsel) so that potential problems are avoided,” she said, adding that many legal disagreements involving associations that have come to her office would never have arisen if the contract had been given a thorough going over beforehand. “An association will spend a lot less money on a contract review than they will in having to litigate a contract dispute.”

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BoARd BAsics

And in tough economic times such disputes are more likely to occur. Dickler takes the same position as Moody on the absolute necessity of having contracts reviewed by counsel. He is adamant that all should be given legal scrutiny even those of small dollar amounts. “If an attorney does not have an opportunity to review a contract in advance,” he said, “it can place the association in a very weak position for obtaining compliance with contract terms.” Manager’s Perspective From a manager’s perspective, Bonnie Escalante of Heil, Heil, Smart &Golee feels that it is always important for an association to submit its contracts for legal review, although she backed off from Dickler’s absoluteness by suggesting, as Moody has, that an association could review, with management’s assistance, contracts, “for those projects that are not a lot of money.” This is a sentiment with which probably most associations and their managers would concur to save the expense of the review, especially in times when assessment collections may be down and budgets tight. But this approach should be

primarily for contracts that are simple renewals or extensions with no significant modifications of the language and terms of the original contracts, which had been reviewed by counsel. There is a risk involved to an association, however, even with such standard and simple contracts if a dispute arises and because of that potential for complications, no matter how small, Sutton, as a manager, said that no contracts should be considered so routine that they don’t have to be run by counsel for approval. Right of Refusal Clauses Moody noted some circumstances in which associations had gotten into financial and legal trouble because counsel had not prepared or reviewed proposed contracts. “We have had associations end up in protracted litigation over right of first refusal clauses, primarily related to laundry contracts, which we would have sought to strike had we seen the contract in advance,” she said. In other situations, associations were locked into contracts with vendors because of the absence of termination clauses and in the case of one association a large deposit was given to a contractor

that never proceeded with the work. Termination, Cancellation & Other Clauses Escalante has seen contracts not reviewed by an attorney that contained automatic renewal periods or complex cancellation clauses that were difficult to understand. Counsel for the affected associations would strike such language or alter it to protect the client’s interests. Sutton has also seen associations get hamstrung by cancellation clauses that slipped by an association review but which a lawyer would have deleted. “You must have the association’s attorney work those to be less limiting on the association in the event they (the board) want to find a less expensive alternative.” Appropriate termination language protecting an association’s right to extricate itself from a contract is an essential part of any such agreement. “Today more than ever we seek the right to be able to terminate at any time without penalty or cost,” said Dickler. “We seek a termination at will clause so the association can maintain control throughout without being worried about having to pay to cancel.”

111 E. Wacker Drive • Suite 1412 Chicago, Illinois 60601-4501


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condo liFestyles

When Financing Falls Through Moody is of like mind on escape clauses for associations. While contracts offered by contractors have not varied in any real way from those used in better economic times, “there has been more of a push from the association side (through legal direction) to make sure that no-fault termination language is included,” she said. An example she provided was a situation in which an association contracts for a major repair or renovation project under the impression that it will be able to obtain financing to pay for the work but the loan falls through. “Having seen that occur, we normally include no- fault termination provisions so that an association can get itself out of a contract.” Timetables For Start & End of Work Another clause that Moody feels is essential to incorporate in a contract is one dealing with time frames for commencement/completion of work. If a contractor, for whatever reasons, decides to delay completion of a job for an association, such a provision will force him to adhere to the contract’s schedule or be penalized. Description of Work Even more so now than in a more positive economic climate, Dickler strongly insists that a number of other provisions, in addition to the termination at will and time for completion of work clauses, be part of contracts. One has to do with the nature of the work to be done, especially for large-scale projects, which can be written in ambiguous terms by a contractor if the association has not employed an architect or engineer to write its own specifications. That leads to improperly described work in the contract. “Contractors can take advantage of this situation and not deliver what was requested,” said Dickler. So in his review he makes sure that any ambiguity is clarified so the association is completely protected. Amount & Timing of Payments Dickler also requires stringent terms concerning the amount and timing of payments. To qualify to receive a payout a contractor must meet certain obligations such as delivering lien waivers and sworn statements for itself and all the sub-contractors and materials suppliers in a satisfactory format. “We try to insist upon reviewing these documents because from our experience they are never prepared correctly and create tremendous opportunities for the contractor and for subs to take money they are not entitled to,” he explained. Lien Waivers Dickler’s contracts would also require all materials to be delivered to the job site and any money that is paid out upfront go only for materials and not for getting ready to do the work itself. Lien waivers must be submitted by materials providers. Other issues arise related to materials such as storing them off-site and when that happens they must be properly marked and identified as belonging to the association. “We even suggest that someone from the association go to the contractor’s facility and make sure this occurs.” Such steps Dickler wants specifically cited in contracts to assure they can be taken by the association or its representatives without being impeded by contractors and to assure compliance with all contract terms, providing maximum protection for an association’s interests. Insurance Provisions Dickler is also concerned about insurance provisions in contracts,


condo liFestyles


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BoARd BAsics

that they cover all relevant parties and be current. An association that is party to a contract should be an additional insured so that if a policy is cancelled, especially while work is going on, the board would be notified about its abrogation. Also, a construction contract should, “require copies of the policy rather than just a certificate of insurance because we have seen so many certificates of insurance that were doctored from an older certificate,” he said. Contractors must also provide the actual policy to see if any riders are attached containing exclusions that would render the policy invalid under certain circumstances and create liability for the association.

redress of their financial grievances. “Over the years my experience is that this is a nightmare problem,” he said, that, comes back to haunt” boards and their managers. When they come to him, their anger is turned in his direction because he often can’t help them and his firm becomes a convenient target for letting off steam. “Even though they signed a one page contract and never asked for our involvement and then paid the contractor who promptly disappeared, they become furious with us when we can’t help get their money back.”

Performance & Completion Bonds The contract form Dickler’s firm prefers to use would require performance and completion bonds be put up by a contractor as well as specific payment language in which an architect or engineer must certify the amount of work completed and that it is in accordance with specifications before any money is transferred to the contractor. Dickler noted that too often boards do not want to spend money on architects or engineers to prepare plans and specs and to review work completed prior to payout to a contractor. Along with attorneys reviewing contracts and providing other legal assistance, boards, especially of smaller associations where money may be tight, too often feel that paying for those services is a waste of funds and that the board is capable of standing up for itself. But being penny wise and pound-foolish can often be a mistake and cost an association additional money. Breach of Fiduciary Duty? For boards that fail to be proactive in safeguarding their associations’ interests in contracting for major renovation projects (or even for smaller endeavors for that matter) Dickler thinks it is just a matter of time before their constituents rise up in anger over their dereliction of duty. “I am just waiting for some owners to start suing a board for breach of fiduciary duty in failing to have engineers to write specifications and to review the work and for failing to hire attorneys to write contracts,” he said. Who’s to Blame? Dickler’s firm has been involved in situations in which an association has been taken by unscrupulous contractors and the board and or management come to him seeking

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With the potential for contractor insolvency due to credit and other issues being generally greater now than when the economy is flourishing, it would behoove all association boards to be more diligent in assuring they have taken all precautionary legal and technical steps when contracting for work to minimize the risk of adverse consequences should a contractor fail to perform up to expectations or, worse yet, go out of business before delivering the finished product. Y

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condo liFestyles

By DeBat Media Services

Illinois’ First Smoke-Free Condominium condominium owners at 1418 n. lake shore drive, a luxury 28-unit high-rise on the Gold coast, have voted to become illinois’ first smoke-free condo building by prohibiting cigarette, cigar, pipe or any other smoking in the property’s common areas and individual residences.


moke-free apartment and condominium buildings are becoming the wave of the future as the serious health effects of environmental tobacco smoke (ETS), or secondhand smoke, have become better understood, real estate experts say. “Transforming 1418 North Lake Shore Drive into a smoke-free building represents an on-going green trend at the upscale highrise, which was built as a luxury condominium building in 1981,” noted ,” said Brian Lozell, Assistant Vice President of DK Condo, the management firm for the 1418 North Lake Shore Drive Condominium Association.

“Along with offering a healthier living environment for residents and their guests, the vote to prohibit smoking at 1418 North Lake Shore Drive also complies with the Environmental Tobacco Smoke Control (ETSC), a pre-requisite for LEED (Leadership in Energy and Environmental Design) certification by the United States Green Building Council,” said Lozell. Declaration Amended Under the 1418 North Lake Shore Drive Condominium’s by-laws, at least two-thirds of the owners must vote in favor of an amendment to the condominium declaration. Only two of the 28 owners voted against the

amendment. • According to the building’s attorney, Patricia A. O’Connor of Levenfeld Pearlstein, LLC, the 1418 North Lake Shore Drive Condominium Declaration was amended with the insertion of the following paragraph: • “No dangerous, unlawful, noxious or offensive activity shall be carried on in any Unit or in the Common Elements, nor shall anything be done therein either willfully of negligently, which may become an annoyance or nuisance to the other Unit Owners. Without limiting the generality of the foregoing, cigarette, cigar, pipe or other smoking shall be prohibited in the interior of Common Elements, interior Limited Common Elements and in the Units. However, smoking will be permitted in Units if restricted to a single room within the Unit that has been equipped with an Association-approved self-contained air treatment system which prevents smoke from infil-

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312.337.8691 No part of the publication may be reproduced whatsoever without written consent from the publisher. All material herein is copyrighted 2011©.

PRoPeRty PRoFile

trating the Building’s shared ventilation system.” • Condo boards and associations have the legal right to make their condominium property smoke free, just as they are free to prohibit pets, legal experts say. There is no state or federal constitutional right for people to smoke. Resale Values are Higher In addition, the resale value of individual units smoke-free condominium buildings nationwide typically is higher than buildings that allow smoking, appraisers say. Smoke-free policies also cut condo associations’ maintenance costs by reducing cleaning and painting costs and lowering the risk of fire. The apartments at 1418 North Lake Shore Drive, nestled between quiet Schiller and Burton streets in the heart of the Gold Coast, feature unobstructed panoramic views of Lake Michigan. Built in 1981, the elevator building’s amenities include: exercise room, doorman and receiving room, bike room and nearby bike trails, storage, on-site manager and engineer, security system, intercom, fire sprinklers, wheelchair accessibility, attached heated garage, and valet visitor parking. Currently, only one luxury 3-bedroom, 2.5-bath condominium at 1418 North Lake Shore Drive is listed for sale with an asking price of $2.2 million. Y 1418 North Lake Shore Drive Condominiums, Chicago, Illinois

No part of the publication may be reproduced whatsoever without written consent from the publisher. All material herein is copyrighted 2011©.


condo liFestyles


condo liFestyles

CondoLifestyles State-of-the-Industry December 9, 2010 The Chicago Cultural Center


▲ Shown here are Diane White -The Habitat Company, Tairre Dever-Sutton -Tairre Management Services, Mark Pearlstein -Levenfeld Pearlstein, LLC. and Ellen Sahli -City of Chicago, Department of Community Relations. Pearlstein received the 2010 Condo Lifestyles Outstanding Leadership award in the Colleague category..

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▲ Shown here are Pablo Abjula of ConTech MSI Co. with Brian Kelly of Chicagoland Management & Realty.

No part of the publication may be reproduced whatsoever without written consent from the publisher. All material herein is copyrighted 2011©.

event HiGHliGHts

▲ Shown here from (LtoR) are  John Nordquist, Micky Tierney, Bill Palm and Alice Leahy. Micky Tierney received the 2010 Condo Lifestyles Outstanding Leadership award in the category of Property Supervisors.

▲ Shown here (from L to R) are Brad Schneider -Condo CPA’s, Bob Levin -WolinLevin, Inc., Michael C. Davids - MCD Media, and Theresa Brumwell.

2010 STATE OF THE INDUSTRY SEMINAR Fifteenth Annual Review & Forecast of Trends for Community Associations | December 9, 2010 | Chicago Cultural Center



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▲ Pictured here (from L to R) are Elena Lugo, WolinLevin, Kevin Phillips - Heil Heil Smart & Golee, and George Kantavelos - American Door & Dock.

QCI Restoration Penland & Hartwell LLC.


AAA Painting Contractors, Inc. American Building Services Edwards Engineering Full Circle Architects The Habitat Co. Kone Refind Interiors Tairre Management INFORMATION TABLE SPONSORS

Access Media3 American Door & Dock Brouwer Bros. Steamatic ConTech MSI Co. CertaPro Painters Landscape Concepts Management Levenfeld Pearlstein Simplex –Grinnell Smithereen Pest Management Services

Admiral Security Services, Inc Community Advantage of Barrington Bank & Trust Chicagoland Management Community Specialists Construction Technologies Laboratories CSR Roofing Environ International Corp. Eugene Mathews Co. Heil, Heil, Smart & Golee Kinsella Landscape, Inc. Lake Shore Waste Services LLC W. J. McGuire Co. Quality Restorations Smart Elevators Style Construction, Inc.


WA S H I N G T O N & G A R L A N D R O O M S | F I F T H F L O O R


▲ Shown here are Sara Kantarovich and Scott Seifert -Smithereen Pest Management Services. Also shown is Dave Nolte of CertaPro Painters answering attendee questions.

No part of the publication may be reproduced whatsoever without written consent from the publisher. All material herein is copyrighted 2011©.


condo liFestyles


condo liFestyles

state of the industry from page 6 moderated by Brian Kelly of Chicagoland Management & Realty and Tairre Dever Sutton of Tairre Management. Panelists included Sheila Malchiodi of QCI Restoration, David Hartwell of Penland & Harwell, Marla Jackson of The Habitat Company and Gladys Montemayor, board president of the 7306 North Winchester Condo Association. Sutton summarized the issues to be discussed, which included life safety and evacuation plans; capital projects and how their costs affect associations; assessment collections and bad debt write offs; mechanics liens by vendors and other issues relevant to being an association in today’s times. Kelly asked a few questions of the participants. Evacuation Plans Q/ To Malchiodi. Can you provide us with any new information on the requirements for evacuation plans for associations? A/ An association’s evacuation Plan must be in a binder for first responders to use. it must explain the building’s nature and provide all the details of the building that the manager may


condo liFestyles

ital projects and has your association put off any projects due to a lack of funds?

have but not in one place. each and every building will need one.

A/ these are very trying financial times. A court decision held that a debt written off cannot be collected in court. if there’s any chance something will be collected, keep it on your books. you should also include a bad debt allowance in your budgets because you won’t realistically collect 100 percent of your assessments.

A/ We put money into our reserves over a five-year period. it took that long to reach a solid financial state. We are now using the reserve for our projects. When doing a big project you have to decide who will manage it for the association, management or a board member. sometimes a board member will want to be the point person for the board and manage a project. We have foreclosures in our building but they’re not affecting our ability to do projects. We get people to pay their assessments before their mortgages.

Mechanic’s Liens

Practical Legal Advice

Q/ Sutton to Kelly. What issues have you encountered when working with vendors and subcontractors on jobs and non-payment to those vendors or subs that might result in the filing of mechanics’ liens against an association?

Q/ To Hartwell. How are you advising your associations on various issues we have discussed here today and are they taking your advice?

Bad Debts Q/ To Jackson. What are some of the issues you are dealing with surrounding assessment collections and bad debt write offs?

A/ the best way to prevent liens for non-payment is to require lien waivers from all vendors and subs and be sure that the project is supervised and all work inspected before payment is approved.

A/ there is a lot going on now with associations in new legislation and issues being politicized. one important thing is for associations to work closely with their partners such as property managers, accountants and attorneys. the average board doesn’t have the knowledge to do all they need to do, to meet the standards they are required to meet.

Large Capital Projects

Practical legal advice sometimes butts up against the actual beliefs of a board.

Q/ To Montemayor. How is you association handling the cost and management of large cap-

the times call for a more professional approach


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coveR stoRy

in acting as a board member. Boards are being challenged now on every single issue as people seem to be willing to spend more on lawyers today than they used to.

payment process should be controlled by the association and if there will be any uncertainty about it, it should be detailed in the contract. An association’s attorney should review all contracts. the problem with the payment process today is recourse. if a general contractor goes bankrupt, the association may have to pay the bills he didn’t (double paying) and have no recourse. to avoid such complications, use good reputable contractors that have been around for a while and don’t just accept the lowest bid.

My best piece of advice is use a team approach to administer a community association successfully. the property manager can bring the people (accountants, attorneys etc.) together.

Following are some questions directed from the audience to the panel. Evacuation Plans

Delinquent Accounts & Collections

Q/ To Malchiodi. What’s the time frame for preparing the evacuation plan?

Q/ To all panelists. When should a delinquent account be sent for legal action?

A/ We go in and do an assessment of the building by determining all the important things emergency people need to know in case of an emergency. We sit down with the manager and go over the building thoroughly. After that analysis it will take about two to three weeks to get the plan together and deliver it to you in a binder. We also provide a copy to the property manager to keep away from the building in case the original is destroyed during an emergency.

A/ Hartwell said between 45 and 60 days. His firm is seeing a large influx of bankruptcies and when one is filed the association has to stop its collection action so it should act as promptly as possible within that time frame. He also noted there is a large backlog of collection cases in court and they don’t go through quickly.

Sub-Contractors Q/ To Kelly. Can you suggest some ways to see that subs are paid by contractors? A/ We call all subs to see that they have been paid. Hartwell provided additional comments. the

legal and court costs if their case goes that far has been producing a positive reaction now. And she added that they sometimes appreciate that management is reaching out to them.

More on FHA Financing Hartwell then raised an important issue about associations not wanting FHA approved financing in their buildings. That opposition could generate legal action against an association if it intentionally acts to exclude FHA financing. “If you are purposely impeding FHA approval- making it harder to purchaseit raises fair housing issues. It might be considered discrimination. A lot of lawyers are sitting idle now and this would have a high degree of sex appeal.” An association must be cautious in addressing the issue of FHA approval. The discrimination issue, “will probably be coming up more this year.” Adding some further observations about the FHA, Hartwell said the agency is very different now than when it was originally formed and has changed from focusing on getting rid of red lining to becoming a funding mechanism for a lot more people to buy homes. Y

Montemayor added that if an owner is sent for legal action he has to pay the legal and court costs. Her experience has been that if you do that once for a resident it’s not likely you’ll have to do it again for that same person. sutton said that she has her staff make phone calls after 30 days to remind owners they’re late paying. letting delinquents know that and also that they will have to pay a late fee as well as

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1210.5056 CL[0111]40_web  

State-of-the-Industry Community Association Legislative Update & Industry Challenges Cover Your Assets: Protecting Your Association’s Mo...

1210.5056 CL[0111]40_web  

State-of-the-Industry Community Association Legislative Update & Industry Challenges Cover Your Assets: Protecting Your Association’s Mo...