M100 Community Association Management

True or false. When a community association forecloses on a unit and it is auctioned off, the association will always get the money it is owed.

False A community association may foreclose on an owner if it thinks it can recover what it is owed. Sometimes the act of foreclosing will prompt an owner to pay what is owed—especially if the owner's mortgage payments are current. If an owner has little equity in the unit—that is, still owes most of the mortgage—the community association stands little chance of getting the money it is owed. When a community association or another creditor foreclose on a unit and it is auctioned off, the association still may not get the money it is owed. The unit must sell for a price that is high enough to pay off the delinquent assessments as well as any other debts that take precedence over the association's claim.

True or false. To increase the likelihood that a court of law will uphold an association's enforcement of architectural guidelines, the board of directors should turn a blind eye towards violations and permit unapproved architectural changes to exist.

False A manager should advise a board of any violations of architectural guidelines as soon as they are discovered—for example, during inspection of the property. The board should also refrain from turning a blind eye towards violations. They should report any known violations to the manager in a timely manner. If unapproved architectural changes are permitted to exist, the association may be hindered if it later tries to enforce the rule that was violated.

True or false. A board of directors can legally conduct the business of the association without a quorum.

False A quorum is the number of members required to be present for the board to legally conduct the business of the association. In the absence of a quorum, the only formal actions a board may take are to recess, adjourn, or take measures to obtain a quorum. A community's bylaws set the quorum for a board meeting.

True or false. A CPA's representation letter describes the nature of the work to be done, the type of report to be prepared, the fee for services, the time frame for the assignment, and the accountant's disclaimers.

False A representation letter states that the information the community association provides is true to the best of its knowledge and describes the steps the community association has taken to provide for the preparation of accurate and complete financial statements. An engagement letter describes the nature of the work to be done, the type of report to be prepared, the fee for services, the time frame for the assignment, and the accountant's disclaimers.

True or false. Acceleration is the collection of all assessments due on a monthly basis.

False Acceleration is the collection of all assessments due through the end of the fiscal year. This is a common method for collecting assessments from owners who are frequently delinquent.

True or false. Using alternative dispute resolution to encourage residents to comply with rules and guidelines is more costly and time consuming than going through the court system.

False Alternative dispute resolution (ADR) involves submitting a dispute to a trained, uninvolved third party for assistance with resolution. The third party's decision may be nonbonding or the third party may merely act as a facilitator in the case of a mediator. However, this approach can be a more efficient and effective way to resolve a dispute than other means. A community association might propose ADR when confronted with a difficult rule enforcement situation or the possibility of prolonged litigation. In many jurisdictions ADR is either required or encouraged before filing suit or during suit, but before trial.

True or false. According to the general hierarchy of authority for governing documents, the bylaws would control in a conflict with the recorded map, plat, or plan.

False As a general rule, documents lower in the hierarchy of authority cannot conflict with or change the terms of those above them. The recorded map, plat, or plan is above the bylaws in the hierarchy, and therefore would prevail in such a conflict.

True or false. The bidding process and requests for proposals should be used primarily for smaller jobs or purchases of one-time services

False Because of the amount of effort the bidding process requires of both the community association and the bidders, it should be used primarily for larger jobs or purchases or for on-going services, such as lawn maintenance. If the bidding process will be needed, a manager should confer with the board to determine the minimum size of a contract that requires competitive bidding.

True or false. Requiring a single signature to withdraw funds from an investment account is a good example of a system of internal checks and balances to protect association investments.

False Every community association needs a system of internal checks and balances to protect its investments. An good example is requiring at least two signatures to withdraw funds from investment accounts.

True or false. It is perfectly acceptable to hold a board meeting in the home of the association president.

False If a community association does not have a meeting room, board meetings should be scheduled in public places. Avoid meetings in homes of board members, as the space will not always be adequate. Nor is a board member's home a public and neutral site that will encourage owners' attendance.

True or false. Community managers are ultimately responsible for establishing, approving, and monitoring the community's budget.

False Most boards of directors are responsible for establishing, approving, and monitoring the community's budget. Although they have the power to establish a budget, most will delegate preparation authority to their manager.

True or false. The American Agency System is comprised of employees of a single insurance company who only place the insurance of that company, such as Allstate, Farmers, Nationwide, and State Farm.

False The American Agency System is comprised of insurance agencies which place insurance for more than one insurance company. Insurance companies who participate in this system include Aetna, Chubb, CNA, and Travelers. The Direct Writer System is comprised of employees of a single insurance company who only place the insurance of that company. Insurance companies who participate in this system include Allstate, Farmers, Nationwide, and State Farm.

True or false. The basic authority in a community association lies with the developer.

False The basic authority in a community association lies with the owners. In order for the association to govern effectively the owners elect a board of directors to act on their behalf. The governing documents delegate most of the association's decision-making powers to a board.

True or false. The commercial reporting method consists of preparing separate columns for operating, reserve, and any special funds.

False The fund reporting method consists of preparing separate columns for operating, reserve, and any special funds. This is different from the commercial method which combines operating and reserve activities in the same column.

True or false. According to the general hierarchy of authority for operating community associations, rules and regulations take precedence over the articles of incorporation.

False The hierarchy of authority means that rules and architectural guidelines may not contradict or be in conflict with the legal sources that take precedence over them. Although rules and architectural guidelines are lower in the hierarchy of authority for community associations, they may clarify and expand a community's governing documents—but may not conflict with the other governing documents, such as the articles of incorporation.

True or false. The insurance industry is unregulated at the state level.

False The insurance industry is a highly regulated legal environment at the state level. Insurers are either admitted or non-admitted at the state level: both, if licensed, can write insurance, but only admitted insurers are eligible for state guarantee funds if the insurer becomes insolvent. Non-admitted insurers are often called Excess & Surplus (E&S) Lines insurers. The insurance industry is highly regulated at the state level in terms of policy forms and rates, claims practices, financial operations, and other basic business practices.

True or false. It is ethically acceptable for a professional community association manager to arrange for a kickback for giving a contractor an association contract.

False The manager of a community association has a professional duty to avoid attempting to make any secret profits when acting on the community's behalf. Arranging for a kickback for giving a contractor an association contract—without disclosing relationship to the board—constitutes making secret profits and is ethically unacceptable. Managers should review and consult the CAI codes of ethics. The Professional Community Association Manager (PCAM) code of ethics sets forth the general and technical standards for integrity and objectivity, professional courtesy, conflict of interest, use of client funds, and limitations of practice.

True or false. The manager should sign all contracts on behalf of the community association.

False The president and/or secretary of the community association should sign contracts on its behalf. The manager should not sign a contract on the community association's behalf, as he or she is not the party entering the agreement—the community association is.

True or false. The role of the professional community association manager is to make all decisions for the association and to delegate information-gathering and fact-finding support to the board of directors.

False The professional community association manager is charged with assisting the board of directors' decision making process by means of providing information-gathering and fact-finding support, implementing the decisions of the board; and administering the services, programs, and operations of the community association within the policies and guidelines set by the board.

True or False. The public offering statement is a governing document, as it often distributed along with the governing documents.

False The public offering statement is not a governing document; instead, it is simply a disclosure statement that provides information on the community association to prospective buyers.

True or false. A management control used to keep track of who is responsible for the maintenance of various property elements or areas is the analysis sheet

False The responsibility chart is a management control used to keep track of who is responsible for the maintenance of various property elements or areas. It commonly is used as a handout for owners and tenants. Typical responsible parties include the owner, the association, the developer, a committee, or a manufacturer. A facilities / equipment analysis sheet is an appropriate management control to record what maintenance needs to be done.

True or false. With historical trend budgeting, all line items are set to zero and the amount of funds allotted to each must be justified.

False With zero-base budgeting, all line items are set to zero and the amount of funds allotted to each must be justified. Historical trend budgeting begins with the assumption that existing line items are needed. The amount of funds allotted to each one during the current year is adjusted for expected changes in the coming year.

Each of the following are benefits to using the resolution process to adopt rules EXCEPT: a. Provides an oral record of all rules made b. Protects owners from arbitrary board actions c. Protects the community from charges that could result in inoperable rules d. Provides for consistency in making and wording rules

There are several benefits to using the resolution process to adopt rules, as opposed to using the simpler process of making motions. Among these benefits is that it provides a formal, written record of all rules made.

True or false. A good resource for identifying potential contractors are referrals from supply firms doing business with the community association.

True A manager can obtain the names of potential contractors for a specific job from referrals from supply firms doing business with the community association. Before a manager sends a contractor a bid request, he or she should call first to see if the company is interested in bidding. He or she should avoid sending out bid requests and waiting for a response—only to find out that none of the receivers were interested or available.

True or false. When deciding whether to have staff members or a contractor perform a task, a manager should consider where tools, equipment, and supplies will be stored—and the liability involved.

True A manager is responsible for ensuring that all supplies are stored and labeled in accordance with O.S.H.A. standards. In this respect, the manager should be concerned with security and safety issues and seek to avoid theft and accidents. Depending on the tools, equipment, and supplies involved in a task, an association may not be able to securely and safely store them for the duration of the project, and may wish to instead use a contractor.

True or false. When a community association determines that a debt cannot be collected from an owner after a reasonable effort has been made, it must take a bad debt write-off.

True A payment that cannot be collected from an owner is called a bad debt. When a community association determines that a debt cannot be collected from an owner after a reasonable effort has been made, it must take a bad debt write-off. A bad debt write-off consists of recording an uncollectible debt as an expense that the association must absorb. This usually requires a resolution of the board.

True or false. Community associations must file a federal income tax return every year

True All community associations must file a federal income tax return every year. The filing of a tax return does not necessarily mean that a community association owes any tax. Further, the lack of taxable income does not eliminate the need to file.

True or false. An agenda is more than an announcement of the order of business for a meeting; it is a meeting management tool.

True By specifying the duration of a meeting in the agenda or allotting agenda items specific amounts of time, managers are helping the board to proceed with its business in a timely manner. Note that meetings that run more than two hours often degenerate into an unproductive effort.

True or false. Employers' liability insurance provides protection for claims made by injured employees, such as third-party-over actions and dual capacity actions

True Employers' liability provides protection for claims made by injured employees (and their spouses) for certain types of liability that is excluded in the CGL, such as third-party-over actions, dual capacity actions, and so forth. Every community association should consider obtaining employers' liability insurance.

True or false. An established collection policy educates owners about their obligations to the community association and the consequences of not meeting those obligations on time.

True If owners are informed about their obligations and the consequences of not meeting them, they are more likely to avoid delinquent payments.

True or false. A proprietary lease or occupancy agreement in a cooperative defines the member or stockholder's rights and obligations in relation to the living unit.

True In a cooperative, the proprietary lease or occupancy agreement serves generally the same purpose as the declaration, CC&R, or master deed in other community associations. Among other things, the proprietary lease or occupancy agreement identifies the premises that the stockholder is permitted to occupy exclusively, defines the term of the lease and the rent that is payable by the stockholder, and establishes the powers and obligations of the cooperative's board of directors, including assessment rights.

True or false. One of the goals of maintenance for a community association is to limit injury to residents, guests, and employees.

True Maintenance has three major goals in a community association. These include to meet the needs of the individual residents, to preserve and enhance the common property, and to limit injury to residents, guests, and employees.

True or false. A contract is an agreement between two or more parties, enforceable by law, by which each party promises to do, or not to do, something.

True Management of a community association's resources frequently involves the use of contracts to obtain the products and services required. A contract is an agreement between two or more parties, enforceable by law, by which each party promises to do, or not to do, something. Whenever a community association enters into a contract, it is binding itself both legally and financially. Therefore, as a community association manager, you must assist your community to enter contracts as carefully as possible—seeking legal or technical advice whenever necessary.

True or false. The declaration or master deed often includes a maintenance schedule for particular assets.

True Managers should research legal documents to identify the physical assets their community association is responsible for maintaining. State statutes, board resolutions, and governing documents all often discuss maintenance of physical assets. In particular, the declaration or master deed will frequently include a maintenance schedule for particular assets.

True or false. Board member liability is a potential consequence of not having a reserve study.

True Not having a reserve study can expose board members to claims of fiscal irresponsibility and loss of D&O insurance coverage.

True or False. The primary purpose of a community association is to provide for the governance, business, and communal aspects of the association.

True Providing for the governance, business, and communal aspects of the association is achieved by administering, maintaining, and enhancing a residential real estate development, and through the establishment of a system of property rights, binding covenants and restrictions, and rules and regulations.

True or false. Surveying residents is a common method community association managers use to evaluate their maintenance systems and implementation efforts.

True Surveying residents—either periodically or at the time their maintenance request has been handled—is a common method used by community association managers to evaluate their maintenance systems and implementation efforts. Other common methods include having the board of directors fill out a "report card" that addresses the basic maintenance programs in specific terms, reviewing budget costs for the previous year, reviewing all maintenance work orders, physically inspecting the property, and visiting other similar community associations to obtain a first-hand comparison or self-check.

True or false. The Federal National Mortgage Association (FannieMae) has a direct impact on community association insurance obligations.

True The Federal National Mortgage Association (FannieMae) and the Federal Home Loan Mortgage Corporation (FreddieMac) are government sponsored enterprise, or GSEs. Both GSEs buy mortgages from lenders and in doing so require certain types of insurance to be in place, thus impacting community association insurance obligations.

True or false. The purpose of a community association's governing documents is to provide for the legal structure and operation of the community.

True The governing documents define the rights and obligations of both the community association and its owners, create a binding relationship between each owner and the community association, and establish the mechanisms for governing and funding the community association's operations.

True or false. The two main components of a community budget are revenue and expenses.

True The two main components of a community budget are revenue and expenses. The revenue and expense categories used in a budget must be the same categories used in financial records, reports, and statements.

True or false. The preservation of life and property are paramount concerns in any insurance contract

True There are certain important things to consider when filing insurance claims. Included among these are that every insurance contract has its own requirements for filing claims, any possible claim that could have an adverse economic impact on the community association should be reported to the insurer, claims may require the filing of formal proofs of loss, and the preservation of life and property are paramount concerns in any insurance contract.

True or false. Personnel issues are an example of a topic that often require an executive session and are allowable by law.

True There are times when a board must hold a discussion or make decisions of a sensitive nature. Many states have so-called "sunshine laws" which limit the reasons why a governing board may go into a closed or executive session. The topics that commonly require an executive session and are allowable by law usually include personnel issues, contract negotiations and discussions, lawsuits and other legal matters, and governing document violations.

True or false. The "business judgment rule" means that if a board has exercised reasonable business judgment in making a decision, the court will generally not consider the board negligent in its fiduciary duty.

True Through judicial decision, a substantial body of law has developed concerning the standards to which directors must conform while conducting a community association's affairs. Many courts apply the "business judgment rule" to a board's actions.

True or false. An increase in assessment delinquencies that is not due to a poor economy may be an example of a warning sign of a weak management situation.

True When assessment delinquencies increase, the manager should investigate the reasons for the increase as soon as possible and as objectively as he or she can. In addition, if the demands of the community association and the board of directors are unreasonable or exceed the manager's ability to perform the required services, it is the manager's responsibility to communicate this to the board before it creates a weak management situation.

Each of the following statements regarding community association assessments are true EXCEPT: a. Assessments penalize residents for violating association rules b. An assessment is the owner's financial obligation to the community association during a given period of time c. An assessment for an owner's share of the common expenses is a binding legal obligation based on the community association's governing documents d. An annual assessment may be paid on a monthly, quarterly, or annual basis

a. Assessments penalize residents for violating association rules Assessments are not a penalty or fine for residents who violate association rules. Instead, assessments cover an owner's share of the common expenses, and are one of the three defining characteristics of all community associations.

Which of the following responsibilities relate to the governance function of a community association board of directors? a. Decide issues of policy for the owners in the community b. Promote harmony through service programs and regular communication with owners c. Monitor financial matters for the purpose of preserving and enhancing the community d. Hear appeals of committee and management decisions that are protested by groups of owners

a. Decide issues of policy for the owners in the community There are three areas of board decision making which relate to the three functions of a community association board of directors: business, governance, and community. As volunteer leaders responsible for governing an organization, a board must decide issues of policy for the owners in the community.

Each of the following agencies are federally established secondary mortgage institutions EXCEPT: a. Environmental Protection Agency b. Federal National Mortgage Association c. Veterans' Administration d. Federal Home Loan Mortgage Corporation

a. Environmental Protection Agency Federally established secondary mortgage institutions may set requirements that community associations have to meet if owners are to participate in their financing programs. These agencies regulate and influence such items as the amount of insurance a community association must carry, procedures for financial operations, and requirements for the upkeep of property. The Environmental Protection Agency is not an example of a secondary mortgage institution.

Which terminology for the following homeowner policies is for a condominium or cooperative unit owner? a. HO-6 b. HO-4 c. HO-1 d. HO-1

a. HO-6 Terminology varies with insurer, but homeowner (HO) policies are usually referred to by the following numbers: HO-1, HO-2, HO-3, and HO-5 refer to policies for owner-occupied units, HO-4 is a tenant's policy, and HO-6 is a policy for a condominium or cooperative unit owner.

Which of the following is not one of the basic principles of parliamentary procedure that apply to every meeting? a. Minority rule b. Justice c. Courtesy d. Protection of Rights

a. Minority rule Parliamentary procedure recognizes a few basic principles of conduct for every meeting, including majority rule (instead of minority rule). Majority rule means that the will of the majority should decide issues.

Which of the following board members is responsible for seeing to it that the draft budget is prepared and reviewed? a. Treasurer b. President c. Secretary d. Vice President

a. Treasurer The community treasurer is usually responsible for seeing to it that the draft budget is prepared and reviewed. He or she will usually delegate initial preparation of the budget to the manager. Then the treasurer will review the draft budget with a finance committee. It is important that the treasurer consult all committee chairpersons and invite owner input to ensure support.

Which of the following demonstrates the risk control technique of exposure avoidance? a. a community association rule prohibiting the use of alcohol in the clubhouse b. conducting weekly fire safety inspections where flammables are stored c. contracting for landscape services d. backing up all computer files and storing the backup files in a separate place

a. a community association rule prohibiting the use of alcohol in the clubhouse Exposure avoidance involves avoiding the circumstances that would expose the community association to certain type of loss. For example, to avoid problems with serving alcohol in the clubhouse, the community association has a rule prohibiting the use of alcohol in the facility.

Each of the following include steps in establishing a maintenance system for a community association EXCEPT: a. assign blame to staff not adequately fulfilling maintenance responsibilities b. develop maintenance management controls c. analyze your assets' maintenance needs d. evaluate your maintenance system and efforts

a. assign blame to staff not adequately fulfilling maintenance responsibilities There are five steps in establishing a maintenance system for a community association. These involve developing maintenance management controls, identifying the physical assets to maintain, analyzing your assets' maintenance needs, establishing five basic maintenance programs, and evaluating your maintenance system and efforts. Assigning blame to staff not adequately fulfilling maintenance responsibilities is not included among these steps.

Which of the following accounting methods records income when it is collected and expenses when they are paid? a. cash basis b. accrual basis c. modified cash basis d. modified accrual basis

a. cash basis A community association's financial reports will reflect one of three possible accounting methods. Cash basis records income when it is collected and expenses when they are paid. Accrual basis records income when it is earned (or assessed to owners) and expenses when they are incurred or acquired. Modified cash basis records income and expenses on a cash basis with selected items recorded on an accrual basis.

Complete the following sentence: A(n) _______________ is a presentation of financial statements by a CPA without the assurance that the information conforms to GAAP. a. compilation b. review c. audit d. opinion letter

a. compilation With a compilation, the CPA prepares the community association's financial statements based on information the association provides. The CPA cannot make any claims about the accuracy and completeness of the financial statements, as opposed to the audit and review, which provide some assurance to the board and other interested parties that the financial statements make sense.

Which of the following is an example of a discretionary line item in a community budget? a. recreational expenses b. income taxes c. utilities d. maintenance

a. recreational expenses Discretionary line items are based on owner, board, and committee desires. They are items people would like to have—given their values, lifestyle, and preferred level of service, e.g. social and recreational expenses, picnic areas. Mandatory line items, on the other hand, are based on community and owner needs. They are requirements that the community is obligated to meet, e.g. income taxes, repairs, utilities, and maintenance.

Each of the following legal sources specify management authority and responsibilities for community associations EXCEPT: a. survey data b. state statutes c. community association governing documents d. court decisions

a. survey data All three types of legal sources—state statutes, governing documents, and court decisions—specify the authority or power of different parties in a community association and the responsibilities or duties of the different parties.

A bid request or request for proposal (RFP) should include each of the following EXCEPT: a. vague instructions about the products or services requested b. a request for information about the contractor that will help the association evaluate the contractor's ability c. information about the association that the contractor will need in order to prepare a bid d. information about work conditions

a. vague instructions about the products or services requested A bid request or request for proposal (RFP) is an announcement that an organization is interested in receiving proposals for a particular project. Among other things, the bid request or RFP should include detailed instructions about the products or services requested (bid specifications). All contract terms should be included in the bid request. This will help the association avoid a situation where the successful contract bidder receives a written contract whose terms may not be acceptable to the contractor.

Because a community association relies on the timely collection of assessments in order to meet operating expense requirements, delinquent payments may result in each of the following EXCEPT: a. Property beginning to appear run-down b. A budget surplus c. Disharmony between paying owners and delinquent ones d. Essential maintenance becoming unaffordable

b. A budget surplus Instead of creating a budget surplus, a large number of delinquent payments can actually lead a community association to increase annual assessments for all residents to cover the deficit.

Which of the following types of bankruptcy is called a reorganization because it is designed to allow for an orderly payment to creditors that enables a corporation to continue? a. Chapter 7 b. Chapter 11 c. Chapter 13 d. Chapter 21

b. Chapter 11 Chapter 11 involves the development of a plan to pay off debts in a timely manner. Once a judge approves a plan as "fair and equitable," it is binding and discharges all debts not provided for under the plan. Creditors usually receive more of what they are owed under a Chapter 11 than a Chapter 7. However, they don't necessarily receive all they are owed.

Each of the following are reasons for maintaining a replacement fund EXCEPT: a. Maintaining a replacement fund meets legal, fiduciary, and professional requirements b. Maintaining a replacement fund increases the likelihood that an association will require a special assessment c. Maintaining a replacement fund equalizes the contributions of old and new owners d. Maintaining a replacement fund enhances resale values

b. Maintaining a replacement fund increases the likelihood that an association will require a special assessment Owners, especially those on fixed incomes, frequently have limited resources. They may not be able to afford the large special assessments that would be required if reserves are insufficient to cover a major replacement. Maintaining a replacement fund minimizes the need for special assessments.

Which of the following is not a typical source of revenue for a community association? a. Owner assessments b. Major improvement expenses c. Penalty fees d. Interest

b. Major improvement expenses As the name indicates, major improvement expenses are not a source of revenue for a community association—they are an association expense. Major improvement expenses consist of items that are not necessarily required, but are added to improve the overall welfare, safety, or life of the residents—or enhance the value of the community association as reflected in the resale value of units. Improvements are different from maintenance, repairs, or replacements. They increase the life, usefulness, or value of a property.

An effective collection policy should exhibit each of the following EXCEPT: a. Be established by a proper formal resolution of the board b. Prohibit the referral of delinquent assessments to legal counsel c. Set a firm due date for assessments d. Allow for discretion in special cases

b. Prohibit the referral of delinquent assessments to legal counsel An effective collection policy should specify when to refer a delinquent assessment to legal counsel. This step should be automatic once a delinquent assessment reaches a specified age or amount. Once an account is turned over to legal counsel, it is critical that all further communication be between the community association's attorney and the delinquent owner or the owner's attorney. The manager and/or board should not be involved in discussions with anyone other than the association's legal counsel.

Each of the following are basic types of residential community associations EXCEPT: a. Planned community b. Townhouse c. Cooperative d. Condominium

b. Townhouse While many community associations are indeed townhouse communities, not all such developments are necessarily associations. A community association is defined in terms of ownership rights—not architectural style.

To identify what maintenance must be done, managers should record the following information for every physical asset EXCEPT: a. preventive and emergency plans needed b. contact information for each board member c. description of the asset from a maintenance point of view d. what maintenance needs to be done

b. contact information for each board member To identify what maintenance must be done for every physical asset, managers should record description of the asset from a maintenance point of view, what maintenance needs to be done, how often, how long it will take, criteria for satisfactory maintenance, and preventive and emergency plans needed. Much of this information can be obtained by conducting an inventory of a community's physical assets. Another source of this information is in the appropriate section of a community association's service contract, which specifies the scope of work to be done.

Complete the following sentence: For a community association, _____________ is the process of operating, maintaining, repairing, and replacing common property. a. preventative maintenance b. facilities management c. maintenance record d. scheduled replacement

b. facilities management Facilities management is the process of operating, maintaining, repairing, and replacing common property, and for a community association, that includes the common elements or areas.

Complete the following sentence: The board of directors in a community association has a _____________ to act in the best interests and for the benefit of the community as a whole. a. bond b. fiduciary duty c. ballot d. quorum

b. fiduciary duty The board's fiduciary duty has two components: (1) Board members are required to avoid conflicts of interest and acting out of self-interest. (2) They are also required to act as reasonable people in managing the association's affairs.

Which of the following investment objectives for community associations refers to the ease with which an investment can be converted into cash or a cash equivalent? a. safety b. liquidity c. yield d. treasury bills

b. liquidity Liquidity refers to the ease with which an investment can be converted into cash or a cash equivalent. Due to unexpected events, a community association may need access to its invested funds at times other than planned.

Complete the following sentence: A ___________ occurs when expenses are greater than income. a. net income b. net loss c. net gain d. net profit

b. net loss A net loss occurs when expenses are greater than income. Net income is the amount left after deducting expenses from income. The net income or loss can be significantly different depending on whether a cash, accrual, or modified cash basis is used.

Which of the following is a year-end financial statement that reconciles the beginning and ending members' equity with results of operations for the period? a. balance sheet b. statement of changes in members' equity c. statement of cash flows d. notes to financial statements

b. statement of changes in members' equity A statement of changes in members' equity (or fund balances) is a year-end financial statement that reconciles the beginning and ending members' equity with results of operations for the period. Although this is a required statement by Generally Accepted Accounting Principles (GAAP), the new manager will not spend much time reviewing this particular report.

In which of the following forms of community association management is the association managed by the board itself or by committees under the direction of the board? a. management company b. volunteer or self-management c. association-employed manager d. municipal management

b. volunteer or self-management Self-managed community associations make up a majority of all associations in the United States; approximately 150,000 self-managed community associations currently exist in the U.S. In self managed associations, the board itself is responsible for all community association functions, including maintaining accounting records, preparing budgets, collecting dues, and staying informed about association resources and best practices.

Complete the following sentence: A ______________ is a promise or guarantee that parts, materials, or labor will last for a designated period of time. a. prospective bidder's questionnaire b. warranty c. qualifications sheet d. waiver of lien

b. warranty A warranty is a promise or guarantee that parts, materials, or labor will last for a designated period of time. A prospective bidder's questionnaire or qualifications sheet is a document that asks for certain types of information to determine if the bidder is technically and financially qualified to handle a job of this scope. A waiver of lien is a document which gives up the right to make a claim against the community association for payments not received.

Each of the following are key characteristics of community associations EXCEPT: a. Mandatory lien-based economic charges or assessments are levied on each owner in order to operate and maintain the community association. b. Membership in the community association is mandatory and automatic for all owners. c. A requirement of community association ownership is serving on the board of directors. d. Certain documents bind all owners to be governed by the community association.

c. A requirement of community association ownership is serving on the board of directors. This is one of the three key characteristics common to all community associations. Members of an association are not legally required to serve on the board of directors; however, the overall success on the community is dependent upon the members' involvement its affairs.

Which of the following terms regarding the process of making a motion most closely fits this definition: "to change a motion by inserting, adding, striking out, striking out and inserting, or substituting words." a. Take a motion from the table b. Second a motion c. Amend a motion d. Table a motion

c. Amend a motion To amend a motion means to change a motion by inserting, adding, striking out, striking out and inserting, or substituting words. Only the maker of the motion can amend it.

In addition to a meeting agenda, board members should receive each of the following supporting materials prior to a meeting EXCEPT: a. Minutes from the last meeting b. Financial reports c. Community newsletter d. Committee reports

c. Community newsletter In a properly prepared board meeting, all members should have had all the information needed for discussion before the meeting. The community newsletter is not typically an item required to conduct a board meeting.

Which of the following is not one of the three major components of a balance sheet? a. Assets b. Liabilities c. Expenses d. Members' Equity

c. Expenses Expenses are one if the major components of a statement of income and expense, while a balance sheet consists of assets, liabilities, and members' equity.

Commercial package policies contain all of the following EXCEPT: a. common declarations b. a selection of forms c. claims made coverage d. glossaries

c. claims made coverage Community associations purchase commercial package policies (CPP), sometimes called "package policies," which combine property and liability insurance—and possibly other insurance coverages. All commercial package policies contain common declarations, common policy conditions, a selection of forms, optional endorsements, and glossaries. Claims made coverage means that the claim must be made during the period of policy coverage.

Which of the following is an example of an architectural guideline? a. pets b. noise c. fencing d. parking

c. fencing An architectural guideline is a rule that applies to the appearance of an owner's lot or the exterior of his or her unit or improvements, such as fencing. A rule is a specific statement of required behavior whose violation carries a penalty. Pets, noise, and parking are all examples of areas that often prompt community association rules.

Which of the following types of exposure to loss for a community association is characterized by net losses that may involve a reduction in income or an increase in operating expenses or both? a. property exposure to loss b. liability exposure to loss c. income exposure to loss d. personnel exposure to loss

c. income exposure to loss There are four types of accidental loss to which a community association is exposed. Income exposure to loss are net losses that may involve a reduction in income or an increase in operating expenses or both.

Complete the following sentence: A ____________ is a legal claim by one party (community association) on the property of another (delinquent owner) to obtain the payment of a debt or the satisfaction of an obligation. a. foreclosure b. personal money judgment c. lien d. bad debt write-off

c. lien Placing a lien on an owner's property protects the community association's interests. It encourages payment of the debt. Among other consequences of a lien, the owner cannot sell or transfer the unit without settling the debt. The recording of a lien against an owner's unit must be authorized by a community association's applicable statutes or governing documents.

Complete the following sentence: A ________________ is a statement of goals and objectives approved by the board that includes the yearly cycle of tasks that management should perform on the community association's behalf. a. management audit b. management contract c. management plan d. employment agreement

c. management plan Typically, a management plan includes tasks that address the community association's governance, business, and community aspects. Managers should have a management plan so both they and their boards are clear on what is expected. In most instances, it will be up to the manager to propose a plan to the board for approval. Managers should set goals for the year in relation to the community association's budget.

Complete the following sentence: A ______________ is a guarantee by a surety (a third party) to protect the community association if the contractor fails to perform or finish the work. a. payment bond b. default c. performance bond d. waiver of lien

c. performance bond A contract should provide for the community association's financial protection if the contractor should default. This is important at all times, but especially during a weak economy, or for larger projects. A performance bond is a guarantee by a surety to protect the community association if the contractor fails to perform or finish the work. Because there is a cost to the community association involved, a performance bond typically is used with certain large projects.

Which of the following contract provisions means that if the contractor's employees, agents, or subcontractors damage any common or individual property in the community while performing contracted work, the contractor agrees to fully restore the property to its original condition? a. indemnification b. standard of performance c. restoration d. compensation

c. restoration Restoration is an essential contract clause stating that if the contractor's employees, agents, or subcontractors damage any common or individual property in the community while performing contracted work, the contractor agrees to fully restore the property to its original condition. This clause may also provide for the community association to retain part of the contract price until restoration has been completed. Or it may provide for deducting from the contract price any costs that the community association is forced to spend to do the restoration itself—if the contractor does not do it within a specified period after completion of the work.

Complete the following sentence: A __________ state statute is one that applies only to one or more types of community associations. a. general b. complex c. specific d. uniform

c. specific A specific state statute is one that applies only to one or more types of community associations. For example, most states have a condominium act which provides for the establishment and operation of condominiums as legal entities. These acts vary in terms of their complexity—the simplest ones just allow for the creation of condominiums.

Reasons for establishing community rules and architectural guidelines include each of the following EXCEPT: a. There is the need to create a sense of fairness and equity among residents. b. In contemporary society, people are more likely to question and challenge authority. c. In cases where rules have been poorly developed or enforced, the courts are ruling against community associations. d. Fines imposed on residents who break community rules are frequently the primary source of association income.

d. Fines imposed on residents who break community rules are frequently the primary source of association income. Careful rule making and enforcement are essential for community associations. Rules should never be passed simply to collect income for the association—they must be necessary and intended to contribute to the betterment of the community.

Which of the following is not an extra-judicial procedure for encouraging an owner to pay off a delinquent account? a. Removing the owner's assigned parking space b. Collecting the rent from a delinquent owner's tenant c. Imposing a late charge on delinquent accounts d. Foreclosing on an owner

d. Foreclosing on an owner Initiating the foreclosure process is not an example of an extra-judicial remedy for encouraging an owner to pay off a delinquent account. Foreclosure is a legal proceeding filed in court whereby a party with a claim against an owner can claim ownership of the unit involved in order to recover the money it is owed. Extra-judicial remedy consist of remedies outside the courts that a community association can use to encourage a delinquent owner to pay what is owed. If a board wants to use extra-judicial procedures, it must be provided for in a state statute, the governing documents, or a formal resolution of the board.

Which of the following is not one of the basic steps in a due process procedure? a. Issue a "cease and desist" letter b. Issue a hearing notice if the violation does not end within the stated time c. Hold the scheduled hearing if the violation does not end within the stated time d. Issue a decision before a hearing is held

d. Issue a decision before a hearing is held The hearing panel should issue a decision only after a hearing is held. The hearing panel determines the facts, whether or not a rule has been violated, the penalty to be imposed, if any, and the enforcement date of the penalty, if any. The hearing panel then issues this information in the form of a decision.

Complete the following sentence: Utilizing a(n) ___________________ means managers and boards can obtain proposals from competent reserve providers and make informed business decisions to responsibly fund their association's reserves. a. Community Insurance and Risk Management Specialist b. Association Management Specialist c. Professional Community Association Manager d. Reserve Specialist

d. Reserve Specialist CAI established the Reserve Specialist (RS) designation program to help community managers and board members identify qualified reserve study providers and to assist communities in developing their reserve study.

Each of the following are sections of a resolution EXCEPT: a. Authority b. Purpose c. Scope and Intent d. Self help

d. Self help The fourth component of a resolution is the specifications section (instead of self help). This section states clearly and completely what those bound by the rule will be expected to do.

Which of the following is an internal resource a community can use to encourage an owner or tenant to conform to community association rules? a. Relying on the local health department to determine the appropriate number of occupants in a unit b. Asking for the local zoning department's help in removing vehicles, boats, and trailers from lots and common areas c. Having the police enforce traffic regulations d. Suspending an owner's voting rights

d. Suspending an owner's voting rights Suspending an owner's voting rights is an example of an internal resource a community association can use to encourage residents to obey association rules. While this may be a rather mild action, it can be a very useful resource for encouraging rule violators to conform to community association rules. Each of the other examples listed are examples of external resources available to community associations.

Complete the following sentence: A notice of meeting should be sent in writing to board members at least _________ before a meeting. a. a year b. 2 days c. 3 months d. a week

d. a week Community managers should send a notice of meeting in writing to board members at least a week before a meeting. Exactly how far in advance a notice of meeting can be sent may be set by a community association's governing documents.

Complete the following sentence: The __________ bring the community association into existence, define its basic purposes and powers, and indicate whether stock will be issued. a. recorded map, plat, or plan b. declaration, CC&Rs, or master deed c. proprietary lease or occupancy agreement d. articles of incorporation

d. articles of incorporation A community association's corporate structure is established when a developer sets up the association. The developer files articles of incorporation—sometimes called a corporate charter—with the appropriate state corporation agency.

Complete the following sentence: A _______________ is a written means of voting when secrecy is desired. a. proxy b. residents forum c. action item list d. ballot

d. ballot Unit owners' meetings often require the use of ballots. A ballot is a written means of voting when secrecy is desired.

Adoption of the annual budget is an example of which of the following type of resolution? a. policy resolution b. administrative resolution c. special resolution d. general resolution

d. general resolution General resolutions involve routine events such as adoption of the annual budget.

Which of the following is not a common insurance coverage and endorsement for property exposures to loss? a. commercial package policy (CPP) insurance b. boiler and machinery insurance c. flood insurance d. hired and non-owned automobile liability insurance

d. hired and non-owned automobile liability insurance Common insurance coverages and endorsements for property exposures to loss include commercial package policy insurance, boiler and machinery insurance, building ordinance insurance, flood insurance, and electronic data processing. Hired and non-owned automobile liability insurance, a common insurance coverage and endorsement for liability exposures to loss, covers legal claims arising out of the use of automobiles that are not owned by the community association, but that are used while acting on behalf of the association.

Complete the following sentence: The typical management control used to identify physical assets and their maintenance needs is a(n) ____________. a. inspection report b. inspection checklist c. maintenance record d. inventory

d. inventory The typical management control used to identify physical assets and their maintenance needs is an inventory. This is a record of all real and personal physical property owned and maintained by the community association. Inventories usually record date of purchase, warranty, quantity, description, original installer/builder or service contractor, extended warranty and provider, cost, special maintenance needs, and estimated replacement data.

Which of the following community association committees typically are assigned responsibilities related to elections, nominations, and architectural standards? a. standing committees b. professional committees c. ad hoc committees d. mandatory committees

d. mandatory committees A mandatory committee is one that is required by the governing documents. Mandatory committees typically are assigned responsibilities related to elections, nominations, and architectural standards.

Community association employees are obligated to do each of the following EXCEPT: a. possess the skills needed to perform assigned tasks b. use reasonable care in performing assigned tasks in order to protect the community's assets and interests complete assignments in conformity to performance standards within a reasonable time frame d. participate in the association's health insurance program

d. participate in the association's health insurance program An effective human resources management process helps both management and employees to fulfill their basic obligations to one another. Management is obligated to provide fair pay for services received, a safe work environment, and proper supervision. In turn, employees are obligated to possess the skills needed to perform assigned tasks, use reasonable care in performing assigned tasks in order to protect the community's assets and interests, and complete assignments in conformity to performance standards within a reasonable time frame.

Cleaning problem sewer lines every month to avoid backups is an example of which of the following types of maintenance? a. emergency services maintenance b. requested or corrective maintenance c. routine maintenance d. preventive maintenance

d. preventive maintenance Preventive maintenance is periodic maintenance to avoid disruptive breakdowns and to prolong the useful life of the physical asset in question. Literature from the manufacturer is one of the best sources of information on preventive maintenance for equipment. Examples of preventive maintenance include rebuilding pool pumps with a life expectancy of eight years every five years and cleaning problem sewer lines every month to avoid backups.

Which of the following is not an example of a maintenance management control? a. work orders b. charts of information c. response forms d. public offering statements

d. public offering statements A management control is any means used to track, record, remind, or command attention. Usually these means are forms or documents. Examples of maintenance management controls include checklists, charts of information, calendars or schedules, records of actions taken, inventories, work orders, request forms, and response forms. Effective maintenance cannot occur without management controls. The public offering statement is simply a disclosure statement that provides information on the community association to prospective buyers. It is also mandated by state statute.

When deciding whether to have staff members or a contractor perform a task, a manager should consider each of the following EXCEPT: a. supervision b. expertise c. number of people d. retirement plan contributions

d. retirement plan contributions When deciding whether to have staff members or a contractor perform a task, a manager should consider the number of people, expertise, supervision, and availability. If a manager tries to stretch his or her people too thin, there is the danger of demoralizing the staff and delaying completion of all tasks. Always consider the possible "costs" of using inadequately trained people to do a job. Be realistic about the amount of supervision that will be necessary and whether you or anyone else on site can provide it.