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Community Association Management M100 Courses Exam With Answers (363 Solved Questions)

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    M100 Community Association Management Exam Questions with correct Answers 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 ow ners to be governed by the community association. - Answer - 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 associat ion 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. True or False. The primary purpose of a community association is to provide for the gove rnance, business, and communal aspects of the association. - Answer - 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 t hrough the establishment of a system of property rights, binding covenants and restrictions, and rules and regulations. Each of the following are basic types of residential community associations EXCEPT: a. Planned community b. Townhouse c. Cooperative d . Condominium - Answer - 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. 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 - Answer - d. general resolution

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    General resolutions involve routine events such as adoption of the annual budget. True or false. The purpose of a community association's governing documents is to provide for the legal structure and operation of the community. - Answer - True The governing documents define the rights and o bligations 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. Acco rding to the general hierarchy of authority for governing documents, the bylaws would control in a conflict with the recorded map, plat, or plan. - Answer - False As a general rule, documents lower in the hierarchy of authority cannot conflict with or chan ge 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. Complete the following sentence: A __________ state statute is one that applies only to one or more typ es of community associations. a. general b. complex c. specific d. uniform - Answer - 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 provi des 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. True or false. A proprietary lease or occupancy agreement in a cooperati ve defines the member or stockholder's rights and obligations in relation to the living unit. - Answer - 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 es tablishes the powers and obligations of the cooperative's board of directors, including assessment rights.

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    Complete the following sentence: The __________ bring the community association into existence, define its basic purposes and powers, and indicate w hether 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 - Answer - 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. True or False. The public offering statement is a governing documen t, as it often distributed along with the governing documents. - Answer - 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 bu yers. 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 - Answer - a. survey data All t hree 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. True or false. The basic autho rity in a community association lies with the developer. - Answer - 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. 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 co mmunity as a whole. a. bond b. fiduciary duty c. ballot d. quorum - Answer - b. fiduciary duty

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    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. 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. - Answer - True Through judicial decision, a substantial b ody 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. Which of the following community association committ ees typically are assigned responsibilities related to elections, nominations, and architectural standards? a. standing committees b. professional committees c. ad hoc committees d. mandatory committees - Answer - d. mandatory committees A mandatory commit tee is one that is required by the governing documents. Mandatory committees typically are assigned responsibilities related to elections, nominations, and architectural standards. 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. - Answer - False The professional community association manager is charged with assisting the board of directors' decisio n 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. 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 - Answer - 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.

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    Tru e 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. - Answer - 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. 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 - Answer - c. management plan Typically, a management plan includes tasks that address the community asso ciation'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. 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. - Answe r - 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 relat ionship 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 stan dards for integrity and objectivity, professional courtesy, conflict of interest, use of client funds, and limitations of practice. 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.

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    d. Fines imposed on residents who break community rules are frequently the primary source of association income. - Answer - d. Fines imposed on residents who break community rules are frequently the primary source of association income. Caref ul 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. True or false. Accordi ng to the general hierarchy of authority for operating community associations, rules and regulations take precedence over the articles of incorporation. - Answer - False The hierarchy of authority means that rules and architectural guidelines may not contr adict 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. Which of the following is an example of an architectural guideline? a. pets b. noise c. fencing d. parking - Answer - 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 a reas that often prompt community association rules. 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 comm unity from charges that could result in inoperable rules d. Provides for consistency in making and wording rules - Answer - 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. Each of the following are sections of a resolution EXCEPT: a. Authority b. Purpose c. Scope and Intent d. Self help - Answer - d. Self help

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    The fourth component of a res olution 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 not one of the basic steps in a due process procedure? a. Issue a "ceas e 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 - Answer - d. Issue a decisio n 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. 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 cour t system. - Answer - 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 poss ibility of prolonged litigation. In many jurisdictions ADR is either required or encouraged before filing suit or during suit, but before trial. 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. Ha ving the police enforce traffic regulations d. Suspending an owner's voting rights - Answer - 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 resi dents 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 availab le to community associations.

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    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 archi tectural changes to exist. - Answer - 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. Which of th e 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. Mo nitor 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 - Answer - a. Decide issues of policy for the owners in the community There are t hree 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. 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 - Answer - 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. True or false. An agenda is more than an announ cement of the order of business for a meeting; it is a meeting management tool. - Answer - 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 bus iness in a timely manner. Note that meetings that run more than two hours often degenerate into an unproductive effort. In addition to a meeting agenda, board members should receive each of the following supporting materials prior to a meeting EXCEPT:

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    a. Minutes from the last meeting b. Financial reports c. Community newsletter d. Committee reports - Answer - c. Community newsletter In a properly prepared board meeting, all members should have had all the information needed for discussion before the meetin g. The community newsletter is not typically an item required to conduct a board meeting. True or false. It is perfectly acceptable to hold a board meeting in the home of the association president. - Answer - 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. 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 - Answer - a. Minority rule Parliamentary procedure recognizes a few basic principle s of conduct for every meeting, including majority rule (instead of minority rule). Majority rule means that the will of the majority should decide issues. True or false. A board of directors can legally conduct the business of the association without a q uorum. - Answer - 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. 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 - Answer - c. Amend a motion To amend a motion means to change a motion by inserting, adding, striking out, striking out and insertin g, or substituting words. Only the maker of the motion can amend it.

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    True or false. Personnel issues are an example of a topic that often require an executive session and are allowable by law. - Answer - True There are times when a board must hold a discu ssion 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 la w usually include personnel issues, contract negotiations and discussions, lawsuits and other legal matters, and governing document violations. Complete the following sentence: A _______________ is a written means of voting when secrecy is desired. a. pro xy b. residents forum c. action item list d. ballot - Answer - d. ballot Unit owners' meetings often require the use of ballots. A ballot is a written means of voting when secrecy is desired. True or false. Community managers are ultimately responsible fo r establishing, approving, and monitoring the community's budget. - Answer - 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. 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 - Answer - 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 com mittee. It is important that the treasurer consult all committee chairpersons and invite owner input to ensure support. Each of the following agencies are federally established secondary mortgage institutions EXCEPT: a. Environmental Protection Agency b. Federal National Mortgage Association c. Veterans' Administration

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    d. Federal Home Loan Mortgage Corporation - Answer - 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. True or false. The two main components of a community budget are revenue and expenses. - Answer - True The two main components of a community budget are r evenue and expenses. The revenue and expense categories used in a budget must be the same categories used in financial records, reports, and statements. Which of the following is not a typical source of revenue for a community association? a. Owner assess ments b. Major improvement expenses c. Penalty fees d. Interest - Answer - 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 improv ement 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. Each of the following are reasons for maintaining a replacement fund EXCEPT: a. Maintaining a replacement fund meets legal, fiduciary, and pr ofessional 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 - Answer - 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 resource s. 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 an examp le of a discretionary line item in a community budget?

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    a. recreational expenses b. income taxes c. utilities d. maintenance - Answer - 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 communit y is obligated to meet, e.g. income taxes, repairs, utilities, and maintenance. 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. - Answer - False With zero - base budg eting, 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. True or false. Board member liability is a potential consequence of not having a reserve study. - Answer - True Not having a reserve study can expose board members to claims of fiscal irresponsibility and loss of D&O insurance coverage. 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 - Answer - 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 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 bind ing legal obligation based on the community association's governing documents

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    d. An annual assessment may be paid on a monthly, quarterly, or annual basis - Answer - a. Assessments penalize residents for violating association rules Assessments are not a pe nalty 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. Because a community association relies on the t imely 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 - Answer - 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 co ver the deficit. 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. - Answer - True If owners are informed about their obligat ions and the consequences of not meeting them, they are more likely to avoid delinquent payments. 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 refe rral of delinquent assessments to legal counsel c. Set a firm due date for assessments d. Allow for discretion in special cases - Answer - 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. True or false. Acceleration is the collection of all assessments due on a monthly basis. - Answer - 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.

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    Which of the f ollowing 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 - Answer - 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 where by 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. True or false. When a community association determines that a debt cannot be co llected from an owner after a reasonable effort has been made, it must take a bad debt write - off. - Answer - 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. Co mplete 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 judgmen t c. lien d. bad debt write - off - Answer - 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. 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. - Answer - 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 —

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    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 f oreclose 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 associatio n's claim. 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 - Answer - 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. Which of the following accounting methods records income when it is collected and expenses when they are paid? a. cash basis b. accrual bas is c. modified cash basis d. modified accrual basis - Answer - 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. True or false. The co mmercial reporting method consists of preparing separate columns for operating, reserve, and any special funds. - Answer - False The fund reporting method consists of preparing separate columns for operating, reserve, and any special funds. This is differe nt from the commercial method which combines operating and reserve activities in the same column. Complete the following sentence: A ___________ occurs when expenses are greater than income. a. net income b. net loss

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