Sunday, October 5, 2008

And What Will Community Associations Get?

Ok, the Feds just approved $700 billion to "bail out" struggling financial institutions. Great news for struggling financial institutions but what about other struggling institutions, say like cities, counties, and yes, community associations? Cities and counties maintain our local infrastructure, and, increasingly, so do homeowners associations. And all three have major budget shortfall problems. Cities and counties rely on property taxes to balance their budgets. The free fall in housing prices means a free fall in property tax revenues. Community associations also rely on a form of property tax--annual assessments, and while they are not keyed directly to the value of property, they nevertheless are impacted when home values fall. 

In most cases a fall in value, coupled with the whole mortgage mess,  will translate into delinquent assessments, or assessment receivables which are wiped out in a foreclosure. No statistics are available yet, but it is pretty clear that foreclosures and the general recession in our economy is beginning to be felt by community associations as delinquencies climb. And, of course, it was already bad enough--major shortfalls in association budgets due to years of neglect by boards of directors. Now, this problem could be multiplied exponentially as owners default on their annual assessments in increasing numbers.

As far as we can tell, there is nothing in the recent legislation to assist local governments, including homeowners associations. Loosening credit could help, of course, but associations cannot simply borrow their way out of serious budget shortfalls. This economic issue is one that has of yet received little or no attention from anyone. It's time to start paying attention.

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