Wednesday, December 3, 2008

Your Homeowners Association is Broke

Who do you Pay When the Cash Runs Out?

         We’re living in troubled times. The American economy hasn’t seen anything like this since 1929 and we won’t likely be out of it for several years. Homeowners associations, like the rest of the country, have entered a period of uncertainty, but more to the point, they have entered a period when the cash pool is drying up. Foreclosures, layoffs, bankrupt developers, and owners conserving cash by not paying assessments—it doesn’t matter which, the end result is fewer assessments being paid and way less cash in the association’s coffers.

            Collection actions don’t do much good when the owner is out of work and can barely feed his or her family. Homeowner assessments are way down the list of priorities and what are the association’s options? Record a lien and foreclose? And then what? The lender has a senior lien and it is very doubtful that there is any equity in the property anyway. Small claims court? Sure, and you’ll get a judgment for the unpaid assessments quickly, but after that you have to execute. On what? The fact is, many owners see no value in continuing to pay a mortgage, much less homeowners association assessments, on a condominium unit that has absolutely no equity whatsoever. And you can’t garnish wages that don’t exist.

            So now what? It’s time to start prioritizing expenses. Who and what does the association pay? What does it pass over? Yes, that may very well be the subject of an upcoming board meeting in many associations, so we might as well deal with reality now. What is the most important obligation of the homeowner’s association? The health and safety of the owners, for sure. What threatens health and safety if it’s not paid? Garbage collection? Yes. The water bill? Of course. The bill for common area electricity? Yes, especially when there are elevators, pathway and corridor lighting. After that, we would put security services and payment of the premium on the liability and fire insurance premium. Management and accounting services come next so that there is someone to pay the bills that have to be paid. Contributions to reserves should continue with any cash left.

            The items at the bottom of our list would be the gas bill for the spa or pool heater; some or all landscaping services; such things as window washing and last of all the cable bill for the clubhouse television! Yes, most of this is obvious, but no board of directors has had to face a situation like this and we want to re-assure them that massive cutbacks in services to accommodate a shrinking budget is not only legal, it would be a breach of their fiduciary duty to sacrifice the health and safety of the owners just to keep the lawns mowed!

            So consider what you will do as a board member when the cash runs out. Think of the personal safety of the owners first and you will usually make the right choices.          


  1. As a board member I had to make the decisions when we started running out of money at our association. There were just too many foreclosures in our building, vacant units, and no revenue coming in. Thankfully we have some good residents who have been helping out, one is a contractor who does free work for us. Without that, I don't know what we would have done! Good advice, thanks for the great read!

  2. Any advice on thisi ssue would be very much appreciated. I have a condo where the association is falling apart. We had a former board of directors that have all be asked to step down and did due to "mismanagement" of money. Therefore, many repairs are needed (roofs, sprinkler system, pool etc) and there is no money. Rumor has it that the new board of directors are planning on raising our already high monthly fee as well as a special assesment fee. Many people are out of work and can barely make their mortgage payment and condo fee now let alone if they raise it and then be hit with an assesment fee. Do you know of any other way an association can work out problems such as this? We are even told that money may be "missing" but may take years to find out. Thanks.