Maintenance Manuals for New Associations: How Much Maintenance is enough?

by Tyler P. Berding and Steven S. Weil

(Editors note: This article was originally published earlier this year and prompted the question in the post below)

Many of the statutes in the Davis-Stirling Common Interest Development Act (“Act”) address common area maintenance and the calculation and levying of assessments needed to maintain and reserve for that maintenance. Directors and managers face the challenge of implementing these statutory directives, a task especially difficult during an economic downturn. Decisions have to be made: what must be repaired, what can be deferred; should we replace a component with a “short term” fix or with one that is more costly but will last longer? When the CC&Rs say common areas must be maintained in “First Class condition” is that different than requiring simply that common areas “be maintained”? Answering these and similar questions can affect habitability, enjoyment of the project and property values.

For new developments, the issues are even more complex. Title 7 of Division 2 of the California Civil Code (“Title 7” which, before its enactment, was called “SB 800”) creates new standards and special statutory maintenance requirements for residential common interest developments constructed after 2003.¹ These requirements, which can require compliance with a project “Maintenance Manual,” pose special risks for managers and directors because the failure to comply could reduce the recovery available to associations in construction defect claims or create liability to members or others if the new maintenance standards are breached.

The association's governing documents can add yet another dimension. Typical CC&Rs for new projects often contain specific requirements that the board must follow, including complying with the provisions of the maintenance manual and conducting all necessary inspections specified in such manuals.

Most maintenance manuals are detailed, but the “maintenance” that is required usually consists not of repairs, per se, but rather periodic inspections of various components. The ones that we have reviewed have few actual specifications for work to be performed for which contractor's bids could be obtained. Nevertheless, must the manuals be followed completely and if they are not, what is the consequence? This article is intended to help boards and managers navigate the liability risks created by the new maintenance standards contained in the manuals.

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Are Developers Required to Provide "Maintenance Manuals" to New Associations?

A Question from a Reader regarding California's Title 7:

Mr. Berding

Re your article in Community Associations Network ("Maintenance Manuals for New Associations--How Much Maintenance is Enough?"), I found it quite informative. A question:

"Title 7 of Division 2 of the California Civil Code ("Title 7" which, before its enactment, was called "SB 800") creates new standards and special statutory maintenance requirements for residential common interest developments constructed after 2003. These requirements, ... can require compliance with a project "Maintenance Manual"..." 


Does such a manual exist, and if so, how would I go about getting a copy? 


Thank you.

Robert J. Burns, P.E.,R.S.
Burns Associates-Engineers

 Bob, I'm glad you found the article useful.

The two provisions of Title 7 of California's Civil Code which relate to maintenance schedules are the following:

CC 907: A homeowner is obligated to follow all reasonable maintenance obligations and schedules communicated in writing to the homeowner by the builder and product manufacturers, as well as commonly accepted maintenance practices. A failure by a homeowner to follow these obligations, schedules, and practices may subject the homeowner to the affirmative defenses contained in Section 944.

CC 945.5 c): To the extent it is caused by the homeowner or his or her agent, employee, general contractor, subcontractor, independent contractor, or consultant by virtue of their failure to follow the builder's or manufacturer's recommendations, or commonly accepted homeowner maintenance obligations. In order to rely upon this defense as it relates to a builder's recommended maintenance schedule, the builder shall show that the homeowner had written notice of these schedules and recommendations and that the recommendations and schedules were reasonable at the time they were issued.

The statutes refer to "recommendations" "maintenance schedules" and "schedules" in no particular order. The phrase "maintenance manual" is not used. However, these statutory provisions have obviously been considered by builders when they provide maintenance "manuals" or "schedules" for specific projects. There is no standardized maintenance manual of which we are aware. The manuals we discussed in our article were specific to projects that we have been retained to review.

These "maintenance manuals" and other similar "maintenance schedules" are intended by builders to put an association on notice that they must maintain the project properly to avoid problems. This is, of course, good advice. But it also provides the developer a defense that can be used in a construction defect claim. A good expert, however, can separate problems in the design or original construction from those caused by lack of proper maintenance and whether or not the maintenance required by the "manual" was reasonable.

The New Reality: Is Your Condo Project a Candidate for Sale as a Single Parcel?

     The future of many common interest developments resembles the present-day reality of condominium conversions that are often born with serious maintenance issues and a cash deficit. If the association cannot pay for essential maintenance, the value of the units will drop, similar to the recession-caused loss of value today, but they will fail to sell notwithstanding lower asking prices, and the owners, many now under water, will stop paying their assessments. When the association gets to the point where it cannot pay for essential services or do critical maintenance, then the local municipality will have to decide if the units remain habitable. If the answer is “no,” condemnation may be next step...

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Beyond The Fourth Stage: A Florida Failure

Banks win delay in demolition of abandoned Fort Lauderdale condo complex

By Scott Wyman September 16, 2010 06:37 PM

Big banking won out Thursday over a Fort Lauderdale neighborhood’s hopes that the city would order the demolition of an abandoned condo complex that’s become a haven for crime.

Debris is strewn across the 58-unit complex along the north fork of the New River. The doors and windows have been stripped away. Vandals have destroyed walls and ripped out copper wiring and plumbing. The city has been paying for metal shutters to keep away squatters.

City inspectors declared the New River Condominium to be a health and fire hazard, but banks won two delays over the summer to prevent its demolition. Residents of the River Gardens/Sweeting Estates neighborhood had hoped Thursday would bring an end to the delay, but instead a city board gave banks another 32 days to try to come up with a plan to salvage the property.

The extension came even though the banks offered the board no evidence of any plans being drawn up. They also had failed to follow through on promises to pay for the shutters – which are costing Fort Lauderdale taxpayers $6,000 a month.

“This is an unsafe structure and there has been delay after delay and continuance after continuance,” neighborhood activist Pamela Adams said.

The neighborhood, along with city building inspectors, began pressing in June to take the drastic step of razing the five buildings just off Sistrunk Boulevard. The complex had been converted to condos in 2005, but then came the recession and now almost every unit is either owned by a bank or in the process of foreclosure.

There’s been no running water for a year. The condo association is defunct. Police officers refer to the area as The Hole because it’s where suspects on the run often disappear. Nearby homeowners say drug-dealing and prostitution is rampant.

Bank lawyers told the city’s Unsafe Structures Board that they are committed to trying to find a way to redevelop the property and understand the city’s patience is at an end.

“I can’t believe it is so unsafe that it must be demolished immediately,” said Justin Hekkanen, a lawyer for Bank of America, which has an interest in about two-thirds of the units.

Members of the city board said the delay was almost certainly the last. Although some of the board said the banks had had enough time to act, others feared that demolition would guarantee the land sit vacant for years as a legal fight ensues over what would happen next.

Click on the Title Link above to read what we learn from this...

Upstairs, Downstairs

Strategies for Dealing with Condo Noise Disputes

By Paul W. Windust, Esq.

Noise disputes among owners can be one of the most troublesome problems community associations and their managers face. Not only can they be expensive to resolve, they can cause community unrest and bad feelings. However, if a community association acts quickly and assertively, it may be able to diffuse the dispute, or at least keep the association out of court.

Noise issues often involve a downstairs owner’s complaints of noise coming from the unit above. This frequently involves floor coverings, or the lack of them. The typical dispute has a common set of facts. An upstairs unit owner decides to upgrade by removing existing carpeting and installing hardwood or some other hard-surface flooring in its place. This upgrade occurs without application or notice to the architectural control committee. The first time the board becomes aware of the problem is when a complaint is made by the owner of the unit below. The usual complaints include increased noise from the upper unit--walking, voices, music, or television sounds.

Not all noise complaints relate to floor coverings. Some buildings lack sufficient soundproofing between adjacent units allowing greater than normal sound transmission. Floor structures can lack sufficient rigidity, causing them to “creak” or “groan” when walked on. But the vast majority of such claims come from a downstairs unit owner reporting elevated noise levels after an upgrade to hard-surface floors. Floor coverings are part of a unit owner’s separate interest. They are not common area and the association will not usually have direct responsibility for their performance as it would with a defective structural element, for example. However, the governing documents may include floor covering provisions as part of the architectural guidelines that the association is charged to enforce. Also, the association can be responsible under the governing documents for abating a “nuisance” regardless of whether the nuisance involves a separate or common interest.

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Editor's note: Paul Windust is a Partner at Berding|Weil. He advises community associations on legal issues and litigation.

Hello Mr Berding,

I'm writing this email to you as a call for help with advice. I read your article on dealing with condo noise complaints. I find myself in a problem with some new neighbors who live below me. They are using their condo like a music studio and I'm noticing the music is on all day long even while I'm probably at work in the daytime. I may have made the mistake by showing my disapproval one night with a baseball bat to my floor and i made it very clear i was trying to sleep , at that time it was around 1am. They lowered it but i could still hear a faint bass, of course when i woke up i could still hear it if i pay close attention to it. So here i am a week later and i find myself stuck in a condo that used to be nice and quiet after the last 6 years Ive been here. My building isn't the best of places, it may also have a bad reputation. I live in Bridgeport,CT. What do you suggest for me. My parents are owners of my condo and i pay the mortgage and common charges, when my credit gets better they can turn over the condo to me. I hear so many negative things about the condo board(association) and i know sometimes the police wants nothing to do with it. This problem started just 7 days ago and i feel like I'm going to erupt. Ive been going to the gym to keep my blood pressure from getting high. By your article, you seem to understand my situation, "noise is in the ear of the beholder". I know its not just me but i can see how no one will understand. Thank you.

Paul A
Bridgeport,CT.

Paul, 

As the article states, noise issues are very pervasive in condo living, and are sometimes the most difficult problem to solve. First, I'm not a Connecticut attorney, so if this continues, I advise you to seek the counsel of an attorney in Bridgeport who specializes in condominium law. Your local chapter of the Community Associations Institute (CAI) can help with a referral. 

Condominiums are not usually built with noise problems in mind. Their structure is not much different than an apartment house, in fact, your building may have started life that way. So when you live under or over someone else in a condominium, the chances of your daily activities being heard by your neighbors is pretty likely when it is above normal volume. 

Having said that, no one is permitted to become a "nuisance" to anyone else. What qualifies as a nuisance is defined in each state's law, but most states have provisions against nuisances and permit an owner to apply to the police or the local courts to abate (end) the nuisance. In most states, high levels of noise for extended periods usually qualifies as a nuisance. Again, consult with a local attorney on the best avenue for assistance.

Your community association governing documents (CC&Rs, Bylaws, etc) probably have some provisions relating to nuisances, but whether they require the association to act upon it depends on the documents. The governing documents may also provide a separate basis for abating the nuisance which you can enforce yourself. If you consult a Bridgeport attorney specializing in community association law, he or she can review those documents and advise you on your rights and enforcement options.

Tyler

Traps for the Unwary

What you don’t know about your CCRs, your Budget, and your Buildings

    The responsibility for building maintenance and repairs in a community association most often falls to the Board of Directors of the association as assisted by the community association manager. It’s an awesome responsibility in that
the economic well-being of the owners
 is often co-extensive with the health
of the building. But maintaining any building properly requires a very sophisticated understanding of building components. Maintaining a community association building also requires a thorough understanding
of the association’s governing and budget documents.

But buildings, budgets and governing documents are not always what
they seem—they can contain traps for the unwary. Community associations are prisoners of their budgets. Nothing can be repaired without adequate funding. Proper funding, in turn, is dependent upon a proper analysis of the maintenance and repair requirements of a particular building. If the conditions of the building are not properly reflected in the budget, the association will not be able to adequately maintain the project.

The “traps” in buildings can be placed there accidently or intentionally.
The “traps” in governing documents are almost always intentional. In
either case it is essential for boards and managers to be aware of them
and to know how to avoid the pitfalls they present...

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Left Holding the (Sand) Bag

Who will Pay for the Damage Caused by Rising Sea Levels?

It Could be Your Homeowners Association!

The San Jose Mercury News (June 13, 2010): “From Antioch to North Richmond to Redwood City, a slowly rising Bay could endanger the properties of as many as 270,000 Bay Area residents and cause some $56.5 billion in damage by the end of the century unless measures are taken to protect them, scientists warn. But surprisingly, few cities are taking action”
____________________

“November 5, 2008…In the event of projected flooding sandbags are available at the Benicia Corporation Yard. Some assistance may be available but residents should bring shovels and plan to fill and load the bags themselves.” (City of Benicia website)

The chance of flooding in cities in and around San Francisco Bay is not just speculation. It has happened many times in the past and it will happen again and again if sea levels continue to rise or a “perfect” storm joins with normal high tides. It’s easy to see why. Take a look at one of the several interactive devices used to illustrate the first areas around the bay that will flood when the sea rises. It should come as no surprise that they are the same locations where the bay was originally filled to create housing and commercial developments. These low-lying areas—Redwood Shores, Alameda, Vallejo, Alviso and many others—were bay bottom and tidelands just a few decades ago. Now there are thousands of homes. The flood danger is obvious.

And, thousands of new homes are projected for a dozen or more major developments being proposed for additional tidelands and other low-lying locations around the bay:

“At least 12 major developments with as many as 56,000 new homes are planned at the edge of the Bay over the next 5 to 20 years…many are in low-lying areas experts say are potentially vulnerable to flooding associated with long-term sea level rise. Some cities and counties have strategies to deal with that problem, others do not.” (San Jose Mercury News)

But what is different today from developments built, say, three or more decades ago is that many of these new developments will be built as community associations and many of the expensive engineered facilities necessary to protect these developments from storms, rising tides and sea levels will not be owned by cities or the state, but instead will be the responsibility of homeowners...

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The Great Foreclosure Debate, Part IV

Lenders' Reluctance to Foreclose is Crippling Community Associations

The Contra Costa Times, May 25, 2010: “Tens of thousands of homes in the East Bay are in foreclosure or are owned by banks. Some sit empty; a few are boarded up. Beyond the squatters and over-grown yards blighting neighborhoods, the glut of bank-owned homes means years of decline in the property taxes on which cities, schools and the state of California depend.”

     Sound familiar? Of course it does, because the same economic forces are wreaking havoc with the budgets of community associations. The article continues:

     “Foreclosed houses do not obtain lower property tax assessments until banks sell them. So tax revenue will keep falling until banks sell all the houses they end up with, creating a long-term lower tax base.” Basically this means that no one will know the full extent of this economic crisis until all of those foreclosed homes are re-assessed at dramatically lower values resulting in dramatically lower property taxes being paid over a long term.

     But there is another result as well. Property taxes upon which local governments are dependent may not be re-assessed until the banks sell the properties, but homes in community associations that are in foreclosure for non-payment of the monthly mortgage most likely are also delinquent in their homeowner assessments. Banks don’t start paying these assessments until they actually complete foreclosure and obtain title.

     The article states: “In the East Bay, banks own more than 10,000 homes, only a fraction of which are listed for sale. Another 20,000 are in foreclosure headed toward bank ownership.” But “headed toward bank ownership” is not bank ownership, and until the foreclosure is completed, the banks pay nothing toward the costs of maintaining the home which community associations must continue to pay. A healthy fraction of those 20,000 homes are in community associations and while the bank foreclosure process slowly continues, no assessments are being paid.

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An Overview of the Unexpected

The Big Surprise--Major Reconstruction in Community Associations

Every community association will face a major reconstruction project several times in the life of the development. This may occur because of clearly anticipated problems, such as re-roofing or re-painting, but it also will occur because of completely unanticipated (and unreserved-for) problems such as dry rot repair, soil subsidence, and leaks in windows, siding, and foundations. The Davis-Stirling Act only requires that a community association reserve for those components that visual inspections into accessible areas reveal have a useful life of 30 years or less. 

But what about components in areas that are not visible or accessible? What about areas under staircases that sponsor dry rot due to long-term intrusion of water? Framing components under siding that have allowed water to enter slowly for years without any way to get it out except evaporation? Deteriorating concrete walkways or driveways due to the invasion of roots or soil subsidence due to unconsolidated fill? Or, balcony railings rotting off at their interior supports? As the last post revealed, three people in Antioch were severely injured recently when such a railing collapsed. 


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A Wakeup Call

      Failed balcony railing causes near-fatal injuries

     

     Can we ever take the condition of a building for granted? Do we? The building occupants, to get in and out of their units on second and higher stories, use components like balconies and staircases every day. Do we really know if they are safe? As property managers or board members of community associations, how can you be sure? When was the last time someone took a professional, in depth look at those parts of your buildings?

     We know from reading dozens of expert investigations that quite often some of the most insidious problems are hidden from view—for example, weaknesses in structural components that are used every day. This is especially true in older apartment complexes that have been converted to condominiums. Years of neglect by the apartment owners are passed on to the condominium buyers with no warnings or disclosures.

            

     Now we find a similar situation that almost turned to tragedy:

            KRON TV News, April 1, 2010

ANTIOCH (BCN) -- Building inspectors found evidence of dry rot at an apartment complex in Antioch where three people fell from a second-floor balcony Thursday morning after a wooden railing gave way, Antioch code enforcement manager Ryan Graham said.  As a result, he said, the residents of three units at the complex will have to be temporarily relocated. The fall occurred at about 7:30 a.m. at the Twin Creek Apartments at 1111 James Donlan Blvd.  Contra Costa County Fire Protection District Battalion Chief Alan Hartford said the victims are two women and a young girl about 8 or 9 years old.            

            "They were leaning against a railing and the railing gave way," Hartford said. The three fell about 15 feet to the ground below, an area with dirt and bushes, he said. One woman, who may have briefly lost consciousness, appeared to have suffered head, neck and back injuries and was airlifted to John Muir Medical Center in Walnut Creek, Hartford said. The second woman and the girl were taken to hospitals by ground ambulance. The victims are all expected to survive, Hartford said. He said the little girl was the least injured.

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The Great Foreclosure Debate, Part III

The article below was sent to us by Mark Benson, a community association expert in Florida. His thoughts provide additional perspective on the continuing debate over assessment foreclosures and the effect of non-foreclosure policies on the remaining owners.

Unintended Consequences for Community Associations in Florida and Nationwide

Again we hear about the largess of the government putting a moratorium on foreclosures of the first mortgage.

On the surface, this sounds benevolent.  Now let's look at the realities.

1.  If the home is in a condominium, homeowner association or co-op, they are probably also not paying maintenance fees.  This means the other owners must continue to subsidize the mandatory expenses of the association.  

2.  The moratorium of mortgage foreclosures creates an ongoing obligation to the association that continues to increase with interest, late fees and legal fees.  These are extinguished when the mortgagee finally takes title. The condominium association will get reimbursed 6 months of maintenance fees or 1% of the mortgage amount, whichever is less.  A homeowner association will get reimbursed 12 months maintenance fees or 1% of the mortgage amount, whichever is less.

3.  This will increase the delinquent amount for each month’s payment missed plus interest and penalties to the extent it will be impossible for the homeowner to recover.

Typically, this is a minimal amount compared to what is owed and is compounded by delays in foreclosures.

An association may institute foreclosure and take title to the unit but the mortgage still has priority.  Therefore, if the association takes title and rents out the unit they may get the rent but the mortgagee will eventually foreclose against the association.

In order to accomplish this the association may also incur thousands of dollars of fees and costs that may not be recoverable. 

4.  There is no incentive for an under-water owner to make any mortgage, tax or maintenance fee payments since it may be years before they are foreclosed out of the property.

5. There is no incentive for a mortgagee to foreclose and incur attorney fees and then be stuck with a property worth only 50% of the outstanding balance due.  They have a huge backlog of property now and the courts are still jammed with pending cases.

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Condos in Crisis

   

 Personal Rights or a Community's Economic Survival--Which comes First?

             What follows are comments and a post forwarded to me by Fred Fischer, followed by my response to that post.  The post criticizes private community associations as “un-democratic” and illustrates the growing disconnect between a zealous concern over governance and understanding the basic economic survival issues of community associations. While we understand the arguments, practicality gets our vote because if they don’t survive who is going to care how community associations are governed?

Tyler:

            There is no doubt that privatization (of public property) has increased in the US over the years, but is it constitutional and is it in the best interest of consumers/community? Personally I have little objection to privatization when it applies to some services like refuge collection, snow removal etc. but I do when it applies to housing and other (personal or behavioral) issues.

            Fred then quotes from an article on the growing privatization of communities, and the asserted loss of individual freedom, written by Mr. George K. Staropoli that I have excerpted here:

“This new nation of mini-governments populating the landscape are described by Robert Ely. . . as representing ideas alien to democracy: ‘It is not the American ideal.  It is benevolent, well-wishing feudalism, which desires the happiness of the people, but in such a way as to please the authorities.’…An authoritarian form of government is contrary to the expectations of Americans who have lived all their lives under a democratic government that places the rights and liberties first and foremost.  (Another author) agrees: ‘Perhaps the most distinctive characteristic of these communities is that they are controlled by private, democratic governments (community associations) that wield the kind of control over people’s personal lives and tastes that, heretofore, most Americans would never have accepted from any government.  It is, and still remains, the oppressive, authoritarian HOA government based on corporate law rather than on constitutional law that is the root of all evil.“

My Response:

Fred,

          Thanks for forwarding that interesting piece. My immediate reaction however, is "So what?" Whether they are "democratic," “authoritarian,” or something else; whether they should have been built or not; the fact is that tens of thousands of communities governed by homeowners associations were built over the past 40 years and their authority to govern was established by statute and contract with the approval of all sorts of government agencies, and notwithstanding their imperfections, they can not be easily undone regardless of how much some may dislike them...

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Private vs. Public Ownership of Communities

Tyler,

Your article, Bankruptcy Won't Work ! is excellent in it's detail and content.
Another similar issue not discussed was, ...if the association is too broke to pay its bills, why not simply declare bankruptcy or consider dissolution ? (when allowed by law, not in Chandler AZ)

Dissolution I understand is not possible in most cases especially in condominiums for the same reasons as mentioned in your article. However in some Homeowners Associations that may only have a retention basin or small common area, Dissolution may be possible.

One important fact, is that most municipal ordinance's that mandate HOAs require HOAs/POAs, if there is any common area amenities no matter how small of an area it may be. In other words, one size fits all, but should it ?

As an example our development only has one small retention basin that is covered in woods and most residents don't even know that it exists and it requires no maintenance. Another example is another local development where our City placed the maintenance of the one and only retention basin in the hands of the development residents in their deeds instead of mandating a private entity to maintain it.

Does dissolution solve the problems or act as a substitute to Bankruptcy, no, most often but in some limited cases that may be possible.
Thanks,

Fred Fischer

Fred,

Thank you for your comments. Basically, with non-productive real estate (those little scraps of land left over from a development) the developer would have to pay some entity to take them, and perhaps that's what municipalities should require as a condition to the original development, if those scraps are the only reason for creating an association of owners. In that case, and that case only, you might be able to live without a community association if all other individually owned parcels or lots could be maintained separately by their owners. But with parcels that serve more than one lot and have a necessary function--the retention basin, a clubhouse, a road, a playground--and also require annual maintenance--some community entity has to be responsible not only for the bare legal title (and payment of taxes) but also to insure that the necessary maintenance is performed so that its function is preserved. This responsibility is passed on to individual owners by virtue of covenants in their deeds, either directly or through mandatory membership in the community association. Bankruptcy of the association, or its dissolution, would not protect the individual owners from this obligation for the reasons stated in the article.

It is usually not the case, however, that the only reason for a community association is a non-functional remainder parcel--usually there is a mix of functional and non-functional pieces--and hence the necessity for a public or private entity to not only own them, but also to maintain them. You can combine these maintenance functions into an over-arching organization, like the community maintenance trusts we have discussed, but that is really to make the operation more cost-effective, it doesn't impact the necessity of the underlying legal structure at all.

Historically, most of these pieces of real estate were dedicated to cities and counties and maintained by them in perpetuity. But today, it is just as likely that the local municipality will not accept dedication and will require that the ownership, as well as the cost of maintaining the new facilities, be assigned to a small sub-set of citizens--those immediately benefited by the improvement--via a private organization. This quantum shift in public vs. private ownership of otherwise public parcels over the past 40 years has dramatically increased the number of associations created to own and maintain them.

Much of this change has occurred because of the huge expansion of housing onto formerly agricultural lands where no infrastructure existed. That and the sheer size of the developments, which include newly built commercial as well as residential areas, in many cases new towns where nothing existed before, create the opportunity and the incentive for municipalities to avoid the cost of maintaining this new infrastructure--roads, drainage facilities, parks, landscaping, etc. If the big developers wanted the zoning necessary to build new towns, they also had to find a way to create private ownership of the infrastructure, and community associations were the option they chose in increasing numbers.

If the objective is to limit the number of new community associations, one alternative is to limit suburban growth and focus instead on increasing density in existing urban areas where the infrastructure already exists and is publically owned and maintained. That doesn't change the need for a private managing entity of the buildings themselves and the discussion obviously includes issues that go way beyond the question of public vs. private ownership and the necessity of community associations. But it is useful to remind us of how we got to where we are today.

Bankruptcy Won't Work!

Why There’s No Protection for Members When 
Community Associations "Go Broke"

By
Tyler P. Berding, Esq. and Sandra M. Bonato, Esq.

            You’re at a board of directors meeting of your homeowners association.  Things have been happening around the community--not good things--and you want to find out why.  Why have they closed the pool?  Why is the landscaping looking so bad?  What’s with the rumor that the property manager might be let go.  You know that money has been tight for the association.  You’re aware that assessments haven’t gone up for years, and now word has it that a large number of owners have stopped paying altogether.  At the meeting the president of the association announces further cutbacks--the association’s insurance may have to be dropped.  There have been no deposits to the reserve account for several years and, worse, the account has been drained over time to meet monthly obligations. The board proposes a 5% special assessment and approves it, but it’s not likely to go far with all there is to do and pay.  A report from the manager confirms your worst fears: re-roofing of the project (including for your unit) will have to wait, and even temporary repairs to the leaking portions of the roof may not be done for months.  There’s no money to pay for it.

            A member raises his hand and asks the inevitable question--if the association is too broke to pay its bills, why not simply declare bankruptcy?  Hold the creditors at bay until the economy picks up?  No one on the board has a good answer.  Why?  Because it almost never happens.  Here are the practical and legal reasons why...

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The Great Foreclosure Debate: Part II--Readers Respond

Here are two of the letters we received in response to “The Great Foreclosure Debate: Should Community Associations use Alternatives to Foreclosure to Protect Their Cash Flow?” posted below. They represent two sides of this very controversial issue. The first is a spirited response from Mr. George Staropoli, a community association activist in Arizona who writes a blog and newsletter devoted to the question of the constitutionality of community associations. The second is from Ms. Nancy Sterling, a real estate professional, about a 34 unit condominium complex where nearly half of the units have been through bank foreclosure in the past two years. They help to understand why the foreclosure debate has generated so much energy and provide contrast between the theoretical and the practical...

To read the letters and our comments, please click on the title link above...