The Sky is Falling…The Sky is Falling!

Recent turbulent economic news and tumbling Wall Street markets continue to bring much doom and gloom to individual homeowners and homeowner association board members, alike.  Unprecedented foreclosure rates, downward spiraling home sales and ever tightening homeowner and association loan underwriting requirements compund the crisis.  Earlier this year, I wrote a blog entry (Association Dislcosure and Board Action in a Down Market; February 7, 2008) that contained several steps a board should take in a down market.  Now that the American economy has reached an undeniable recessionary period, I have added the following recommendations for boards to take to preserve property values within their communities.

  • In these trying economic times, boards should strictly enforce their CC&Rs and collections policies.  Although it is human nature to want to assist neighbors and friends in times of trouble, now is not the time to allow homeowners to accrue large past due accounts.  I am not necessarily recommending that boards proceed with foreclosure actions on each homeowner that becomes a month or two past due, but boards should take aggressive and proactive steps to minimize bad debt.  Such action should include adopting strict collection and foreclosure criteria and protocols, and consistently adhering to these protocols.
  • If an association has a rental cap restriction, it is assumed there is a hardship exception provision.  In today’s period of economic adversity, boards should be prepared to grant multiple hardship exceptions due to job relocation or termination.  These exceptions should be capped at six or 12 months, which should provide a sufficient buffer to the affected homeowners.
  • I have heard of several instances recently where a community (condominium or single-family home) has not been completed or sold out, is under Declarant control, and the Declarant files bankruptcy, leaving the association without sufficient funds to meet its normal operating budget.  If you are a member of an association that is not completed or turned over and you believe your Declarant is experiencing serious financial distress, do not wait for it to file bankruptcy.  Call for a Special Meeting for the purpose of discussing the association’s finances.  Insist on straight answers to the hard questions of the solvency of the Declarant and financial resources of the association.  Be prepared to seek legal intervention, if needed, to preserve the assets of the association before the Declarant drains all available funds.  Work with your association management company in this endeavor.
  • For units or homes that have been foreclosed upon by a bank and have not sold, ensure that the bank maintains a basic level of care of the residence.  There are numerous reports of adjoining units and common elements being damaged by burst pipes or other faulty appliances due to heat being shut off in the home or other basic lack of maintenance.  Also, foreclosed units or homes that sit vacant for multiple months become targets of vandalism and burglary.  An association’s manager or agent should periodically check on the security of these homes.
  • Lastly, be prepared for revenue shortfalls due to homeowners who cannot afford to pay their monthly assessments.  Associations may have to dip into reserve accounts or obtain a loan to cover operational budgets.  If dipping into reserves or obtaining a loan, a board must strictly comply with state law and its CC&Rs, and must have a game plan for paying back these loans.

No, the sky is not falling, but we are experiencing substantial economic turmoil that will be with us for the foreseeable future.  A homeowner association board of directors should take aggressive, proactive steps to protect its members from the fallout from this recessionary economy.

If your association would like more information on any of the items above, feel free to contact Barker Martin, P.S. by selecting the “Contact” tab at the top of this blog page.

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