When money is tight, consumers often put away their credit cards and focus on the essentials. Similarly, strapped homeowners are more likely to cut discretionary spending and instead focus on the essentials. Those who live in an HOA may take even drastic measures such as skipping their monthly dues.
According to a national survey conducted by Community Associations Institute (CAI), more than half of the nation’s estimated 310,000 community associations continue to struggle with financial issues associated with the mortgage foreclosure crisis and related economic downturn.
“In this particular economic time in Florida, community associations are hampered by foreclosures and the board has to make hard choices about what they are going to pay for,” says Dennis J. Eisinger, Esq., an attorney and founding partner with the Hollywood law firm of Eisinger, Brown, Lewis, Frankel & Chaiet, P.A. “The last time this happened it took 14 years to come out of it.”
Many planned communities have decided to compensate for the cash shortage by reducing expenditures and limiting capital projects. What you don’t want to do is ignore something that you know is an issue because it may cause more problems down the road. “The board, on behalf of its residents, has a fiduciary responsibility to maintain the association,” says Robert L. Kaye, Esq. an attorney and managing partner of the firm Kaye & Bender, P.L., in Pompano Beach. “When the board has knowledge of a condition that needs attention and because of budget concerns puts it off and there is a failure, it can be considered negligence which is actionable.”
Furthermore, communities that intentionally avoid repairs may be penalized by a revocation of their insurance policy. “This fiduciary responsibility is very strong in Florida and you better know your responsibility,” said Eisinger.
Assess it Now
Although an assessment might sound like the perfect solution – with the downtown in the economy – delinquency rates have soared.
“Some associations are caught been a rock and a hard place because there was a time for loans for these things, but one criteria in granting the loans is the percentage of delinquencies,” says Kaye. “If they exceed 10 percent, they aren’t going to qualify and it seems better to assess and not have the long term loan. But if you assess you have some owners who were financially-strapped and making payments but on the fence, and now you’ve knocked them over.”
“There’s nothing more important than life and safety,” says Eisinger. “Whatever the cost, you have to find one way or another to pay for that first.”
Eisinger also says that items that might lead to potential injury should go much higher on the list. “After that, water and electric, followed by insurance,” he says. “Some associations are going naked without insurance. Then their needs to be repairs to the common areas and keep landscaping and things like improvements at the bottom of the list, but you have to make sure you have enough money for insurance premiums.” It was reported that one such association in Oakland Park did just that and canceled a $90,000 annual premium for windstorm insurance on all of its 18 buildings—a potentially dangerous cost-cutting move.
The bottom line is that with some creative planning and prioritizing—and perhaps a temporary case of tightening the belt—associations can potentially still survive even the toughest of times.