By Tyler Berding, Esq.
We're 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 assessments, on a condominium unit that has absolutely no equity whatsoever. And you can't garnish wages that don't exist.
So now what? Now 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.
Due to a number of incidents, as well as the lack of adequate inspection records involving permanently installed window washing platforms and exterior building maintenance systems, CAL-OSHA has distributed a letter detailing the annual maintenance requirements for permanently installed scaffolding systems.
The California Code of Regulations noted in the letter are section numbers 3296, 3297, and 3328(b) under Title 8. Bottom line to building owners and managers? Site inspections are no longer adequate. Annual maintenance will include removing hoists from the building to be shop tested — to the manufacture's specifications — and to have routine maintenance performed. A detailed account of this maintenance will need to be documented in the building's records.
As such, there is a need for client to be aware of the possible increased maintenance costs from the CAL-OSHA requirements. Scaffold Inspections & Testing (S.I.T.) companies may charge more for inspections, and some manufacturers have started restricting sale of parts to other S.I.T. licensed contractors, which might require a hoist manufacturer to travel from outside the Bay Area to service the particular type of equipment. If you have a claim for a new exterior building maintenance system you might make sure you cover these items and include a line item for new additional maintenance requirements (which always seems to be an underfunded item anyhow).
The Future of Common Interest Developments:
Can they Survive the Current Economic Downturn?
On April 30, 2009, partner Tyler Berding will offer new insights to a topic he has been writing about for the last 10 years: the challenges faced by undercapitalized associations confronting large repair costs.
The topic remains as fresh and timely as ever and we hope our clients and friends can attend.
Is Reserve Funding Mandatory?
Can an Association Legally Defer Funding Reserves Necessary for Repairs and Renovations?
There is a continuing debate in community associations over how much cash an association must set aside to adequately fund its operations and reserve accounts, and at what level the assessments must be set to obtain that cash from the members.
Boards of directors frequently face the dilemma of whether to raise monthly assessments in the face of member resistance, or to defer funding certain budget line items-typically reserve funds-to a later time »
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