HL: What’s the top priority for HOAs?
Thomas Skiba: Operating budget shortfalls. For the most part, we’ve found associations cutting back where they can. In areas where foreclosures and delinquencies are common, associations have trimmed budgets, raised dues, or charged special assessments.
Sometimes, you don’t have a choice about spending money. You can only cut so much—you have to fix a leaking roof as soon as possible. You can put a hiatus on capital improvements and capital repairs. If the pool needs painting, it can slide until next summer.
HL: After tightening the budget, what’s the next priority for boards?
TS: In stressful economic times, communication between the board and residents grows more important. You have to address collections, even in a small association. If the level of delinquent homeowners grows too high, homeowners may not be able to refinance and new buyers may have trouble getting a mortgage.
HL: Why is that?
TS: Mortgage lenders set rules about what proportion of homeowners in an association can be delinquent. If your community goes above a lender’s limit, they won’t finance purchases or refinances of homes in your association.
HL: There’s a limit like that on renters and vacant units, too, isn’t there?
TS: Homeowners often rent their units out when they can’t sell them, but having too many renters can also limit the flow of mortgage money to your community. Lenders set limits for that, too.
Homeowners who walk away from their units and don’t pay association fees may cause you to raise the dues for everyone else to cover expenses. Some associations are foreclosing on owners to force banks to assume ownership of vacant units.
HL: What’s the next most important issue for community association boards to address?
TS: Reserve funding, especially for condominiums. How much is your association saving, and how much do you already have in the bank to fund future maintenance and replacement of your clubhouse, pool, storm water containment system, elevators, roof, or parking lots?
If you have large reserves and lots of physical assets to manage, invest in a professional reserve study. Once you know what you need to set aside, you can decide whether you’re going to fund at 100%, or fund at 60% to 70% and make up the balance out of operating expenses.
HL: Once an HOA has its fiscal priorities straightened out, what should it take on next?
TS: Community management. There are things your HOA needs to do to manage itself well in the current housing market. You may need to put limits on rentals, create new policies that prohibit owners from using community amenities when they’re late on their dues, or create a volunteer work group to weed the flower beds of vacant units.
Legal issues and liabilities should also go on your list. The downturn in the economy hasn’t led to a downturn in liability related to the physical structure or the application of rules.
Say you decide you can afford to open the pool, but not provide lifeguards. Could that change your liability if someone drowns? If you run out of snow removal funds, you’re still liable if someone slips on an icy sidewalk.
Make sure you understand your obligation to mitigate risk and that you’re adequately insured.
HL: Any final words of advice?
TS: Follow your own rules in a consistent, fair, and equitable way. Don’t believe it when the media portrays all associations as badly run, inefficient organizations that take advantage of homeowners. The reality is the vast majority of people who live in associations are happy with their home, and believe their association is doing a good job.