Community Associations Get Creative

By James Donnelly, Castle Group It wasn’t long ago when conversations in South Florida communities were centered on the quality of schools, parks, restaurants and politics. Those seemingly benign discussions have been replaced by conversations about assessments, foreclosures, trustees and receiverships. South Florida has one of the highest concentrations of community associations in the country; with Florida foreclosures ranking third in the nation during February and March, the news is bad and there seems to be no end in sight for associations.Community associations are essentially non-profit corporations that manage condominiums and single-family home communities. In better days, associations meant nicely landscaped grounds, security and the ability to enjoy costly amenities not provided by municipalities. Property values were supposed to rise while we shared expenses with our neighbors. The idea has been to make the community a better place while distributing costs through maintenance fees and assessments. It all sounds good, that is, if all homeowners are paying their fees. The problemIncreasingly, neighborhoods are seeing a rise in vacant homes left by those unable or unwilling to keep up with their mortgage payments. Maintenance fees fall much lower on the list of necessities when times are tough; therefore, many homeowners have stopped paying their fees long before a home was left behind. This creates a double-edged sword as legal expenses mount and resources are shrinking. The remaining residents are left with an increased share of expenses, and association board members are shouldering added responsibility. The result, very simply, is a significant revenue shortfall that impacts the communities’ ability to pay for basic services. There are reports of entire condominium buildings having utilities suspended because of unpaid bills. Repairs are being deferred to cover operational expenses while some cut back on common area maintenance, which leads to lower property values. Even the more fortunate homeowners without financial woes are being affected—excess delinquencies cause buildings to be labeled as distressed, which prevents financing for potential buyers. The solutionAt a time when board members need laser-sharp focus to keep their personal finances stable, they are being called upon to be creative in cutting costs, reassessing non-essential services and negotiating better contracts for their association. Management companies offer services far beyond beautifying neighborhoods; they are uniquely positioned to apply customized solutions across a wide spectrum of association issues. These companies employ experts in their fields to perform cash flow analysis, budget for bad debt, help reduce expenses, negotiate contracts and communicate with homeowners. In delinquency situations, they work with attorneys to determine effective collection policy, foreclosure timing, assist in extracting maintenance fees from rental income and amend governing documents to strengthen association collection abilities. It seems that, like most complex problems, this will take some time to sort itself out. Florida has a strong body of law governing associations, but current laws put associations at odds with lenders.  The community association industry has been lobbying the state legislature to pass laws to change this. Seven bills were presented to Florida lawmakers recently, while only one was passed giving associations a few more tools to gain financial stability. In the meantime, associations are doing what every other corporation in America is doing: trying their best to hold ground while we muddle through these crazy times and still maintain the value of our neighborhoods.James Donnelly is the founder of the Castle Group,a Plantation, Fla.-based property services firm. He is a Chartered Accountant, a licensed Community Association Manager and a licensed General Contractor.