Monday, September 27, 2010

Past Due Assessments: What Should A Board Do?

In our previous post we talked about the importance of collecting past due assessments in order to maintain the value of your condo building. One of the things we mentioned was that legal action should be used only as a last resort. That is all well and good, but what does the board do besides communicating with the defaulting residents and initiating legal action?

According to the Law firm of Kovitz Shifrin Nesbit, as outlined in their pamphlet "THE ART AND PRACTICE OF COLLECTING DELINQUENT ASSESSMENTS" one of the first things a condo Board needs to consider is the establishment of a formal collection policy.

Why Establish a Collection Policy?

A formal collection policy is the foundation of a successful program in order to:

♦ Maintain necessary cash flows

♦ Reduce financial loss from owner defaults on assessment payments

♦ Establish and maintain reserves

♦ Present a sound financial picture to potential lenders for the association or a mortgage
company for potential purchasers

A board must establish a systematic approach to delinquencies. This can usually be done
by the board without owner approval. When a board formulates such a policy, it must be
communicated to the owners on an ongoing basis. An educated community is a well-run

Consequences of Uncollected Delinquent Payments

By not having a tough but fair policy in place:

♦ Innocent owners’ assessments have to be increased to cover the deficit, either by way
of increases in the operating budget or through special assessments.

♦ Essential maintenance may become unaffordable and put off when needed.

♦ The property begins to appear run-down — which, in turn, reduces property values.

♦ Borrowing from reserves may become necessary to cover shortfalls.

♦ Disharmony may occur between paying owners and the board for its failure to take

If the ratio of delinquencies to paid-up assessments is out of proportion, mortgage lenders may begin to reject applications and the association may not be able to obtain a loan to make essential repairs that need to be financed.

Establishing a Firm Collection Policy

To Establish a Firm Collection Policy

1. The board should consult with its attorney, accountant and manager to set up
guidelines. A formal resolution of the board should be adopted at an open meeting of members that:

♦ Specifies the problem

♦ Delineates the authority for taking the approved action

♦ Designates the procedures to be followed

♦ Designates the circumstances under which the procedures are required or permitted

♦ Establishes deadlines

The final policy should ultimately be included as part of the association’s handbook or
completed rules and regulations.

2. Set a firm due date for assessments and the levying of a late fee (usually the 15th
of the month), subject to the rules and regulations and Declaration.

3. Outline the steps to be taken by the manager or person responsible for collecting
assessments when a payment is overdue.

4. Allow for payment plans in cases of special need and financial hardship (so long
as it is not abused).

5. Specify when a delinquent assessment should be referred to legal counsel. The
manager should note that this is automatic once a delinquent account reaches a specified age or amount. (We generally recommend no later than sixty (60) days except in special cases.)

6. Provide for the collection of any costs associated with collecting delinquent
assessments and the assessment of attorneys’ fees at the time they are incurred.

7. It is critical that this policy be communicated to all owners ongoingly so there is
no question as to what the procedures are.

By waiting too long to turn over an account, an association may lose out if a mortgage foreclosure is filed against the unit or the owner goes into bankruptcy. In a foreclosure, the lender will assume ownership of the unit before the association has a chance to collect its money.

Tuesday, September 14, 2010

Retaining Property Value in a Declining Market

By: Jim Digre

The economic conditions brought about by the housing collapse in the United States has had a devastating affect on the condominium market for Oak Park, River Forest, Forest Park and Berwyn. To be frank about it you could say that the ability to sell your condo, especially if you have a one bedroom, is virtually non-existent. Conventional Wisdom says the market will come back and all you have to do is hold on. The problem with that is it doesn't take in to consideration life changes that require people to move on to different housing arrangements. Knowing this, many owners are very worried about the value of their unit and what to do if they should have to move for one reason or another.

There are a number of steps that condo owners and association boards can take to help mitigate this situation. First and foremost is to do what it takes to get your building FHA approved. To be blunt, there is absolutely no excuse or rationalization for not doing so. The predominant buyer for condos, especially one bedroom units, is the first time buyer. Low-down and no-down conventional mortgages that these buyers need are currently extremely rare if not completely unavailable. So, if you expect to have any market for your units and want to avoid foreclosed or abandoned units, get this done. Nothing will reduce the over-all value and marketability of your units more than a large number of foreclosures in the building.

Secondly, the Board needs to review whatever restrictions exist on allowing owners to rent out their units. The number of rentals in a condo building can adversely affect the ability of borrowers to get a mortgage for a unit in the building, but this is no excuse for not establishing a workable rental policy. Having a rational and fair rental policy enables those owners that must move and can't sell to be able to continue meeting their mortgage obligation, and most importantly for the association, to pay their assessments.

Thirdly, the matter of pets in the building or complex should be considered. According to Wikipedia, 63% of households in the United States own one or more pets. When it comes to selling a condo in your building, if you have a no-pet policy, 6 out of 10 potential buyers are eliminated from what is right now not a huge pool of buyers in the first place. Eliminating a no-pets rule can go a long ways towards maintaining the values in your building.

In addition to the above three recommendations, the Board needs to pay close attention to building maintenance. Making a good first impression on a potential buyer and retaining property value falls heavily on curb appeal and over-all cleanliness of the building. Keeping the grass cut and edged (unfortunately an area often overlooked) along with weeding and edging the shrub and flower beds can do wonders for the appeal of your building. You don't necessarily need tons of flowers to make your landscaping appealing, although it does help, you just need to keep things neat and clean. Blowing papers, empty bottles and miscellaneous trash on the property are a statement to observers that the people who live in the building don't care about it and is a huge turn-off to a potential buyer. The Board needs not only to insure that the maintenance personnel are doing the job they're being paid for but also to constantly remind residents that it is every one's responsibility to keep the place clean. If you see some trash, pick it up. Everyone will benefit and you will not only enhance the value of your property but will enjoy living there more.

Finally, and this is an area that can create hostility and resentment, the subject of assessments must be addressed. It seems that the first thing that many condo owners do when money gets tight is to stop paying their assessments. Somehow they manage to make the monthly mortgage payment (so they don't get foreclosed on) but figure they can skip the assessment. Condo Boards and management companies that take a laze-fair approach to collection of past due assessments are not only cheating the paying residents but also condemning the building to a gradual decline in value. Without the assessments, the Board will be unable to pay the expenses of maintaining the building.  The Board, working in conjuction with the management company must pay attention to the status of un-paid assessments and take the necessary actions to collect what is due. Using legal action should be the last resort. Someone on the board, along with a management company representative, if needed, should first meet with the offending resident(s), and find out why the assessments aren't being paid. They should then try to work out a solution that is fair and equitable to both the resident and the association. Remember, the further an owner gets behind, the more difficult it will be for them to catch up. Action needs to be taken right away and followed up on or more and more residents will stop paying. What may end up happening is, "if he's not paying, why should I?" will start to spread through the building and that can only spell disaster for all concerned.

If you want more information on how to initiate the above suggestions, contact your management company. If they can't help, give us a call here at Dowling Properties. We would be happy to sit down with you and explain how working together we can keep your property at its highest value.

Contact us at: 708-771-0880 or visit our web site at

Wednesday, September 1, 2010

Rights and Responsibilities for Better Communities

Principles for Homeowners and Community Leaders
Community Associations Institute

Homeowners Have the Right To:
1. A responsive and competent community association.
2. Honest, fair and respectful treatment by community leaders and managers.
3. Participate in governing the community association by attending meetings, serving on committees and standing for election.
4. Access appropriate association books and records.
5. Prudent expenditure of fees and other assessments.
6. Live in a community where the property is maintained according to established standards.
7. Fair treatment regarding financial and other association obligations, including the opportunity to discuss payment plans and options with the association before foreclosure is initiated.
8. Receive all documents that address rules and regulations governing the community association - if not prior to purchase and settlement by a real estate agent or attorney, then upon joining the community.
9. Appeal to appropriate community leaders those decisions affecting non-routine financial responsibilities or property rights.

Homeowners Have the Responsibility To:
1. Read and comply with the governing documents of the community.
2. Maintain their property according to established standards.
3. Treat association leaders honestly and with respect.
4. Vote in community elections and on other issues.
5. Pay association assessments and charges on time.
6. Contact association leaders or managers, if necessary, to discuss financial obligations and alternative payment arrangements.
7. Request reconsideration of material decisions that personally affect them.
8. Provide current contact information to association leaders or managers to help ensure they receive information from the community.
9. Ensure that those who reside on their property (e.g., tenants, relatives, friends) adhere to all rules and regulations.

Community Leaders Have the Right To:
1. Expect owners and non-owner residents to meet their financial obligations to the community.
2. Expect residents to know and comply with the rules and regulations of the community and to stay informed by reading materials provided by the association.
3. Respectful and honest treatment from residents.
4. Conduct meetings in a positive and constructive atmosphere.
5. Receive support and constructive input from owners and non-owner residents.
6. Personal privacy at home and during leisure time in the community.
7. Take advantage of educational opportunities (e.g., publications, training workshops) that are directly related to their responsibilities, and as approved by the association.

Community Leaders Have the Responsibility To:
1. Fulfill their fiduciary duties to the community and exercise discretion in a manner they reasonably believe to be in the best interests of the community.
2. Exercise sound business judgment and follow established management practices.
3. Balance the needs and obligations of the community as a whole with those of individual homeowners and residents.
4. Understand the association's governing documents and become educated with respect to applicable state and local laws, and to manage the community association accordingly.
5. Establish committees or use other methods to obtain input from owners and non-owner residents.
6. Conduct open, fair and well-publicized elections.
7. Welcome and educate new members of the community - owners and non-owner residents alike.
8. Encourage input from residents on issues affecting them personally and the community as a whole.
9. Encourage events that foster neighborliness and a sense of community.
10. Conduct business in a transparent manner when feasible and appropriate.
11. Allow homeowners access to appropriate community records, when requested.
12. Collect all monies due from owners and non-owner residents.
13. Devise appropriate and reasonable arrangements, when needed and as feasible, to facilitate the ability of individual homeowners to meet their financial obligations to the community.
14. Provide a process residents can use to appeal decisions affecting their non-routine financial responsibilities or property rights - where permitted by law and the association's governing documents.
15. Initiate foreclosure proceedings only as a measure of last resort.
16. Make covenants, conditions and restrictions as understandable as possible, adding clarifying "lay" language or supplementary materials when drafting or revising the documents.
17. Provide complete and timely disclosure of personal and financial conflicts of interest related to the actions of community leader, e.g., officers, the board and committees. (Community associations may want to develop a code of ethics.)