Julie Adamen (who incidentally I respect and admire greatly) recently wrote an article celebrating one of the things about our industry as our being “recession proof”. While I agree that it is a constantly growing industry from the management company perspective, I am not at all sure that the association communities themselves are as lucky.
My friends in the collection business can’t keep up with the delinquencies referred to the collection process. Management colleagues are distressed about even being able to pay their association’s bills.
In my own association, 2007 was a year of great difficulty for many of our homeowners caught in the subprime market collapse. The affect on the association has been equally as devastating. We began 2006 with $4,734 in delinquent assessments. That amount grew to $17,536 by 12/31/06. On 12/31/07 our delinquent assessments hit $52, 171.
Prices have collapsed and we have 10 or more units (out of 116) in various stages of foreclosure or sale. And the worst isn’t over yet. We see further reduction in prices as banks sell units just to move them, and as foreclosures are bought at auction for literally half their value of just a year or two ago.
One vendor reported one of his clients cancelled their contract as the association went into receivership. The trustee came in, ousted the entire board, fired all the contractors and took over the association. How many more of these are out there?
Despite the negative cash flow, we ended the year with our reserves fully funded, we took on the major renovation of the even side pool, the second of our three courts resurfaced; and all planned and emergency maintenance completed. Over the last thirteen years, dues have been increased 7 times, usually less than 3-4 %. The board has worked hard to keep dues as affordable as possible and the last 6 years, we have been under budget or within $2,500 of our $385,000 annual budget. So far, we’ve been able to weather the storm because of it.
That all sounds great however there is a big difference between the accrual method of accounting and understanding CASH FLOW! That was the main topic at our annual meeting in March. Although we were $3,260 “under budget” this year, using the accrual method, we had to look at that liability of $52,171 in unpaid assessments. Of that, about $30,000 is current arrears and in the collection process.
The other $22,000 or so is owed by foreclosed homeowners who have lost their homes and have few resources to pay their debt to the association - even assuming we can
a) find them
b) serve them
c) get a judgment against them, and
d) collect on the judgment.
So, how much does the association invest in going after these homeowners? What is our actual cash in the bank? What happens when we run out of cash? Some associations are passing special assessments to make up for delinquencies. Others are borrowing from reserves. Each has consequences.
Boards HAVE to pay attention to these issues and understand the financial statements they are provided. That means it is critical that managers understand them and to help guide the board through the morass of questions or help them find the professionals who can. How often this is true, and more importantly, how often the vital attention required is paid to them, is unclear.
We’ve tightened our belts and although my association has budgeted for regular maintenance, the decision was to do only what is required to keep up the appearance (and value) of the association until we can see how this year shapes up. Last week, Bernanke finally acknowledged that we could be “headed” for recession; we could have told him that months ago.
Gayle J. Hasley,
Community Association Manager
Community Association Homeowner
gayle@campro.us
www.campro.us
