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February 9, 2008
SPECIAL ASSESSMENTS IN TRYING TIMES
WOW, I cannot remember more difficult times for talking to boards and members about big but necessary special assessments. The meetings these days are becoming more and more challenging when a board has to face the membership to talk about how to raise multi-thousand dollar per unit assessments for repair work, it is not fun. But truth be told, if the Board does not tell the membership about a looming big problem, it will probably snowball down the hill into a much bigger problem ... so don't shoot the messenger.
Walking up to the front of a room filled with people who just cannot believe the rumor mill or the newsletters that have been circulated lately that suggest everyone may have to come up with $5,000, $10,000, $20,000 or more takes a brave soul. There are always a few in the audience who are ready to pounce. You can feel it, you can see it, and you can believe it will happen in every single meeting. It can take a board entirely by surprise as the board members often have a hard time fathoming that their neighbors could so easily turn on them, like a mad dog. One of the sorriest things in any association that has serious building deficiency issues requiring a special assessment that can happen is the Board tries to move the process on its own, and stumbles through the communications process, messes up the voting process, wonders why it is hit hard in the collecting process, and suffers the aftermath of all things done wrong.
I attend these meetings periodically, as do many professionals, including attorneys, bankers, CPAs, and the contractors. All of the people the Board uses to assist with getting through the process of passing a very large special assessment need to be experienced in dealing with these issues, and thick skinned, because the only way to get the necessary message through to owners is to be able to remain calm, strong, and smart.
My mantra: For every problem, there is a solution. Sometimes it becomes a chant inside my head, just so I remember.
I plan to do more blogs on this subject because it is so critical a time to get it right. In this one, I want to use something written by a colleague of mine who, like me, puts out free information that helps many in California understand the intricacies of how the California laws affect the day to day operations of homeowners associations in the state. I have permission from Adrian Adams to reprint the article below that appears in quotations. Adrian is a Southern California attorney whose firm hosts the Davis-Stirling.com website and E-newsletter (suggest you sign up for his - by visiting Davis-Stirling.com ... and mine at www.californiacondoguru.com to stay informed).
As a lead in, I will say that this article succinctly describes the process I see take place at every single HOA meeting I attend where the board and management are presenting to members the full scope of the bad news about the building deficiencies that have been discovered, and the large special assessment that is going to be needed to pay for it.
"SPECIAL ASSESSMENTS, DEATH AND DYING
QUESTION: The board recently informed everyone that we are facing a large special assessment to reroof and waterproof our buildings. I don't believe them. What can I do to stop the assessment?
ANSWER: In her 1969 book, On Death and Dying, Swiss-born psychiatrist Elizabeth Kubler-Ross outlined the five stages of grief of someone who is dying. Over the years I've witnessed owners going through the same stages when they face large special assessments. Following are the stages:
Denial. "They don't know what they're talking about." "The contractor is just looking for work." "The repairs are not necessary." "The board must be getting a kickback." "Let's recall the board."
Anger. "Who can we sue for this disaster?" "Management was incompetent." "Let's recall the board and sue somebody."
Bargaining. "Can we defer the repairs?" "Can't we just patch the roof (until I sell my unit)?" "Are there cheaper alternatives?" "Will insurance pay for the repairs?" "The board is being unreasonable; let's circulate a recall petition."
Depression. "I can't bear the costs." "This will force me to sell my unit." "I can't put my family through this." "How do we recall the board?"
Acceptance. "I'm ready, I don't want to struggle anymore."
Recalls. Unfortunately, some associations don't make it to "Acceptance." Instead, a small group of owners will lead a charge to recall the board and stop the repairs. Sitting directors will often throw up their hands and resign or be recalled. The new board then shuts down all work and fires everyone in sight. This usually leads to litigation from owners who are suffering from water intrusion and mold. Finally, after costly litigation, the association is forced to make the repairs originally proposed; only now they have legal fees and the repairs are more expensive.
Recommendation: Make the repairs. It's cheaper in the long run."
In a later blog, I will cover the difficult issue of how to move forward in a manner that encourages all owners to participate in the solution as opposed to only those who can come up with the special assessment without help. This is a critical part of the solution. Otherwise, imagine the backlash on the fiscally stable owners when the special assessments that have to be written off due to foreclosures or walk aways come back in tidal wave fashion on those who thought they were home free. If you want to know what I mean by this, watch for future blogs, and I hope soon to make a publication available on my website called "The Enigma of a Special Assessment".
Posted by Beth Grimm at February 9, 2008 8:58 PM