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May 13, 2008
Is There A Stranglehold on HOAs in California?
Imagine that you own a business. Imagine that the legislators keep passing laws that make it tougher and tougher to collect for the goods or services that are offered. Imagine that your earning capacity is limited to collecting just enough money to budget for the coming year. Imagine then, that the bills (and bad debts of other customers) keep mounting and your ability to increase prices for your goods or services is limited, in fact, imagine that you have to go to your customers and ask them to approve any increases.
Imagine that you are a volunteer trying to run this business. Then, as icing on the cake, imagine that you have to tell your customers that they have to pay not only for their goods and services, but those purchased by their neighbors who cannot pay because they have gotten themselves into an upside down financial dilemma.
Imagine all this, and then imagine how long your business would survive and until it folded, how unhappy (AND uncomplimentary!) the customers would be.
Now, imagine how that translates into running an HOA in California. Boards are required to collect assessments sufficient to pay the bills but are limited in increases (Civil Code Sectiond 1366 and 1366.1) They are limited in collecting unpaid assessments by Civil Code Section 1367.4, meaning they have to wait to exercise serious collection remedies until the owner is REALLY in debt. The HOAs have to spend considerable sums to collect the assessments that remain unpaid by owners. The Boards have to continue to maintain the properties and pay the bills in spite of rising construction costs, increased costs in insurance, increases in management costs because of compliance requirements, increases in water and utility costs, increased legal compliance costs and on top of all that - these volunteer Board Members trying to run these ailing "'businesses" have to put up with Board bashing by the members who do not want to pay more.
HOAs take a bath (meaning lose thousands of dollars) every time a lender forecloses on a property in their development, which is occurring more and more often - and which is often stalled by the Lender's own processes. In this day and age of 100% plus lending, there are usually insufficient proceeds from the sale by the lender to pay the Association's lien. And guess what? They (the Boards) have to go to the other owners and ask for more money to make up the shortfalls, which include maintaining those owners' properties that have gone into default or bankruptcy.
How can one expect an HOA to survive in this day and age? The members have to pull together to make them work. Support is needed, volunteers are needed, everyone has to bite the bullet. And shooting the messenger is not nor has it ever been the answer to a crisis situation.
When you talk to your legislators, remind them that there are many of you who live in HOAs that are suffering at the hands of the ever tighter collection laws (making it difficult to collect debt). There are many states that have what is called a "super lien" in their state law, meaning that HOAs can collect up to 6 months of delinquent assessments from a lender that forecloses, even if there are not enough proceeds to cover the debt. California HOAs could benefit from such a lifeline, but the legislators in power will not hear of it. What state does more to protect the lenders and banks that make the "creative loans" and put people so abundantly in homes they really cannot afford? I would truly like to know.
Posted by Beth Grimm at May 13, 2008 10:11 AM