You have a community that is less than 50% sold out. The clubhouse is only half-finished. Bills are mounting. Vendors are screaming. Developer walks away. Now what?
What’s the saying? “When the tough get going the going get tough?” Pretty hard to get in that frame of mind when you have to sleep in a bed that someone else made. But if you accept the challenge, recognize that the problem is temporary, and keep your eye on the prize, you can weather this financial storm. But first you need a plan.

Assume control of the board.
Only the board can transact association business. But can you elect directors? This depends on whether the developer control period (period when developer can appoint/remove directors) has expired. You’re probably nowhere near that date. Some developers will surrender control early; some will appoint more owners to the board; many are non-responsive. Find a way to hold an election – even if this means notifying the developer that failure to respond means a surrender of developer control. You’ll be in a much more defensible position if you paper trail your communications with developer.

Who needs to get paid, how much money do you have, and who isn’t paying?
If you don’t pay vendors, you will compound the problem. If the developer entered into contracts in the association’s name, debts will need to be resolved, and contract obligations satisfied.

Understand your financial situation. The current budget may have been based on cash-flow from unsold units. If the anticipated revenue stream is now severely diminished, do you need to amend the budget? Consider a one-time special assessment to gain immediate income.

Pursue delinquencies, but be willing to enter into reasonable payment plans to get some money back into the coffers.

Evaluate delinquencies of the developer and figure out which units are subject to imposition of assessments. If a developer hasn’t been paying assessments on developer-owned units, it could be because developer hasn’t yet annexed the units into the community or those units are otherwise exempt from assessments. You will need to calculate how much income the association is entitled to collect.

What can you cut?
Cut expenses. Minimize levels of services and temporarily close amenities if necessary. Remember, this is a temporary situation. Maintain only basic services for the remainder of the fiscal year. Halt any capital projects.

Think about the future.
Ensure that any financial success accomplished in the short-term doesn’t disintegrate in the future. Consider amending your governing documents, particularly provisions that create financial obstacles. Are there caps in assessment increases? Do you have owner budget approval requirements?

Ensure for adequate contribution to reserves. It does no good to simply pay as you go, and then be faced with a huge special assessment or need for a loan in the future.

Keep assessment levels adequate to address the future. Don’t reduce the assessments once you’ve tackled the short-term obstacles.

Although the immediate goal is to maintain only basic services and cease immediate construction projects, evaluate and implement a plan to get back on track with services and amenities.

Send out an initial letter describing the problem and plan of stabilization, and then provide progress reports along the way. This should eliminate any surprises of what will likely be coming down the road. You’re in a tough spot, having to make tough decisions. Communication is critical to obtain owner support.

Melissa M. Garcia
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