We’ve been schooled on the benefits of washing our hands, social distancing, etc. What the pundits don’t say is the financial hit communities will endure from a coronavirus recession, and how to address it.
3 Lessons We Can Learn From the Past
These are not the best of times, and maybe they are not the worst of times, but most certainly they are difficult times. Our health and prosperity are in harm’s way and our residences are on the line.
For those of us who live in community associations (Condos & HOAs) these times are reminiscent of the great real estate meltdown of 2008. In those days boards of directors, management companies, and even banks were caught by surprise and chaos resulted.
Have we forgotten the experience of high delinquency rates, and the cash flow crisis that resulted from the last crisis? Did we not learn lessons from the past, because if not, we most certainly are destined to repeat them. So what do we need to remember and what course of action do we need to take at this time?
You need to be prepared to manage the flood of delinquencies we may be seeing in the near future and the cash flow shortfalls that will result.
Lesson 1: Time is Not On Your Side
The most important lesson we can take away from the last crisis is that time is of the essence. Every condominium and HOA needs to have an action plan in place. You need to be prepared to manage the flood of delinquencies we may be seeing in the near future and the cash flow shortfalls that will result. Yes, we can tighten up our belts and cut costs, but a steady revenue stream is still required. So what do we do?
Condos & HOAs must stop looking to their attorneys’ as if they were their saviors regarding their cash flow issues. Recording liens and foreclosing on properties proved to be an unnecessary response to HOA delinquencies.
Taking title to a condo unit and HOA home doesn’t improve your cash flow. As a matter of fact, this maneuver proved to be hurtful as it further hemorrhaged money from community associations operating accounts. It was a heady time for the law firms and they profited well.
The ones who suffered were the Condos, HOAs, and residents who did not need to lose their property to an association foreclosure. If we remember those times, then we must have learned something. If you weren’t there, we now have the benefit of hindsight and can act accordingly. Let us not make the same mistakes we did ten years ago!
Have we forgotten the experience of high delinquency rates, and the cash flow crisis that resulted from the last crisis?
Lesson 2: You Need A Financial Action Plan
We have all been schooled on the benefits of washing our hands, social distancing, restricting meetings, and looking for symptoms. What most of the community association pundits have not addressed is the financial hit that communities endure and how to address it. The following is a financial action plan for your community association.
Step One: Evaluate your expenditures and see how your budget is performing. We are deep into the first quarter and you should have a handle on the budget’s accuracy by now.
Step Two: Keep an eye on your accounts receivables and see if there has been a spike in delinquencies. March might show a bump up in HOA delinquencies but that by April they will likely rise. Some people will have a good reason for being behind in their payment and then there are others who will see this as a good excuse not to pay their obligations.
If you see that delinquencies are trending upward it would be a good idea to act quickly before owners dig themselves into a hole that even after this virus passes they do not find themselves too behind to ever catch up. Also, this economy has been ripe for a recession for the past year now so that too will contribute to the increase in condo delinquencies.
Delaying community association collections out of a sense of kindness is not a kindness at all, but a reckless course of action.
Lesson 3: Exercise Professionalism with Compassion
This is not the time for community association boards to either let delinquencies slide nor is it the time for having attorneys begin liens and foreclosures. What is required now is professional engagement by a community association collection agency to work with delinquent members in order to resolve late payments.
You want to approach this situation with the greatest of sensitivity. Moving forward to foreclose on an apartment or house is nothing more than overreaction that is not helpful and possibly harmful.
Management companies need to send their “courtesy letters”. Delaying community association collections out of a sense of kindness is not a kindness at all, but a reckless course of action. Act now or the infection of delinquency will fester and take your community to a higher level of crisis.
Sending delinquent owners directly to your community association attorney should be the last desperate act to resolve the situation. Qualified, sensitive, intelligent, and professional engagement by a licensed community association collection agency is the right path to take.
Consider engaging a collection company that will work to recover the funds on behalf of the association, with compassion and understanding, without drowning owners in legal fees.