Delinquencies

Delinquencies are troubling Association budgets these days. When the real estate market was thriving, it was relatively easy to pursue collections on an owner that was not paying their HOA dues. Most had enough equity in their units, which permitted the Associations to pursue non-judicial foreclosure when necessary.

In today's market, however, collecting has been very challenging. Property Managers, Board Members and collection agencies have had to be more creative and resourceful in determining methods of effectively collecting dues. Most homeowners do not have any equity left in their homes and are very comfortable with walking away and allowing lenders to foreclose on the units. Most often, once a lender forecloses, the Association cannot transfer the debt to the new owner. You should check your Governing Documents about this, because some do permit Associations to transfer a portion of debts (it's not common).

A lot of Associations are left helpless. Some continue to pursue non-judicial foreclosure, but once the lender forecloses, not only do the Association dues get wiped out, so do the incurred legal fees. Some HOAs have been discouraged in even pursuing collections in fear of incurring more debt, but at the same time, the Association needs to protect its assets and make an attempt to collect the debts.

Our solution, while it creates more work for us, has been to handle each situation on a case by case basis. We do solicit the assistance of collection agencies to let us know if a Notice of Default or liens have been filed by any other entity. If it appears that the lender is at the final stage and is moving in to foreclose, we don't bother with the non-judicial system (to pursue the debt by attempting to collect from the unit's value by way of foreclosure to receive payment from the sale). Alternatively, the cheapest way is to pursue collections against the unit owner directly by way of filing a small claims suit. Often times, the debt does not exceed the small claims limit. If it does though, it still may be worth considering just pursuing small claims depending on how much is actually owed to the Association (again, check with legal counsel if there is a question about this). The easiest way to serve a unit owner is to attempt this while they still reside in the unit as opposed to when they have already moved out.

So, now the problem remains that if the unit owner did not have the funds to pay the debt and allowed the unit to foreclose, what will prompt them to pay the judgement? A judgement is valid for 10 years. Once a judgement is obtained, you can turn that over to a collection agency that will specifically work with the Association to monitor that individual and will search for assets. You may be able to garnish wages or pursue other assets that are founds. And, if you work with a strong collection agency, perhaps they won't be able to collect today, but 2-3 years from now when thing hopefully pick up with our economy, people will start to re-build assets and may be able to pay off their judgement at that time. The judgement may be worthless and may never be collected, but it's a better option then completely giving up once the lender has foreclosed.

Finally, another very effective option is suspending common area privileges when there are actually ammenities that residents rely on. I work with a high-rise in Century City that provides valet service, a gym, cable television and DSL connections for their residents, etc. Their policy is that if a homeowner is 30 days or more delinquent, the Board provides another 15 days to become current, or all common area privileges are suspended. For owners with tenants, this is disastrous. The tenant no longer receives internet connections, television service, use of valet services, the gym, etc. The threat of the loss of rent really keeps owners paying their dues.

In another Association I work with, we just instituted a whole new system. The community consists of 320 homes, so the only real ammenities are the pools. The pools were originally accessed with keys, but we modified it to a key card system. This allows us the ability to de-activate the key cards when common area privileges are suspended. Once again, owners and/or their tenants will not have access to the pools if they are not current on their dues. We also created a parking program that requires all resident vehicles to be registered with the Association. Any guests must use visitor permits to be parked on the streets. In order to obtain the guest parking permits, owners must also be current on their dues. So now, we have restricted those behind on their dues from using the pools OR having guests park on the streets. We issue new visitor parking placards at the start of each year, so we can have control over accounts if they start accruing more debt. This may be of interest to know that this Association in particiluar went from a 20% delinquency rate (undesirable to lenders and was considered high-risk) down to 12% now. FHA will consider approving an Association if delinquencies are 15% or better, so our delinquencies have drastically improved since the implementation of these projects. Sometimes it's worth spending a bit of money to expect a bigger return. The program is far more detailed than what I will share in this blog, but if you are interested in obtaining a copy of the parking rules or getting more suggestions on creative ways to get your delinquencies paid, leave me a comment on the blog, and I will contact you.

Neda Firouz

Transparency - Open Session Information

Many Associations I manage are concerned about the content of what is discussed in open session versus executive session. The Board of Directors of communities are faced with homeowners who request more transparency and the ability to hear more of the decisions that are being made, but then the Board Members must contend with the Civil Codes and requirements for Executive Session discussions.

I would like to preface this portion by stating that I am not an attorney. You may want to consult with your Association's legal counsel or your community manager for procedures with executive session information. I would suggest maintaining the standard executive session categories in executive session, which includes but is not limited to:
Personnel matters, member disciplinary issues, legal issues, delinquencies when discussing specific homeowners.

The area that I tend to recommend to discuss in open session is the formation of contracts, but within reason. If, for example, my Association is in need of terminating services with one vendor to retain another, this sensitive information should be discussed in executive session. If homeowners hear this information in open session and then discuss with the vendor in question in passing, this may be disruptive and cause issues with your vendors. If you were merely discussing proposals for a plumbing repair or adding a new service, talking about insurance renewals, etc., why not discuss in open session? Homeowners feel that they know more about the extraoridnary expenses, and it is specified in open session minutes. Contracted services are the fees that recur each month and are standard, so for any special projects that do not fall under the legal category or are not linked to an existing contract may be considered to be discussed in open session.

Again, you should proceed in a manner that is best suited for your community, but in my experience, homeowners are appreciative of the opportunity to be made aware of community decisions.

Neda Firouz

Neda Firouz - Dealing with Deferred Maintenance

Many of the Associations I manage are currently faced with deferred maintenance issues. It's a difficult decision to make, as the economic climate attributes to avoiding special assessments to deal with capital improvements. What's important to consider is that while our homeowners may not be able to afford special assessments right now, labor costs are also at an all-time low.

My Association's are currently working on projects such as painting, roof replacement, road replacement, etc. These are all very costly projects, but we are finding that the proposals we are obtaining are significantly lower in comparison to proposals we received for the same scope of work from last year. Therefore, if you do have deferred maintenance, it may be a good time to consider a balance between special assessments and spending the funds for the much needed projects.

Keep in mind that in the long-run, deferring maintenance may save the Association from passing a special assessment today, but the cost of addressing the deffered maintenance and dealing with the residual damage as a result of not replacing your components timely will be significantly more.

Budgeting your operating AND reserve expenses are important to help stay organized. While we don't like to recommend changing vendors around frequently, it is a good idea to shop the services for your regular vendors to make sure that their services are comparable to today's current market value. If you find your vendors to be out of range, you can always negotiate the pricing to a mutually beneficial rate. The more you save from your operating budget, the more you will have to put away in your reserves.

Neda Firouz - Reserve Study Components

When reviewing a reserve study, it is important to keep in mind that reserve studies are only required to list components that have a 30-year life expectancy or less. Therefore, you will not see items like the foundation or other components that have greater life expectancies. For properties that were built in the 1970s, it is especially important for managers and Board of Directors to be vigilant of the component list.

For example, I worked with a community that was built in 1971. The community had 20 exterior, three-story staircases that were structurally failing. The plumbing was also in poor condition, but there was no consideration for plumbing replacement or the staircases in the reserve study. Upon inspecting their reserve study, I was able to determine that the study was lacking components that were costly but necessary to handle. After factoring those elements in the study, the Association needed an additional $5,000,000 to be able to address those issues. The reserve funding percentage had suddenly dropped from 31% down to 10%. This was not an ideal situation, but ultimately, it was necessary for me to address the matter. Reserve study companies often just use prior component lists and update them.

To avoid a situation like this, it is important to regularly review the components, ask your reserve study companies to be extra mindful of any items that were not included but may now need to be, and to discuss this with your community managers.

As usual, if you have any questions, please feel free to contact me.

Neda Firouz

Neda Firouz - Budget Time

In order to keep the operations of your Association running smoothly, it is a good idea to put together a calendar that includes your Association's deadlines for various disclosure statements and other maintenance schedules. According to Civil Codes, your budget disclosure package needs to be mailed out at least 30 days prior to the end of your fiscal year, unless your Governing Documents are more stringent.

Most Associations are on a calendar year. If this is true for your Association, according to Civil Code, you would then need to mail your budget disclosure package no later than December 1st. The best way to handle your budget process is to start early to give yourselves ample time to really focus on the figures.

In order to determine a schedule for your budgets, you can your way backwards:

1. December 1st deadline to mail out budget and all disclosure statements.
2. Approval of the budget by the Board of Directors in an Open Session Meeting (preferably no later than the middle of November in order to provide ample time to mail the package to your members).
3. Final approval of the drafted budget to be completed by the budget/finance Committee, designated Board Members and/or community manager by the beginning of November.
4. Obtain copies of the completed reserve study and financials to commence the budget drafting process by mid to late-September. Note: in order to keep the budgeting fresh in your mind, weekly or bi-weekly budget meetings is in order until it is completed. Also, each budget meeting can be used to focus on specific categories of the budget (i.e. income, utilities, etc.).
5. In order to get your drafted reserve study, you will need to approve the proposal from your reserve study company. Most reserve study companies base their fees on your required turnaround time. Usually, the cheapest fee schedule is offered when you give the reserve study company at least 8 weeks. That means that you should select the company to conduct your reserve study and approve the proposal by mid-July.

All in all, the process needs to start around 6 months before your fiscal year-end in order to avoid higher fees with your reserve study and also make sure that you have enough time to look at cost-cutting solutions for the various line items in your budget. If you are not on a calendar year, you can still apply these timelines to fit your community.

If you have any questions about budgets, feel free to contact me.

Sincerely,
Neda Firouz

Neda Firouz - Water Conservation Can Save you Money

We've discussed methods of producing more income for your community (and you as an an individual), but utility expenses are inevitable. In most Associations, water bills are one of the largest expenses. Again, these tips can also be considered and applied to your own individual lifestyles, so continue reading to find tips on conserving water in your own homes as well. We have various scenarios to factor:



1. Planned Unit Development (single-family homes)
2. Condominium Complexes
3. Townhomes
4. Co-ops



This blog will focus on water conservation in planned unit developments, but stay tuned this week for additional information on the other types of communities.



The first type of community to consider is a planned unit development. Generally speaking, the homeowner is responsible for the exterior and interior of their units, which includes water bills. In planned unit developments, you do find a lot of common area landscaping. Maintaining that landscaping includes making sure that your plants are watered. You also may have common area bathrooms in facilities such as community pools or in a clubhouse.



With regards to your landscaping, many communities are on timers. With multiple controllers throughout the complex, it is a tedious job to constantly be vigilant and adjust those timers depending on the weather. Nonetheless, this is something that needs to be delegated to either a maintenance person, your landscaper, your Board Member, or your manager if he or she is willing and able to handle this task. When the climate is cooler or rain is expected, the water timers need to be adjusted accordingly. If this seems like it is too much work, you may also consider installing a satellite-controlled irrigation system. According to some studies, this system has saved up to 80% in water consumption over the conventional irrigation system. This system works with a satellite that essentially is notified about weather conditions and will adjust the plant watering accordingly. Again, this is a great tip for HOAs AND individual homeowners. For individual homeowners, just think of how much money a system like this can save you in the long-run. If you're on vacation, you do not have to go through the hassle of hiring a house sitter to water your plants while you're gone. Your satellite-controlled irrigation system will handle it for you. If you would like further information on the system, please feel free to contact me.



Aside from watering, you may also seriously want to consider installing drought tolerant plants. Utility companies such as LADWP are offering cash incentives for individual homeowners to plant the drought tolerant plants. Remember that aside from the "cash incentives," your long-term watering will be significantly cut by making this conversion. Here is a link to an article in the LA Times regarding the DWP program: http://latimesblogs.latimes.com/lanow/2009/06/water-savings.html



There are actually some really great looking drought tolerant plants. Here are a few pictures of drought tolerant plants:




















































































For a complete list of drought tolerant plants in the LA area (or any other vicinity in California), please visit the following site:
http://www.laspilitas.com/garden/Drought_resistant_plants_for_a_los_angeles_garden.html


As for other minor water conservation tips in planned unit developments, please stay tuned with my condominium complex water conservation tips that will be posted within the next several days. This includes areas to save INSIDE the home or common area facilities.

If you found this blog insightful or useful, please let me know. Feel free to leave any comments on what you would like to see, and I will incorporate my professional expertise on the subject.

Sincerely,
Neda Firouz

Neda Firouz - Increasing Income in HOA Budgets

HOA Budget - Increasing your Income by Neda Firouz



As a community manager, I have come across many homeowners associations, each of which have unique needs. Lately, we have found that interest rates have plummeted! This does not just affect homeowners associations, but each of us as individuals. If you do not live in a homeowners association, you may be able to learn a few tips from this blog, so keep reading...



With more stringent reserve measures, Board of Directors are faced with the difficult task of properly budgeting not just for the upcoming year, but for the general future of the community. Often times, this may require dues increases and/or special assessments. With a steady incline in delinquencies and the current economic climate, increasing assessments and collecting funds have become more difficult. With a little research and work, producing more income without assessments is possible. Here are a few areas to focus on that may have tremendous impacts on your budget:

Many communities invest their reserve funds with brokers, but interest rates have not been as competitive as they were in the past. If you are an individual reading this blog, you may have experienced that your bank is also not offering competitive interest rates. If you are currently earning less than 1%, you may consider researching alternative options. The CDARs program has been one solution for some Associations (and individuals). Many of the banks that offer this program offer interest rates at 2% or more, and you can invest up to 50 million dollars and still be protected by FDIC insurance. For more information, you can visit http://www.cdars.com/_docs/news-articles/SmartBusinessCDARS.pdf. When working with various banks that participate in the CDARs program, many of them offered to first open a CD account at a much higher rate. The highest I found was 3.25%. As you know, the FDIC Insurance limits have been increased to $250,000, so you can invest somewhere around $240,000 with the bank directly, then invest the rest of your reserve funds through the CDARs program. Alternatively, if you need to keep some funds liquid, there are banks that have HOA departments that offer rates of 2.25% or greater for Money Market accounts. For homeowners associations, you can contact banks that have HOA departments. If you want references to those institutions, feel free to send me a comment.

Other income producing methods include locating vending machine companies that will offer a percentage of their sales back to your community. You can also promote paid advertisements in your community newsletters as a means to generate more income, or at least offset your printing costs.

Then, there are those communities (predominantly condominium Associations) that have limited storage space within the units, and they also have strict Rules and Regulations regarding patio/balcony storage. One of the suggestions that has worked for homeowners AND the Associations is to have the Association purchase fire proof storage spaces for the subterranean garages. There are construction stores or products offered online that sell the storage spaces from anywhere between $500-$2,000 per space. Remember that it is important to find fire proof spaces because of the possible fire hazard. Also, before purchasing the storage spaces, make sure to talk to your insurance agents to confirm that your carriers will not have liability issues. In any event, depending on the demand in your community, the general storage rates range between $50-$100 per month. Your Association can earn back the initial investment in as little as ten months, then generate income for the future. Lastly, remember that this would be a new component that the Association would be responsible to maintain and replace, so if you decide to implement this suggestion, let your reserve study company know so that the storage spaces are added to your reserve study and factored.

Also, take a look at some of your utility expenses. There are many rebates and free products available to help cut your utility usage. I will be blogging about utility expenses in the near future.

Again, if you have any questions above the CDARs program, banking options, income generating ideas, etc., please do not hesitate to leave a comment.

Sincerely,
Neda Firouz

Neda Firouz - Managing Diverse Associations

As published in a Community Association Management magazine in November of 2006, here is an article by Neda Firouz regarding Managing Diverse Associations:

As a community manager, it sometimes seems like we need a psychology degree - especially since we are always interacting with people who have a multitude of different personalities and who come from many dissimilar backgrounds. The reality is that one of the most difficult issues for managers to deal with (and one which may not initially be apparent) is the diversification within each community.

I have come across more than one hundred homeowners associations, in locations from Calabasas Park to Santa Monica, and from Los Feliz to Long Beach. Each association is unique in terms of its needs and the demographics of the area. One of the factors which has contributed to my success as a community manager is my sympathy for and awareness of the various needs and personalities within each community. My experience has shown that there is one thing which all these people with different backgrounds have in common: they merely want you to listen. The key for managers is to differentiate how to listen and react with a mixture of different people.

One of my experiences included a community with over 500 units, which includes a very diverse group of residents. My method of communicating with the members was very different, depending on the circumstances. For example, when I would speak to a college student, I would tend to communicate more casually. If I seem like a very strict authoritative person with these younger groups, I am not well-received. When I deal with various ethnic backgrounds, sometimes I find that it helps for me to relate to them with my own personal diverse background and upbringing. In the end, however, all people simply want to feel is that they have been heard. Even if I cannot accomplish what the resident exactly wants, if I have truly listened to all concerned persons and have taken into account their respective needs, the underlying problem or issue is much closer to being resolved.

By Neda Firouz