Monday, April 6, 2009

Tips for Your Community to Survive and Even Thrive in This Economy!

We all know times are tough and most experts predict that full economic recovery is still many months or even years away. What should your community be thinking about right now in terms of saving money, recouping lost money and even making money?Here are some suggestions for you to consider in order to help you better weather the current economic climate:

Tighten Up Your Current Collection Policy

Rethink your traditional collection policy in light of today's economic realities. If your collection policy was to typically send three courtesy demand letters before sending the file off to the attorney for collection, think again. The longer the delay in commencing collection efforts these days, the greater the chance that the delinquency will balloon to an unmanageable size;If your governing documents require three courtesy letters be sent, amend that provision (more about amending your documents below);If you traditionally stopped all collection efforts once a mortgage foreclosure was filed, think again. Many lenders are starting foreclosure actions but taking years to finish them. The reason for this is quite simple; as soon as the bank takes title it must pay the statutorily required past due amounts and start paying assessments from that day forward. For a bank, it is much better to allow you to simply maintain their collateral for them while they pay nothing in to the community;Be aggressive with your foreclosure actions. This accomplishes several things: it sends a message to the rest of the paying members that you are doing something; it warns those who might be tempted to stop paying their assessments that you will do something, it allows the association (once it takes title) to either sell the property or lease it out short term to recoup some or all of the money owed and it allows the association to control who occupies the property and its condition.For more information about the types of collection strategies you should be employing right now, please contact attorney Kathleen Angione with Katzman Garfinkel Rosenbaum via email at or by phone at 954-486-7774.

Spend $$'s to Recoup More $$'s

I know the last thing many of you want to think about is spending money right now but sometimes it makes sense to do just that. The first thing you want to do is to make sure that your governing documents provide you with all the right tools to deal with your foreclosure and other issues. The following are some amendments to consider:1. Adding late fees (if you don't already have them) and increasing the amounts you can charge for late fees and interest to the "highest amount permitted by law". Some documents only allow you to charge interest and late fees in amounts much lower than what you can currently charge under the statutes;2. Removing any harmful lien subordination language. Typically, your association lien is only inferior to a first mortgagee's lien or a federal tax lien. However, some governing documents contain harmful language which subordinates your association lien to ALL other lienholders. If you have this language it should be removed in order to allow you to recover more money owed to the association;3. Adding language which would allow the association to specially assess a particular unit or lot for any amounts paid to maintain or secure that unit or lot. This is especially important now when many properties have been abandoned and the association wants to do minimal maintenance and/or change the locks to keep out unwanted occupants;4. In a homeowners' association, you can suspend a delinquent owner's common area use rights and voting rights IF your declaration or bylaws so provide. If you are not taking advantage of this very useful tool to deal with delinquencies you should be;5. Smaller associations should consider amending their documents to restrict multiple unit or lot ownership by any one person or entity. If one individual or entity owns a significant percentage of the units in a small community, that person's financial reversal could spell doom for the association's cash flow. The only downside to this type of amendment right now would be if your community is actually courting bulk purchasers of your units; 6. Add an acceleration of payments clause in the event installments are not timely paid. This gives the association a larger hammer to collect for the whole year which obviously benefits cash flow; and 7. An amendment requiring a uniform lease form or lease addendum to be used whenever a unit or lot owner wishes to lease out their home is very useful right now. Such a uniform lease form or lease addendum would require that the tenant pay rent directly to the association in the event the owner becomes delinquent in the payment of assessments as well as provide the association with eviction rights in the event that the tenant(s) become a nuisance. For more information about the kinds and types of amendments you should consider adding to your governing documents please contact me via email at or by phone at 954-315-0372.

Scrutinize Those Contracts!

Now is an excellent time to have your contracts reviewed by legal counsel to determine if (a) those contracts are cancellable at will and (b) whether a better deal can be negotiated. You should be earmarking all contracts coming up for renewal to make sure they do not automatically renew without you first negotiating either a better rate, a different, and perhaps scaled-down, set of services, etc.This is especially true for your cable contract. Many of you have asked whether or not you can simply cut off the cable service to delinquent owners. The answer is that the cable company will not readily do that and you may not be able to do that under the terms of your contract, the statute and/or your governing documents. Instead, you may be able to change from a bulk to a retail contract so only those paying for the services will be able to use them. For more information on your ability to switch your bulk cable contract to a retail contract, please contact Leo Delgado of CSI Associates, Inc. at 954-767-0185 or via email only should you scrutinize existing contracts but you should be more careful when entering into future contracts. Negotiating the best deal possible will save you money in the long run. If, in the past, you did not feel the need to have your contracts reviewed and you have ever been burned by that practice, please reconsider investing an hour or two of attorney time to ensure you avoid costly mistakes and include language in your contracts that protects your interests. A recent case on point, is a balcony restoration contract that was properly prepared by a member of my Transaction Team to include language that the contractor's contract price included all work necessary to complete the project. This was later found to include the cost to remove individual sunshades from the balconies; a significant savings to the association. Even though you are only required to obtain competitive bids on certain contracts, it is a good business practice in this environment to obtain several bids, if possible, on all contracts of any significance. For more information on best practices when negotiating contracts, please contact my partner, Ken Zeilberger, via email at or by phone at 954-486-7774.

Insulate Yourselves From Unnecessary Liability

Now is not the time to make costly and avoidable mistakes. Make sure your association is following proper protocol in terms of association operations to avoid the costs and headaches associated with Division complaints, arbitrations and recalls.Even though you may be looking to cut back on services to save money, do not cut back on essential common area maintenance as it may result in even more costly repair projects.

Periodically check the Association's records with the Secretary of State to ensure that you have filed your annual corporate report and paid your annual fee in order to continue enjoying certain corporate protection from individual liability.Periodically check to see who is authorized to sign your association checks and remove any individuals who are no longer on the board or who are otherwise unauthorized to be signatories. Along those lines, make sure that all persons who control or disburse association funds are properly bonded in an amount that is equal to or greater than the maximum funds that will be in the custody of the association or its management company at any given time.Make sure your association's official books and records are properly organized. Organization is key to avoiding additional stress in already stressful times.

Financial Sense

If you have an association website, it makes sense to encourage as many of your owners to use that site in order to cut down on printing and postage costs associated with notices, copies of the governing documents, etc. If you do not have a website, CAN members are entitled to a free basic association website setup ($75.00 value) or an enhanced setup for $75.00 ($150.00 value), 10% off monthly hosting and licensing fee and a free 30-day trial period with one additional hour of telephone training. For more information, please visit for more information or call Michael Berger at 305-479-6009.It also makes sense to have a line of credit established now before the number of delinquencies in your community rises to a level that makes you ineligible for same. Please make sure to check the CAN site to see which banks are offering you discounts. For example, City National is offering CAN members 1/4% off loan commitment fees and Community Bank of Broward is offering a $500.00 discount off its bank fee for any association loans.Consult with your insurance agent to determine if your insurable value and coverage is correct given the current market conditions.If you are one of the unfortunate few that are still subject to a recreational or land lease on your common areas now might be the time to attempt to buy out that lease. A lump sum might be more attractive to a lessor in this climate than it would have been in years past.Lastly, it makes sense to help your owners who are struggling to stay in their homes. Amerifirst is offering free foreclosure seminars and other useful tips to help your owners regain their financial health, stay in their homes and start paying their association fees once again. Older owners with equity in their units may be able to secure a useful reverse mortgage. Amerifirst is offering CAN members $250.00 off its closing fees on FHA reverse mortgages and FHA secured mortgages. Please contact Terri Schmitz at or by phone at 954-771-6604.

Find Out Who Owes You Money

This is perhaps the most overlooked area by most community associations. The first step in uncovering money that was owed to you but may not have collected is to determine whether or not your community suffered any storm damage over the last 5 years. If you did, you may have left thousands or millions of dollars still owing to you on the table. Insurance companies typically pay cents on the dollar. Combine that with the fact that many boards may have been too intimidated to file claims or were made to believe that their claims did not meet their deductible or that they would be canceled or their rates raised if they did file a claim, and it is not surpising that money was left behind. Perhaps now is the time to get a little bolder about your claim while you still have time left?For more information on your ability to file a claim for past storm damage or other casualty damage, please contact Tisa Christiana at Katzman Garfinkel Rosenbaum via email at or by phone at 1-800-393-1529.In addition, take a look at any construction defect claims that may still be viable. If a developer owes your community money as a result of construction defects or financial improprieties, now is the time to investigate those claims.Lastly, make sure you own your common areas. Some communities are shocked to find out that the developer never deeded over the swimming pool or clubhouse and that property has been liened and/or taxed at rates other than the nominal rates at which common areas are taxed.

Creative Sources of Ancillary Revenue

This is a perfect time to start thinking about different sources of revenue that might be available to you. This can include leasing out space on your in-house cable and community channels to advertisers as well as selling space on your community association website to businesses interested in advertising to your community. This is especially true of realtors who might be willing to pay you a certain amount each month to advertise on your website or your tv channel.There might also be opportunities to advertise in other high-traffic areas subject to documentary and statutory constraints. In addition, there are still cell phone and broadband companies out there willing to lease your unused rooftop space. For more information about these kinds of opportunities, please contact Corey R. Hayes with MasTec/DirectPlus at 877-534-8201.

According to Jeff Ducker of Kane & Company CPA's, any avenues that the association feels might bring in additional revenue would be worthwhile even considering the potential taxability of such revenue. It is important to remember that there will more than likely be expenses which may be allocated against such revenue to reduce any tax effect. For more information on the potential tax consequences of these kinds of ancillary revenue, please contact Jeff Ducker at or by phone at 305-503-1023. I hope this information has given you some food for thought. There are still some clever strategies you can employ to make the best out of a bad situation. I will provide you with emerging strategies in the near future.

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