Friday, April 2, 2010

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 lien holders. 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.


  1. As the president of a small HOA in Michigan I am faced with the unpleasant task of trying to ensure association cash flow in a troubled economy. Your views will be very helpful, thanks for the post!

  2. Good luck, Todd. I hope you are in better shape up there than we are down here. I was just back in my hometown, Chicago, and visited the new Trump Tower Condominium downtown. The realtor told me the condominium market is soft but not decimated like the Florida market is at present.