Managing Delinquent Condo Association Fees

Managing Condo association fees

“Hope is important because it can make the present moment less difficult to bear”. The problem with hope when talking condominiums and condo association fee collection is that we all really want to think the best of our neighbors; we have hope they are good and honest people. We want to believe that old Joe down the hall just let his condo association fees slip his mind and once he is reminded he’ll apologize and cut a check right there on the spot. But alas, hope can be fleeting or misplaced.

Condo association fees are the hope that feeds our present and future

Let’s face it, condominiums while our home are also a business. They must have money from condo association fees to provide for daily operating expense, common maintenance, reserve funding, capital funding and insurance. They probably even have some staff cost, a maintenance man or a management company. It all adds up and then it gets divided and passed on to you in the form of a monthly condo association fee. Then when something comes up unexpected there may be an additional association assessment that needs to be collected.

Most condo associations will admit they are a business and must be run like one, but they have trouble acting when a neighbor is involved. Let’s face it, this is Houston, Texas, people are friendly here and they don’t want to have to be the bad guy, they hope the person just forgot their condo association fees. Well, sad to say, hope is NOT a strategy for collection.

Looking for a strategy?

It may be time that your association board sat down and set up a list of targets for collection of condo association fees. The development path includes investigating how your governing rules state delinquent accounts will be handled. Finally, you have to agree to apply this list to every association assessment and every person equally.

From the list you should create an administrative resolution to set up the policy on collection of delinquent association assessments. Once this policy is enacted by the condo association it should be promulgated to all co-owners and if possible incorporated into the CRR’s. It should simply lay out the process for collection of condo association fees. Things it should include are:

  • Date association assessments are due
  • Grace period if applicable, late charges apply
  • Intent to Lien notice over 30 days
  • Lien recorded after 45 days
  • Acceleration of assessments to end of fiscal year after 3 months
  • Lien foreclosure after 4 months
  • After lien foreclosure, all payment/settlements require board approval

Remember, the process for collection of association assessments has to be in writing and it has to be enforced equally to be effective and hold up in court.

Management companies for third party billing

Another consideration, have a management company do the billing and collections of association assessments. You will still need a written guideline for them to follow in the CRRs, but they provide a buffer that eliminates any bad feelings that may arise out of the collection process.

Contact your condo association today and find out what your policies are for collection of delinquent condo association fees. Find out if they are being followed in a consistent manner; if not, get with your board and suggest changes be made to insure a positive cash flow with all participating. For more information on this subject check here.

Excuse me, is that a capital improvement?

Capital Improvement for Condos

 

The term capital improvement is really an accounting term, (I know because my accountant friend from Houston debated me on the terms meaning) so there is no industry adopted definition as to what a capital improvement really is. Often times a “capital improvement” is defined as the addition of a permanent structural improvement or the restoration of some aspect of a property that will either enhance the property’s overall value or increase its useful life. This definition however can interfere with the boards authority to maintain the common area facilities without member vote.

Capital improvement, can you identify one?

More importantly, can your condo association identify one? Most HOAs have rules in their governing documents such as a spending cap without member approval but they have one common problem, often the term “capital improvement” is not defined. Even in Houston we find this problem today.

Many in the industry think Associations should adopt the following definition:

A capital improvement is any (i) substantial discretionary addition to the common areas, (ii) voluntary significant upgrade to common area materials, or (iii) discretionary material alterations to the appearance of the development

Even this definition has some gray areas in it like a rainy Houston morning, but it would move us forward and that’s the way to go. If the bylaws or rules in your association do not define “capital improvement” it would be best to consider amendment now to avoid future issues.

So how do you pay for it?

Once you have determined you have a capital improvement, then you need to refer to your rules and bylaws to see what they say regarding spending caps, special assessments and other funding options for capital improvement.

Can you use reserve funds to pay for capital improvements? Technically while they are close to the same thing, they are really horses of a different color. A reserve expenditure enhances an already existent feature while a capital item is a completely new item where there was no need prior. Make sure your bylaws and rules, plus your condo association understands and defines both.

There are companies that can finance capital improvements for condominiums that are then paid for by a slight increase in association fees for a set period of time.

You can do a one-time assessment to all owners to pay for a capital improvement. Consider how difficult this option may be on your owners; in an older population many may be on very fixed incomes that limit their capacity for payment of a large assessment.

Plan for the future

The best way to avoid unnecessary burdens and definitions is to plan ahead for capital improvements. Plan 5 years out, reviewing the plan at every meeting so adjustments can be made and have a fund that is earmarked for capital improvements and a permanent part of the association dues.

Talk to your management company, condo association or HOA today so you are ready for funding the future.

FHA Approval, is it worth it?

FHA Approval, is it worth it? What is the FHA and why is FHA condo approval is important. There is a misconception that the FHA lends money, WRONG. FHA actually insures a mortgage. They set a standard for a property to meet to qualify for FHA approval, making certain you are buying a better piece of real estate. FHA condo approval is really something that is a privilege and not one all condo complexes can attain. FHA condo approval means you have a better product or home. As of July 1, 2016 there were about 40 FHA approved condos in Houston proper; FHA condo approval can be confirmed on this website https://entp.hud.gov/idapp/html/condlook.cfm. Another myth is that FHA condo approval is for low income buyers, not true; FHA insures loans all the way up to $800,000 plus depending on the area; not exactly low income, huh? That being said, this should dispel the next myth, that Section 8 low income housing and FHA insured loans are related; NOT. Last big myth, FHA insured loans did not cause the housing crisis; statistics show, FHA insured loans are not more likely to default. In reality programs such as sub-prime mortgages, interest only payment option, etc. were the culprits. The Advantages So what are the advantages to FHA condo approval? Increased buyer pool of approximately 60%. Imagine 60% more buyers available to purchase your property upon resale due to FHA condo approval! Most American buyers use FHA insured loans and that trend shows no indicator to change in the near future. Larger pool of buyers equates to a higher value for your condo and that FHA condo approval makes you look better in the market. Realtors bring their buyers to FHA approved communities first! The Texas Association of REALTORS claims all four major markets in Texas: Austin, Houston, San Antonio and Dallas saw increases in condo sales from January-May of 2016. The reason, young professional opting to buy condos; Houston's demographics show that these young professional ages 30 to 39 are the bulk of the population (https://suburbanstats.org/population/texas/how-many-people-live-in-houston). FHA condo approval will give you a better chance at these educated buyers. FHA condo approval means more owner occupied units; buyers are required to live in their newly purchased property as their own primary residence. Less investor ownership equals less renters in your community.Truth, owners with a vested interest are known to take better care of their property and provide for a more positive awareness and a safer community. FHA condo approval is looking better, right? Resale incentives on FHA approved condos are unbelievable. FHA loans are assumable! Assumable at the same interest rate! With the low interest rates available, this is a plus not only you, but for future resale! Persons looking at a possible reverse mortgage scenario in the future, must have FHA approval as this type of mortgage requires an FHA approved property. The Cons This will be a short section, realistically there are not really cons to FHA condo approval. In fact, being FHA approved shows a much more conscious and fiscally responsible management by your board. The How Want more info on FHA condo approval, click on this link http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/ins/sfh_ins_condominiums. There are many services available out there that will help you and your board with the process. Just because FHA condo approval was in place when your condo was built, does not mean it still meets the criteria today; before buying or listing check your status and eligibility. A list of FHA approved condos by location, name or status can be found at the link above.What is the FHA and why is FHA condo approval important. There is a misconception that the FHA lends money, WRONG. FHA actually insures a mortgage. They set a standard for a property to meet to qualify for FHA approval, making certain you are buying a better piece of real estate. FHA condo approval is really something that is a privilege and not one all condo complexes can attain. FHA condo approval means you have a better product or home. As of July 1, 2016 there were about 40 FHA approved condos in Houston proper; FHA condo approval can be confirmed on this website.

Another myth is that FHA condo approval is for low income buyers, not true; FHA insures loans all the way up to $800000 plus depending on the area; not exactly low income, huh? That being said, this should dispel the next myth, that Section 8 low income housing and FHA insured loans are related; NOT.

Last big myth, FHA insured loans did not cause the housing crisis; statistics show, FHA insured loans are not more likely to default. In reality programs such as sub-prime mortgages, interest only payment option, etc. were the culprits.

The Advantages

So what are the advantages to FHA condo approval? Increased buyer pool of approximately 60%. Imagine 60% more buyers available to purchase your property upon resale due to FHA condo approval! Most American buyers use FHA insured loans and that trend shows no indicator to change in the near future. Larger pool of buyers equates to a higher value for your condo and that FHA condo approval makes you look better in the market. Realtors bring their buyers to FHA approved communities first! The Texas Association of REALTORS claims all four major markets in Texas: Austin, Houston, San Antonio and Dallas saw increases in condo sales from January-May of 2016. The reason, young professional opting to buy condos; Houston’s demographics show that these young professional ages 30 to 39 are the bulk of the population (source). FHA condo approval will give you a better chance at these educated buyers.

FHA condo approval means more owner occupied units; buyers are required to live in their newly purchased property as their own primary residence. Less investor ownership equals less renters in your community.Truth, owners with a vested interest are known to take better care of their property and provide for a more positive awareness and a safer community. FHA condo approval is looking better, right?

Resale incentives on FHA approved condos are unbelievable. FHA loans are assumable! Assumable at the same interest rate! With the low interest rates available, this is a plus not only you, but for future resale! Persons looking at a possible reverse mortgage scenario in the future, must have FHA approval as this type of mortgage requires an FHA approved property.

The Cons

This will be a short section, realistically there are not really cons to FHA condo approval. In fact, being FHA approved shows a much more conscious and fiscally responsible management by your board.

The How

Want more info on FHA condo approval, click on this link. There are many services available out there that will help you and your board with the process. Just because FHA condo approval was in place when your condo was built, does not mean it still meets the criteria today; before buying or listing check your status and eligibility. A list of FHA approved condos by location, name or status can be found at the link above.