“What Do You Mean There is No Money, Where Did It All Go?”

by admin on April 1, 2010

in Accounting, Board of Directors, Maintenance, Residents

Follow the Money

Every day Board members and property managers are asked by unit owners why something hasn’t been fixed or why some improvement can’t be accomplished at this time.  Increasingly, the answer is that the association doesn’t have the funds right now and that they have other priorities.  The unit owner asks, “what do you mean there is no money, where did it all go?”  The sad fact is that a lot of associations do not have the money or the cash flow to operate properly.  The housing bust, the foreclosure crisis and finally, the general bad economy has had a major effect on our population and the operations of many community associations in South Florida. 

Prior to the start of an association’s fiscal year they will adopt a budget that will project the amount of expenses that the association will need to operate according to the association’s documents, state statutes (if reserves are required) and finally, according to the unit owners’ expectations and demands.  To offset these expenses, the association will estimate any other income sources and then from that figure they can arrive at the amount of assessments that will need to be billed to the unit owners to operate the association for the year.  Recently, the downfall in the budget process has been the inability of the association to estimate the amount of delinquent assessments, foreclosures and the overall amount of uncollectable assessments that will occur.  It is an income problem, the same problem that municipal, state and federal governments are having – not enough income!

Some associations have been in denial about this and did not want to confront the ugly truth of what was happening to their association in terms of lower revenues caused by uncollectable assessments.  If that issue had been tackled then the association would have to raise their assessments and therefore the ire of their owners.  Yet other associations tried to address this situation properly and they underestimated the volume, costs associated with and the magnitude of the delinquencies that they were subjected to.

It is not that the association does not want to make that repair or make that improvement; it is just that they cannot, at this time, afford to do it.  The truth is, that today, Boards have a dilemma, in that the documents and their fiduciary responsibility requires them to maintain their associations at a level that is consistent to maintain, repair and reserve for the association’s common areas.  A lot of associations are finding operating at that level is very difficult to achieve.

Unit owners who are paying their assessments on time, to them, the whole thing seems unfair, as they are not getting what they paid for and eventually they will have to pay for the delinquent owners.  In addition, the owner who is current with their payments will soon have to pay in terms of ever higher assessments or with special assessments to make up for the lost revenue!  The only answer that I have for this situation is to have patience and that time will eventually clear this situation up as the foreclosures are processed through the courts.  This will take some time to digest and we need to be more realistic when we create budgets in the future.

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