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Community Living: How homeowners associations should handle bad debt

Q: Many associations are dealing with the impact of some residents' inability to pay assessments; many owners are facing foreclosure and not making their association assessments. As a result of the rules governing foreclosures, for the first time our association expects to incur bad debt expenses this year. Do you have any advice on how bad debt should be handled in developing the annual budget and on the financial books of the association?

A: Be very savvy in developing your budget. Keep your members aware of the shortages. At this time of year, the budget should have been approved, and as the weeks pass, you may find that the bad debt restricts necessary repairs, replacements or services. You may need to approve a special assessment. Do not neglect using your CPA for guidance.

Stuck with cable service, fees

Q: Our homeowners association for a number of years has been receiving cable TV for what I think is called a bulk rate. I just received a couple of high-definition TVs for our 50th wedding anniversary. I called our management firm to see when I would be able to opt out of cable, as I wished to use a satellite service that has more options for HD. I was informed that there was no way I could drop out of this cable subscription. I was told the contract was in effect until 2010 and that I would have to pay as long as the association renewed the contract. I could understand if this was a condominium, but these are private, unattached homes. Is there anything I can do?

A: Since the bulk cable is part of your HOA services, all homes must pay the cost of cable. It is not your management company that sets the fees. In the case of cable, the board of directors is obligated to include it as a common expense in the budget since it is an existing service. Apparently the developer established the service, which must be continued unless the owners vote to change it in 2010. The good news is that you have the right, with some limits, to install a dish since you live in an HOA. This way you can have the service you want. Yes, you will need to pay for basic cable and the expanded dish programs. The cable companies that I know have many HD channels that are very competitive with dishes. Maybe you need to talk to your cable company for a list of their HD channels and to see what their plans are for HDTV.

Anyone can bid on property at public sale

Q: Many homeowners associations have members who are delinquent in paying annual fees. If a board of directors instructs its attorney to foreclose on a property because of nonpayment of dues and the property comes up for foreclosure bid on the courthouse steps, can anyone, including other HOA members and the board members, bid on the property?

A: If the property is foreclosed and the judge orders a public sale, anyone can bid on the property. The sale will include repayment of the outstanding senior claims. In the case of a first mortgage, all other liens will be eliminated except taxes due. If the association forecloses, the first mortgage that has a superior lien will not be eliminated. You would need to make sure which liens or claims will remain on the property. It is a public sale, so anyone can bid. Please consult professionals before you bid on any foreclosed property. In other words, know what you are bidding on.

New directors should look to the future

Q: I belong to an HOA. We operate with only four directors. The same directors have been in office for years. There is an election coming up for all positions. Say new directors are elected and find out that the past directors did things that were not in compliance with the documents and the Florida statutes. Who takes the blame — the new directors or the ones that left office?

A: First, your board should have an odd number of directors, and from the directors, they elect the officers. At the annual election, have the members elect an odd number of directors such as three or five. If it is found that the former directors improperly used association funds by fraud or took money or property, then you need to file a police report. If you feel they acted improperly, that is another matter. If they just made bad business decisions, they can say they made choices at the time with the best information available. So, I would forget any legal action and correct the mistakes and properly operate the association in the future.

Richard White is a licensed community associations manager. Write to him at 6039 Cypress Gardens Blvd., No. 201, Winter Haven, FL 33884-4115. He cannot provide personal replies by mail, but you can e-mail him at CAMquestions@cfl.rr.com. Please include your name and city.

Community Living: How homeowners associations should handle bad debt 01/30/09 [Last modified: Friday, January 30, 2009 11:00am]

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