In this week's tip, we explore a comment from HOAleader.com's Facebook page, where our readers leave insightful comments that sometimes lead to article ideas and interesting discussions online.
A follower said he's seen reports of HOAs "turning up broke, without funds to fulfill their contractual obligations." He said he was surprised, but since he first heard of this phenomenon, he's heard of "a few others going belly up."
Have our experts seen this happen? And if so, is it a growing concern, particularly with insurance costs hammering condos and HOAs in many states? And when this happens, is receivership the only answer?
Julie McGhee Howard, co-founder and managing partner of NowackHoward LLC in Atlanta, who at any given time represents hundreds of condos and HOAs throughout Georgia, says many of her clients are indeed feeling pinched.
"We do have some clients right now that are in extreme financial straits," she explains. "The condo insurance market is in a crisis. Associations are either being cancelled or being told, ‘We're not going to renew unless you do multiple things.' Or renewal costs a lot of money. Premiums are up 300 to 400 percent.
"It's also a difficult situation because, in Georgia, condos are required to insure the full replacement cost of the structure—that's a statutory mandate," says Howard. "So they have to have that insurance. I have one client that, at the last minute, got cancelled by their prior
insurance. They were able to get only one bid, and they got it 24 hours in advance of the date they had to renew. Their cost went up 400 percent.
"Associations are having to face either a new budget and increasing assessments
significantly—which has other impacts on the community and on resale—or proposing a special assessment," she states. "Their revenue comes only from one source, which is their owners. And in Georgia, the boards of most condos can only special assess up to one-sixth of the amount of their annual assessments per year; anything else requires an owner vote."