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As costs grow, board faces cutting services

October 19, 2008|Stephen Glassman and Donie Vanitzian | Special to The Times

Question: I'm a former board director and have come to the realization that it has become too costly to run our homeowners association. Our board president is an octogenarian, two board members are absentee owners and another just resigned because of personality conflicts.

Our building is all electric. Electric rates have increased dramatically, the city raised water rates, and our association insurance steadily goes up 8% per year. I've learned when outside costs rise steeply, an association's pro forma budget is worth no more than the paper its printed on. I have given up my volunteer duties at the association, and since no one will be taking those over, there can be no further savings there. Some 20% of our owners are not paying monthly association fees because they can't afford them.

How can condo boards solve the myriad problems facing us? What services can we cut? Where can associations get discount services? What happens when a board becomes either dysfunctional or ceases to function? Do we need a board? Can associations be run by the general membership instead of by a board?

Answer: Problems such as these are a growing challenge to many boards. Rising costs are a fact of life and typically hit those with fixed incomes the hardest.

Cutting services may or may not be possible, but a careful review of the vendors providing those services and a partial elimination of some services could result in savings. Seeking new vendors might also result in savings or a discount, as can managing your own property and avoiding contracting with outsiders.

The most successful associations run lean whether the times call for cutbacks or not. Obtaining discounted services is a function of the board and/or committees of the board. It is not difficult to ferret out bargain services -- it just takes time and effort to do so.

Running over budget or running out of money is not unforeseeable. The Davis-Stirling Act requires each association to have a realistic budget, not one designed to appease the owners, lure them into a false sense of security or tempt them into not paying dues.

By law, boards are the designated representatives of the association, which is the organization that runs the residential deed-restricted common interest development. Incorporated or not, an association probably will require some type of governing body or board of directors.

Whether the association's governing documents create a board of directors or some other governing group is a matter set forth in the association's documents. The failure to have a formal board of directors could conceivably leave association operations up in the air. If no one wants to serve on the board, the desirability of the project could deteriorate.

Reach out to those owners who are not paying their monthly dues and try to work out a payment plan that will put some money into the association's operating accounts. Another option, filing liens, could result in some owners losing their homes to foreclosure while contributing nothing toward solving the association's financial problems.

All owners are required to pay for the day-to-day operations of the association and to fund the major repairs and replacements of common property. Whether by loan or assessment, the ultimate source for those funds is the titleholder.

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Send questions to P.O. Box 11843, Marina del Rey, CA 90295 or e-mail noexit@mindspring.com.

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