The roofs of the condominiums have now deteriorated to the point where they are leaking and the Association must take immediate action to replace every one of them.  The cost of the project is $500,000 and the Association only has $10,000 in the reserve fund to cover the costs of the job. 

If that weren't bad enough, the economy has hit the residents of Happy Hollows hard and members of the Board don't know how to handle this financial crisis.  They have made an emergency call to 911 for assistance. 

While there may be no painless answer to this funding crisis, here are options for Happy Hollows - and associations in similar situations - to consider:

1. Triage Repair and Replacement Projects.  If your association is lucky, you do not have multiple repair and replacement projects that have to be handled immediately.  If this is the case, you should retain a qualified professional (e.g. engineer or construction professional) to assist the board of your association in assessing the order of priority for the replacement and repair projects.  The qualified professional should be able to provide the board with guidance on timing, estimated costs of the projects, and stop gap measures the association may be able to take.  You should also seek recommendations from a knowledgeable individual on funding options for projects that do not require immediate attention.
   
   While spending money to obtain the advice of a qualified professional to assist your association out of a financial crisis may seem counter-intuitive, the value obtained from this advice should more than pay for itself.  

2. Consider a Loan to Cover the Funding Deficiency.  A very good option for associations to consider is to obtain a loan to cover some or all of the costs associated with the repair or replacement project.  In fact, there are financial institutions which specialize in this type of lending.  Typically, the assessment income of an association is pledged as collateral for the loan.  As a result, in order to be eligible for such a loan - associations must ensure they are pursuing collection of their delinquent assessments in a diligent manner.  Most financial institutions will not lend to an association with a 60-day delinquency rate of more than 5% to 7% of all homeowners in the association. 
   
   If your association is having delinquency problems, you should consult with legal counsel regarding collections options and to obtain advice on whether it would be prudent to write off any of the delinquencies on the association's books.
   
   
3. Special Assessment.  Considering the current economic realities homeowners are facing, many boards are reluctant to consider the option of a special assessment.  However, it may be the only feasible option your association has to obtain necessary funds for projects that cannot be delayed. 


When considering the use of a special assessment, you should review the Declaration of Covenants, Conditions & Restrictions ("Declaration") to determine whether there are restrictions on how funds from a special assessment can be utilized.  Further, the Declaration or Bylaws of your association will likely outline whether a vote of the homeowners is necessary to levy a special assessment and any related requirements.

Obviously, averting similar financial challenges in the future cannot be overstated.  To that end, associations should:  (1) have a reserve study conducted;  (2) adopt a reserve policy as required by House Bill 1359; and (3) be diligent in creating and complying with a realistic funding plan.