Failure to Budget Appropriately and Collect Delinquencies Has Major Consequences for HOA
The Courthouse News Service reported on a story that really caught my attention. Evidently, the City of Atlanta Watershed (“Atlanta Watershed”) has threatened to shut off water to the 125-unit Villages of Cascade Homeowners Association (“Association”) as early as today if the Association does not pay 25% of an outstanding balance due for water supplied by the Atlanta Watershed.
The Association utilizes income from assessments to pay water fees for all of the units which are linked to a single water meter. Obviously, assessment income is also used to pay for all of the common expenses of the community. But get this – the Association reportedly has an assessment delinquency rate of 63%! While this economy has certainly taken a toll on the ability of some homeowners to pay their assessments in a timely manner, a 63% delinquency rate is astounding even for this economy.
In fairness to the Association, there is a dispute over the appropriateness of the charges assessed by the Atlanta Watershed. However, this unfortunate situation is illustrative of these important points:
- When preparing a budget, HOAs must realistically take into account all of the anticipated expenses for the upcoming fiscal year. Once the expenses are determined, assessments should be set at a sufficient level to cover operating expenses, expected delinquencies and contributions to reserves.
- Directors of HOAs have a fiduciary duty to collect delinquent assessments. In Colorado, this process should include adopting and following the required Collections Policy and taking appropriate steps to address delinquencies in a timely manner.
While this story is obviously an extreme example of failing to budget appropriately and collect delinquencies, it’s important for all boards of directors and residents of HOAs to understand the implications of failing to do their part in promoting the fiscal health of their communities.