Tales from a Condominium Association: Rising fees, the Budget Squeeze and 5 Pieces of Advice

I recently had a conversation with Tara Bahrampour of the Washington Post as part of her research for "Rising community association fees are squeezing homeowners on tight budgets," the main Metro  section article in Sunday's Washington Post.  I was pleasantly surprised to have this conversation: the article notes that over 63 million are residents in community associations, and relatively little attention has been paid to how they work.

Screenshot of article on washingtonpost.com

Rising fees can be problematic for many residents - here's the excerpt that came from our conversation:

In the past four decades, the number of condominiums, co-op units and houses that are part of homeowners associations has skyrocketed across the nation, from 701,000 in 1970 to 25.9 million in 2012, according to the Foundation for Community Association Research.

The foundation does not categorize ownership by age, but an analysis by AARP’s Public Policy Institute in 2003 found that 46 percent of owners in single-family homeowners associations were older than 50, as were 56 percent of condo and co-op owners.

For homeowners who are retirees or who plan to retire soon, the fee hikes can be particularly onerous, said Rodney Harrell, a senior adviser at the institute. 

Adding to the burden, the number of homeowners 50 and older who own their homes free and clear fell between 2000 and 2009, according to an institute report. And in the lowest income group of people 65 and older without mortgages, 58 percent of them were spending at least a third of their income on housing.

That can create a razor-thin margin for survival when a common charge goes up, either in the form of a monthly increase or a one-time special assessment.

“These fees really pile on to these other things that are going on for folks, and because the vast majority of people want to stay in their homes as long as they can, this really becomes the straw that breaks the camel’s back,” Harrell said. “They can put someone into debt and, in the worst-case scenario, lead to foreclosure.”

I will clarify the affordability challenges of fees and other non-mortgage costs - at least 30% of income is being being spent by 58% of the lowest income group of 65+ homeowners who own their homes free and clear. This means the majority of lower-income people of retirement age are burdened by housing-costs, despite having paid their homes off.  This challenges their stability and puts them at risk if any other cost goes up for them.  While this challenge is particularly concerning for this group, rising fees affect people of all ages with a wide range of incomes. The general challenge to affordability from community association fees has weighed on my mind recently - in part because too few people seem to pay attention to how these associations work.  So the question is why fees increase and what can be done about it?

As I explained in the first Tales From a Condominium Association, I am simultaneously AARP's policy lead on housing affordability and president of a condominium with over 200 homes in several buildings.  Because of that, I often reflect on the broader issues at play when we make decisions. In this case, it is also personal - like the other board members, I am a homeowner in the association and if I approve a budget with higher monthly association dues, I  have to pay those higher fees myself. These budget decisions are rarely easy.

The Post article references some associations that held fees constant for a period of time in acknowledgement of the tough economy (as ours did). That is helpful for struggling owners, but there is a tension with responsibilities to maintain the property. Roofs may need replacement and other matters need to be addressed to maintain short and long-term property values - saving money by delaying roof repairs doesn't help if the result is extensive water damage that costs more money later.

A healthy reserve fund can help to pay for expected and unexpected issues, from expected roof repairs to damage from an unexpected Maryland earthquake or a spike in water bills - these are a few of the issues that my association has faced. For all associations (and especially for older properties) major replacements and repairs will be necessary at some point. An association that has kept dues artificially low for too long may find itself without enough reserves to pay for these surprises.

The tough part is being fair to homeowners who struggle to pay dues and simultaneously fulfill the responsibility to your fellow owners to address common issues. Making matters more complicated is that residents who go into foreclosure are not only having the personal housing instability and credit damage that comes from losing their homes, but their unpaid dues usually cost the association money, and foreclosures can lower property values for other owners. Foreclosures are generally bad news for everyone in the association.

For those reasons, a community's best interests are served by a board an association that does what's necessary to maintain stability. Our association raised fees slightly this year to cover our expenses and make a small contribution to our reserve fund.  We also have a standing practice to work out a payment plan with any homeowner who requests help, but aggressively pursue repayment of fees from any unit owner who does not pay and does not request help.  The expectation is that our actions follow Maryland's Condominium Act and the association's bylaws while simultaneously taking the best interests of the association in mind

PPI research and the comments section of the Washington Post article show that many boards aren't doing things in this thought-out manner.  As 323,600 associations exist in the US, there are many good and bad examples. We rely on homeowners with a range of abilities, interests and agendas to represent others, and the quality of the candidate pool varies greatly.  These associations are the most local form of government, but when homeowners (both board members and other owners) fail to pay enough attention to their duties and responsibilities, the association suffers. In the worst cases, misguided pet projects, embezzlement, questionable decision-making and personal vendettas (the classic waste, fraud and abuse) become unfortunate realities. This model works best when every unit owner is aware of her/his responsibilities and participates in the process.

My top five pieces of advice to those who live in properties covered by associations or are considering buying one:

1. Read everything in advance - Read your condo docs or association bylaws before you buy, and make sure that you are ok with what's in them before you sign.  
2. Expect fees to go up - The property won't ever get any newer than it is now, and as maintenance and other expenses tend to rise over time, fees have to rise to cover them.
3. Step up if you can -  Run / volunteer for the board if you would be a good member - it's your property too, and many boards suffer from lack of interested candidates and default to the people "who have always been there."
4. Be a responsible member - Attend meetings.  Vote at election time. Talk with other owners about issues that affect the community. If you have a question or a dispute with a board action, refer to  your association bylaws and any state law - just because someone is on the board doesn't mean they are an expert.  Your participation in the association is part of your role as owner.
5. Don't be afraid to reach out or ask for help - A good association takes the needs of residents into account.  Don't assume that no one cares and don't be afraid to reach out to the board or management company if you are having trouble paying dues. 

The Bill of Rights for Homeowners in Associations can help create a good policy framework, but good policy is only one piece - each owner must do his or her own part. It's hard to see a winner when an association doesn't work well.

Do you have any additions to this list or any other thoughts? Let me know here or message me on  Twitter @drurbanpolicy