Condo Media - July 2020 - 18
Forward Thinking
SKIP RESERVE CONTRIBUTIONS
Skipping regular reserve contributions
is another strategy boards might consider to increase cash flow and possibly
avoid the need to borrow money from
the reserves or from a bank. But there
are concerns about this option, too,
among them, the difficulty of catching
up with the missed payments and the
risk of creating what Fudeman describes as "a slippery slope" - after you
skip one or two payments, it becomes
easier to continue skipping them.
That's a concern not just because
the reserves won't be adequately
funded, but also because secondary
mortgage market rules require regular
reserve contributions. Many lenders
may not approve condominium loans
in communities that don't meet that
requirement, making it difficult for
owners to sell their units or refinance
an existing mortgage.
Like a loan from the reserves, a decision to suspend reserve contributions
18
CONDOMEDIA July 2020
should be formalized in the board
minutes and "communicated to owners
in some way," Fudeman suggests. "You
want owners to understand what the
board is doing and why." The board
should also keep track of what they owe
and resume the contributions as quickly
as possible. As long as you make the
payments within a specified time, you
will probably be deemed to be complying with the "regular reserve contribution" requirement, he says.
Failing to comply with the secondary market requirements may create
problems for some owners, but it isn't
illegal, Thomas Moriarty, a principal
in Moriarty Troyer & Malloy LLC,
points out. And while some state laws
mandate specific reserve contributions, most do not. The Massachusetts
statue, for example, simply requires
associations to maintain "reasonable"
reserves, he notes, which could create
considerable leeway for boards struggling with pandemic finances.
"A board could argue that under
current conditions, a reserve contribution that impairs the association's
ability to pay its expenses isn't reasonable," Moriarty says. If the decision
to defer contributions is challenged,
he thinks courts will "give a lot of
deference to boards that take common
sense, understandable actions."
BORROWING FROM A BANK
Obtaining a bank loan may be "a shade
preferable" to borrowing from the
association's reserves, Barrett says,
because it leaves the reserves intact
and available for capital expenditures.
But in terms of their immediate impact on the association's finances,
the two options are otherwise comparable. Both can enable associations
to bridge temporary funding gaps.
And "despite current market conditions," Barrett says he is hearing
that "banks are willing to talk to
associations."
Condo Media - July 2020
Table of Contents for the Digital Edition of Condo Media - July 2020
Contents
Condo Media - July 2020 - Cover1
Condo Media - July 2020 - Cover2
Condo Media - July 2020 - Contents
Condo Media - July 2020 - 2
Condo Media - July 2020 - 3
Condo Media - July 2020 - 4
Condo Media - July 2020 - 5
Condo Media - July 2020 - 6
Condo Media - July 2020 - 7
Condo Media - July 2020 - 8
Condo Media - July 2020 - 9
Condo Media - July 2020 - 10
Condo Media - July 2020 - 11
Condo Media - July 2020 - 12
Condo Media - July 2020 - 13
Condo Media - July 2020 - 14
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Condo Media - July 2020 - 17
Condo Media - July 2020 - 18
Condo Media - July 2020 - 19
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Condo Media - July 2020 - 24
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Condo Media - July 2020 - 26
Condo Media - July 2020 - 27
Condo Media - July 2020 - 28
Condo Media - July 2020 - 29
Condo Media - July 2020 - 30
Condo Media - July 2020 - 31
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Condo Media - July 2020 - 46
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Condo Media - July 2020 - 48
Condo Media - July 2020 - Cover3
Condo Media - July 2020 - Cover4
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