CAI-NJ Feb. 2019

Reasons Communities Face Financial Hardship

By Matt Driscoll, Mutual of Omaha Bank

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W hen a community association is healthy and thriving, it can help provide high-quality ame- nities, protect property values and generate some pride in the community. Occasionally though, communities can find themselves in dire straits and unable to provide many of the benefits they were designed to create. Fortunately, most of these financial hardships can be avoided if you know what to look for and plan accordingly. Here’s a list of the top 10 reasons community associa- tions find themselves in financial trouble. 10. Board Members don’t understand their fiduciary responsibility Being voted in as a board member can be a real honor for someone who wants to improve their community. But, being elected doesn’t mean that the individual understands

their responsibilities or how to go about fulfilling them. Often, board members try to save money by deferring maintenance or refusing to raise assessments. While this may look good in the short-term, many community associations will find themselves in long-term trouble. Repairing instead of replacing or putting off repairs to be frugal does save money today, but it’s setting you up for a much larger bill in the long run. These well-meaning board members can also often put the community’s finances in jeopardy by not raising assess- ments incrementally, and therefore saving enough money in the reserve account for the inevitable “rainy day.” The easiest way to combat this problem is with educa- tion. Board members should be encouraged to participate in CAI education or classes offered by management companies, attorneys and by reading reference materials. Boards should also be encouraged to set short-term and long-term goals to help with proper planning.

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