Condo Media - July 2015 - 26

HOLE
In a

Whittemore and Mericantante recommend a small (2 to 3 percent) annual increase to establish a "cushion" that can
avoid the need for a large, unexpected
one-time adjustment in the fee.

The association's debt load is
high. Accountants generally agree
that associations shouldn't use bank
loans to cover operating expenses
(most banks won't approve loans for
that purpose), but they differ on
the merits of borrowing money to
finance unanticipated expenses or
large capital projects.
Bloom feels strongly that a special
assessment (which should be labeled
a temporary fee increase to protect it
under the association's priority lien) is
usually the best option for unexpected
expenses, while large-scale repair
and replacement projects should be
financed with reserves. "That's what
reserves are for," he says. Banks are far

more willing than they used to be to
offer condominium loans, and many
associations, in Bloom's view, are far
too enthusiastic about seeking them.
He also worries about the "car buyer
mentality" that leads some boards to
extend the loan term in order to reduce
the monthly payments.
The problem, he says: "You get a loan
for one purpose, then you get another
loan for another purpose before the first
has been repaid. Soon, the debt equals
$20,000 per unit," and the association
is saddled with what becomes a
permanent debt, with one or more loans
always on the books.
"With rare exceptions," Bloom
says, "there are no circumstances
where a loan is a better option for an
association than drawing on reserves
or levying an assessment.
"But it's not black and white," he
adds. For some communities in some
circumstances, a loan may be the only

viable solution. But too many boards
see it as the first choice rather than the
last resort Bloom thinks it should be.

The board puts vendor contracts
out to bid every year. This
indicates to Bloom that board members
are focusing too much on the cost of
services and not nearly enough on their
quality. "Single-minded obsession with
the lowest cost isn't prudent and isn't
in the best interests of the community,"
he says. Boards that make the lowest
bid their priority and change vendors
repeatedly may be sacrificing loyalty
and quality.

The board doesn't review
financial reports. Board
members have a fiduciary obligation
to manage the association's affairs
responsibly and protect the interests
of owners. They can't discharge those
obligations if they don't understand the

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CONDOMEDIA

Condo Media - July 2015

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