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“Social distancing” may lead to social division in common interest communities

3/18/20, 10:15 PM

 

 

By Deborah Goonan, Independent American Communities

HOA-industry articles on Coronavirus focus on what an HOA board can and cannot do to prevent widespread illness within their own communities.

IAC explores the inevitable adverse economic and social fallout from the COVID-19 pandemic.

“Social distancing” may lead to social division in common interest communities

Nearly every HOA attorney is recommending that communities cancel their social events and shut down their common gathering areas. Sounds like common sense, but…

When residents are forced to reduce personal contact, what are the obvious side effects?

Well, for starters, significant communication barriers.

During the social distancing phase of this pandemic, we’re likely to see a record number of neighbors shift from in-person discussion to email or social media platforms such as Facebook and Nextdoor.

And, where there’s stress and controversy, we know how quickly social media discussions can devolve into bitter partisan debates (especially in an election year). Political or personal discord also commonly breeds internet trolls and cyber bullies.

Impersonal communication and rampant misinformation may lead to bitter division in communities with stir-crazy residents under enormous emotional stress.

There’s simply no adequate substitute for in-person communication and human contact.

Beware of reduced transparency

At the same time, when and if a board holds an HOA meeting, attendance will be severely limited.

Or, if the board members themselves aren’t willing to commingle, they will most likely conduct a teleconference.

After all, many HOA-governed communities simply lack the technical knowledge and equipment necessary to effectively broadcast online meetings to members.

Unfortunately, with residents cocooning in their own homes, members will almost certainly experience a decrease in HOA transparency. (Not that lack of transparency isn’t already a significant problem in HOA-ville under normal circumstances.)

Quite frankly, in my opinion, social distancing sets the perfect environment for overzealous leaders to advance their unpopular agendas upon members of the Association.

Likewise, many unit owners will be distracted by the inevitable personal impacts of the pandemic. So we’re also likely to see an uptick in fraud and embezzlement perpetrated by board members and managers, who have easy, unmonitored access to the HOA’s money.

Economic pressures are inevitable

As soon as COVID-19 was labeled a pandemic, the U.S. stock market tumbled. As of today, the market has lost all of its gains since the election of President Donald J. Trump in 2016.

The HOA-industry isn’t talking about it, but, a destabilized financial market almost always signals a recession, followed by an uptick in unemployment.

And due to extenuating circumstances, the coronavirus pandemic isn’t triggering a typical economic recession.

Unlike any time in recent U.S. history, in an effort to prevent the spread of a highly contagious virus, government intervention is intentionally killing the economy.

City, state, and federal governments across the nation have begun to systematically slow down or shut down entire economic sectors. Their actions mirror similar actions taken in countries around the world.

Few of us could have foreseen the current chaotic environment. Until the threat of coronavirus pandemic is behind us, all “non-essential” business has come to a halt.

As I write this post, no one knows how long shopping malls, restaurants, and bars will remain closed to the public. It could be until the end of April or beyond.

Public health experts can only guess how long they will have to ration medical and dental care, putting off all non-emergency, elective treatment.

Due to the recent radical changes imposed upon the American lifestyle, virtually no one in America can meet friends for dinner at a pub, go on vacation, get a haircut at the local salon, have their teeth cleaned by a dental hygienist, or try on a new pair of shoes before purchase.

Condo, co-op, and homeowner associations likely to see drop in HOA assessment revenue

During an indefinite period or economic shut down, how many Americans will become unemployed? And will their job loss be temporary or permanent?

While about 30% of employees and business owners can work from home, 70% of the U.S. workforce does not have that opportunity. Many residents of HOA-governed communities will be out of work, at least temporarily.

No work, no employment income.

In addition, small business owners may be unable to recover from a loss in revenue, especially if they are forced to cease doing business for several months, with no alternative source of revenue.

Congress is considering a federal aid package. Basically, as of this moment, the proposed plan is to print money and hand out a few thousand dollars to millions of Americans.

But here’s a reality check. A “free” $1,000 – $2,000 check is obviously not enough money to cover the monthly expenses of the typical U.S. household. Besides, as many financial experts point out, the cost of such short-term handouts will only lead to a tax increase in the near future.

As for Americans who may become infected with COVID-19, an estimated 16% of them could fall seriously ill, requiring care in a hospital. Thus, in most HOA-governed communities, at least a few residents will incur high medical expenses.

Even if residents are insured, many health insurance policies require insured individuals to pay a high deductible. Some of those households are going to fall behind on HOA fees.

If “social distancing” and economic restrictions persist more than a few weeks, the bottom line for HOAville is predictable: an increase in assessment delinquencies.

HOAs will seek alternative revenue sources

During times of financial distress, many property owners learn the hard way that their HOA is legally empowered to fine its members. An HOA also has relatively unfettered power to lien and foreclose on a property to collect what’s due from the homeowner.

Politically-influential HOA management companies and law firms play a key roll in collecting fines and fees. History informs us that the HOA-industry is very fond of selling board members on their no-cost-to-the-HOA services, which force owners to pay up or ship out.

HOA abuse and collection industry exploitation are all too common. State laws do little to prevent HOA collection agents from piling on heavy attorney fees, exploiting property owners already under stress.

While real estate developers continue to woo homebuyers to HOA-governed housing with promises of a wonderful “sense of community,” the reality is quite different.

Instead of reaching out to help one’s fellow neighbor in need, an HOA may be more likely to threaten fines and foreclosure at the worst possible time in a homeowner’s life.

In times of financial crisis, your HOA can make life more difficult

A property owner might need to get creative to save money on a tight budget, but HOA restrictions and rules can often prevent residents from taking proactive steps to help themselves and their families.

For example, under the threat of fine, lien, and foreclosure, your HOA:

  • might not allow you to plant a vegetable garden on the sunny side of your yard
  • could fine you for skipping irrigation or weed control programs for your lawn
  • may insist you make costly repairs to your home, even if there’s no immediate need, and you cannot afford to do so
  • may limit your rights to use your property for a home-based business, including your right to park a work vehicle on or in front of your own property.

In a condo association, a unit owner might face additional challenges, such as:

  • rental restrictions, both short-term and long-term
  • inability to sell the unit due to lack of mortgage financing for buyers
  • sudden spikes in monthly assessments to cover budget deficits and/or deferred maintenance
  • threats of forced termination of condominium, with lowball buyout offers.

In a recession, resort, golf communities will be hit especially hard

Between self-imposed and government-imposed social isolation, vacation destinations (mostly consisting of Airbnb an VRBO rentals), seasonal communities, and golf communities, collectively, will certainly lose billions of dollars in revenue.

If you own a residential or commercial property, or do business in one of these communities, how will you recover from weeks or months of lost revenue? And how will your HOA make up for its lost revenue?

If — or when — the HOA can no longer collect a sufficient level of assessments and fees from financially-strapped, over-leveraged owners, commercial businesses may fold. Your HOA common amenities may close permanently.

In particular, the coming recession could be the final nail in the coffin for many dying golf courses, sparking new legal battles between HOAs and land developers.

If history is an indication of the future, we will once again see institutional investors move their fortunes out of the stock market. They’ll pour their money into real estate, scooping up undervalued residential and commercial properties by the thousands.

As in previous recessions, IAC expects that condos, townhouses, and single family homes will be converted to rental properties. Defunct properties and vacant land will be held until the time is right for redevelopment.

In the meantime, abandoned homes and golf courses will drag down property values in the community.

Evictions could spike, increasing competition for “affordable” property to rent

Although there’s talk of a short-term freeze on rent increases and evictions, how long will it last?

And, in the current housing environment, where will low-income tenants find decent affordable housing? There’s already a severe shortage of affordable housing for sale and for rent. A recession is unlikely to improve the situation.

Business owners, too, will face eviction from commercial properties, due to reduced or non-existent revenue during the extended, government-imposed economic slow down.

Experts fear that loss of employment will increase the number of homeless individuals, as well as families living in temporary shelters with poor sanitation.

Will city dwellers move away from densely populated cities, where COVID-19 is more contagious?

According to the Brookings Institute, over-crowded living quarters in America’s cities are most vulnerable to the spread of disease, including COVID-19.

Even for middle class urban residents, daily living makes it nearly impossible to maintain a 6-foot distance from other people. Consider that most city dwellers must travel to work on a bus or subway, and often work in close proximity to other workers.

From personal experience, IAC is aware of many families in less-populated areas of Pennsylvania who are now housing their adult children and grandchildren, who have fled from Philadelphia and the New York metropolitan region.

Why?

Because the grown-ups are either working remotely or out of work. Their children are being home schooled. In big cities, there’s more fierce competition for basic necessities at the supermarket and pharmacy.

So who can blame anyone for migrating back to their home town?

And that brings up a bigger question. Will the coronavirus pandemic ultimately lead to increased migration away from big cities to smaller towns and more rural areas?

IAC thinks that’s a very real possibility.

The Coronavirus Pandemic compassion challenge

As we all stare into the face of the unknown, fear is unavoidable.

But, our challenge is, how do we respond to that fear?

We could respond in the usual way — each individual or family focusing on their own personal needs, in a fight for survival.

That’s the kind of mindset that leads to panic buying, hoarding, and empty supermarket shelves.

It’s the kind of thinking that plays into the HOA-industry’s mantra that every non-paying member is a selfish deadbeat taking money from the paying homeowners.

The selfish response to fear inevitably leads to blame shifting and social division, at a time when we most need to share the burden, and to rely upon one another.

This time, IAC challenges HOA-industry professionals and HOA board members to buck the fear-based, abusive leadership trends of the past, exercising compassion and common sense in the wake of the coronavirus pandemic. ♦

Comments, corrections, or article suggestions? Email me at debgoonan@icloud.com.

References:

Coronavirus: The majority of Americans can’t work from home
Nearly 70% of workers have jobs that can’t be done from home.
Author: Bob Garcia-Buckalew, KVUE
Published: 11:03 PM CDT March 16, 2020
Updated: 11:03 PM CDT March 16, 2020

Centers for Disease Control and Prevention (CDC), Situation Summary

High-Deductible Health Insurance: The Good, The Bad And The Ugly
John C. Goodman, Forbes Contributor
May 11, 2018 6:19 AM

Rent Freezes? Emergency Subsidies? Coronavirus Sparks Calls To Protect Renters
Ally Schweitzer
WAMU | MAR 17

America’s inequitable housing system is completely unprepared for coronavirus
Jenny Schultz, The Brookings Institute
Thursday, March 12, 2020

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Ranch Matters Staff