How Management Companies and REALTORS® Can Work Together More Effectively Through the Short-Sale Process

In a short sale, property is sold for less than the amount of money needed to satisfy the first mortgage and any other loans on the property. For a short sale to be approved, all creditors must agree to accept something less than what they are owed. For the primary lender, the incentives for agreeing to such a sale are generally certainty, time, and convenience. The lender will receive a certain amount of money within a specified period of time without the inconvenience and delay of having to advertise the property for sale and prepare it to be sold.

In many instances, another “creditor” that must agree to the short sale is a homeowners’ association (HOA), which is administered by a property management company but governed by a board of directors. Home owners who have fallen behind in their mortgage payments are often similarly in arrears on their association dues, fees, and assessments. Thus, the association becomes one of the parties that must agree to the terms of the sale before the transaction can be closed.

Seeking agreement under these circumstances can be challenging because the REALTOR^® typically works initially with the association’s management company but must ultimately seek approval from the association’s board of directors after the terms of a potential agreement have been hammered out. 

Recently, I was one of the speakers at and Orange County Association of REALTORS^® (OCAR) forum about how associations operate and how the role of the property management company differs from that of the association’s board of directors. Among the questions asked during this forum was how management companies and REALTORS^® could work more effectively together through short-sale transactions.  

To work more effectively with homeowners’ associations, REALTORS^® need to understand the challenges that HOA boards of directors face as a result of today’s market conditions.  Generally, these boards

• lack funds to provide for basic maintenance needs, 
• lack resources to fund reserves, and
• have cash-flow problems as a result of loss of income, which forces them to borrow from reserves to cover necessary expenses

Together, these three situations result in

• a decline in property values because of deferred maintenance,
• lending issues as a result of high delinquency rates and inadequate reserve funding levels,
• a decline in owner occupancy rates, and,
• potentially, bankruptcy.

The following three questions and their answers may make REALTORS^® more aware of the financial problems and legal constraints that homeowners’ associations face, help them understand how the responsibilities of property management firms and associations’ boards of directors differ, and work more effectively with both during the short-sale process.

Why won’t management companies release information regarding outstanding balances to REALTORS^®?

The management company has an agency relationship with the association.  It cannot release member information to a REALTOR^® unless the REALTOR^® has a signed release from the home owner(s).  If you are seeking account balance information, be prepared with a signed Authorization to Release Information form.  This form can be sent via email to either management or the collection company.

Why can’t the board of directors waive a portion of the dues owed to help close the transaction?

Associations today are so cash-strapped that they simply cannot afford to overlook outstanding dues or to agree to “make up the difference” out of their treasuries. Associations are cash-out up-front for collection efforts, which they have a fiduciary duty to pursue.  Of course, this expense is in addition to the loss of assessment income. To avoid having to go back and forth with a board on a settlement offer, seriously consider the “reasonableness” of your initial offer. 

When will the board make a decision?   

Not all association boards meet monthly; many meet only bimonthly or quarterly. Also SB 563, which became effective January 1, amended California’s Open Meeting Law to prevent HOA boards from taking action without meeting (AWOM) and to require that, in some instances, members of the association be given at least two days’ notice before a meeting can be held. To avoid the frustration of trying to meet legal requirements and mesh schedules, at the beginning of the short-sale transaction, ask the management company when the next meeting of the board will take place and what the board’s regular meeting schedule is so that you can plan accordingly.

A veteran of twenty years in the community association management profession, Margo Crummack is co-founder, co-principal, and CEO of Crummack Huseby, Inc. Property Management, in Lake Forest. Her professional designations include the California State Certified Community Association Manager (CCAM) and the national designation of Professional Community Association Manager (PCAM).