According to the Community Associations Institute’s latest numbers there are approximately 6,700 common ownership communities (COCs) in Maryland, representing over 515,000 homes, or 22% of total housing units in the State. This pattern repeats itself across the County. As local planning departments gravitated to the use of HOAs and COAs, more and more households find themselves tied to the health of these communities. But what happens when they are in the midst of failing?
Personally, I connected to the challenges COCs are facing through my work on affordable housing policy. For many households a condo represents the only affordable path into homeownership. However, with the housing market crash and subsequent changes to lending regulations, that path was cut off for many first-time homebuyers. I began examining what this meant to households looking to build equity and enter homeownership. This brought up a multitude of factors that have all converged to create a perfect storm of “distress” among COCs throughout the region.
First, what do we mean by distressed? A group of Montgomery County. Maryland residents, advocates, and property managers began working intently on this issue in Spring 2017. We named ourselves the “Independent Task Force on Distressed Common Ownership Communities” and went to work defining distress and thinking through the opportunities for change. We defined distressed communities, as those whose revenue from annual assessments is insufficient to cover basic operating costs, routine maintenance, and capital improvements to maintain the property and its property value. Ultimately, despite the myriad number of issues that play into a communities’ health, we decided that fiscal health is the core that everything revolves around.
Second, why do we care? If your property is doing well, does it matter that the property a mile away is on the verge of bankruptcy? Of course! Their decline will affect your communities’ reputation, sales and property values. Their lack of investment in their common elements stagnates the local property tax base, reduces the purchase of local goods and services (perhaps the business that one of your resident’s owns), depresses local investment, and increases the need for government bailouts. It is imperative that we all work together to improve the fiscal health of all COCs.
Using fiscal health as the barometer allows for a clearer examination of factors effecting the fiscal well-being of a COC. It is critical to note that the greatest impact presents itself in master-metered condominium communities given their structure and co-dependence on utility services. As a mentioned, it is a perfect storm of many different factors. I will outline just a handful of them here, and some suggested State/local opportunities to mitigate these challenges. In no particular order:
- Designation of COCs as commercial entities. Since COCs are a commercial entity, all the properties under their purview also are linked to this commercial designation. This may impact a community on the rate it pays for water, on fees for pulling permits, and restricted access to programs designed for residential usage. One example is the rebate programs Maryland requires utility companies to offer for energy efficiency improvements. In a non-master metered community a resident decides to upgrade their windows and applies for a rebate to support the cost. In a master-metered community, the COC is paying the utility bill, but the individual owner is responsible for the windows. No one is eligible to receive the rebate, perhaps placing the improvement cost outside of the household’s capability and leading to increasing utility costs for the COC. Government can explore a commercial-residential designation that acknowledges the role of the COC but provides an avenue for connecting to residential programs and supports.
- Role of COC in fulfilling core government responsibilities. While homes in COCs pay property taxes, they are not eligible for the same level of service as homes built independent of a COC. Many COCs are responsible for their own trash collection, street repairs, and snow removal. On its books, Montgomery County, Maryland has a roadway repair program. However, the program has not been funded in years and includes a high barrier to access. COCs should have access to financial support for these services it is providing on behalf of the local jurisdiction. At a minimum, a collective contracting agreement should be explored to allow communities to work together and leverage their proximity to achieve economies of scale in contracting.
- Lack of support through the court system. Unfortunately, many judges don’t understand the infrastructure of COCs. Education is critical, especially among bankruptcy court judges, who regularly discharge condo fees. The current system also requires duplicative steps that cost the associations more money and make it harder to reach a resolution. Some fixes that could be employed are developing a magistrate system to expediate hearings, allow an association to amend a hearing up to the day before to account for additional lost revenue since initial filings, and amend attorney fee calculation to better align with the true costs to the community.
- Foreclosure process. COCs don’t get to pick their members. We rely on banks/lenders to properly vet prospective owners, but sometimes they fail. When this happens, they need to step up to the plate. Almost all loan documents technically place the loan in default if COC fees are not paid, but no lender is willing to initiate a foreclosure on this – and good luck trying to find the right person to speak with! COCs are stuck with delinquent owners who rack up tens of thousands of dollars in overdue fees without a practical way to remove the owner from the property. We need the lenders to step up to the plate and help keep us whole.
These changes will not be simple. All of them require a deep level of systems change, but as Confucius said, “The man who moves a mountain begins by carrying away small stones”.
By Ilana Branda
Ilana joined Montgomery County’s Department of Health and Human Services in October 2018 to serve as the Deputy Chief for Services to End and Prevent Homelessness. She previously served as the Director of Policy and Neighborhood Development at Montgomery Housing Partnership (MHP). Prior to MHP, Ilana served at the Manager of Housing and Community Development at CulturalDC and a Research Associate for the Montgomery County Planning Department. She has worked for 14+ years in policy, urban planning, and community development, and holds a Master of Community Planning and a Bachelor of Social Urbanism from the University of MD. Ilana is a board member of the Community Development Network of MD, served from 2016-2018 on the Montgomery County Commission on Common Ownership Communities, and is a 2017 graduate of Leadership Montgomery’s Emerging Leaders program.