The GLA Financial Crisis

Note: I originally wrote this article in 2011. The GLA Collection Committee tackled this problem in early 2012 and wrote an excellent piece of legislation which was passed by the board. Collections of past due amounts should commence in late 2012 or early 2013. Unfortunately our financial crisis is ongoing and getting worse because the Collection letters still must be sent, the assessment funds recovered and we must pay for the spiraling legal costs of the O'Connell lawsuits.
The avalanche of lawsuits filed by the O'Connels against the GLA, three to date with a fourth in the works, has drained our treasury of almost $26,000.00 as of October 2012. The response by the GLA is eerily similar to how they initially dealt with people who did not pay their assessments. Thus I have left this article here so you can draw your own conclusions.

Note #2 In January of 2016 the past due assessment problem has skyrocketed to $271,000.00 with almost 20% of the landowners behind on their assessments. Not one landowner has ever been turned over to a collection agency or been foreclosed upon.

The Glastonbury Landowner’s Association (GLA) is faced with their most severe financial crisis to ever descend upon our community. If the GLA were a business it would be bankrupt. Total debts owed to the GLA in May of 2011 exceed the yearly budget and are increasing daily while revenues are decreasing. Annual dues have constantly increased and new taxes are being considered which will place an even greater burden upon land owners who choose to pay their assessments. Meanwhile, people who have chosen not to honor their financial obligations to our community continue to receive services promised by the Glastonbury Covenants while enjoying the extra money in their pocket. Some of the debts have remained uncollected for almost 20 years and have grown so large that landowners may have to sell their property to meet their obligations. The GLA has offered interest free loans and debtor specified monthly payments in a misguided attempt to bring land owners up to date. The loans have and will continue to cost the GLA and dues paying Glastonbury land owners tens of thousands of dollars in lost income while allowing debtors to take years and possibly a decade or more of interest free payments to pay their past due assessments.

When someone purchases property in Glastonbury they agree to follow the Covenants which requires them to pay a yearly assessment. The Covenants are clear concerning the penalties of non-payment which include 18% interest, attorneys fees and foreclosure. When a landowner makes the decision not to pay their assessments they are breaking their agreement with the community and they get to keep that money. They can use that money for anything they want and still receive the same road maintenance and plowing as their neighbors. In essence they are borrowing money from their dues paying neighbors. Our Covenants require that interest and penalties be charged on all past due assessment balances because the unpaid money is a loan from the community to the non-paying landowner.

In late summer of 2011 the GLA received a written request from a landowner who owed approximately $7,500.00 in past due assessments, penalties and interest. In accordance with GLA policy a lien was placed on their property. The landowner was getting ready to sell their home but could not do so until the lien was paid. So rather than pay the full amount owed when the house was sold, the landowner asked the GLA to waive all penalties and interest if she would pay just the principle. Much to my amazement the GLA Board agreed to waive the penalties and interest which were approximately $4,000.00. At the same meeting a special assessment was discussed because the GLA did not have enough money to maintain the roads.

The deals offered by the GLA to delinquent landowners are breathtaking and not offered by any responsible government agency or financial institution. Park County will sell your property out from under you if you do not pay your property taxes for three years. A bank will foreclose on your property if you fall behind on your mortgage payments. The GLA will only place a lien on your property if you do not pay your assessments. Then if you offer to pay they will either cease to collect interest and let you design your own, interest free low monthly payment plan or they will waive all penalties and interest if you just pay your principle.

The GLA is a non-profit Montana corporation set up to carry out the covenants and act in accord with the bylaws for the land owners of Glastonbury. The GLA is not a steward or caretaker of the community nor is it a social welfare organization. The covenants state that we are fiduciaries and encourage us to act accordingly. The crisis is real and it is severe. It must be dealt with quickly and with principled leadership.

The primary responsibility of a GLA Board member as outlined in the bylaws is to act as an elected fiduciary. A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. He must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents. Simply stated a GLA Board member must always put the financial interests of the dues paying landowners first when dealing with matters of governing.

The principles of good governance demand that all landowners must be treated equally even if the results are sometimes seen as unfair. The Glastonbury Covenants promise certain benefits to land owners like road maintenance in exchange for yearly dues. Some would argue that it is unfair that people who own land but do not live here must pay for snow plowing. I ask those people: do you have children? The Montana Constitution promises that all children who reside here receive a free public education through grade 12. All residents must pay taxes to support that promise. This results in people who have no children and people whose children are past school age paying a substantial tax to support the educational goals of families who have children enrolled in the public school system. The fairest way of returning benefits to the landowner would be to insure that each one receives benefits equal to what they paid in assessments. But then, why have government at all? Why don’t we just disband the GLA and let everyone keep their dues? Because government should serve the public good and not focus on doling out individual benefits equal to the amount each citizen pays in taxes.

In a democracy governments are formed for the common good. Just as Montanans decided that it was in the common good for children to be educated and enshrined that in their constitution the people of Glastonbury have decided that it is in the common good for the roads to be maintained and have enshrined that in the covenants. In both cases the people have spoken and stated that the benefits of good governance must be bestowed equally upon all citizens even if the burden is unequally shared. I believe that the GLA Board members must act with fiduciary responsibility and in accordance with the Glastonbury Covenants.

Recommendations

1) Is it in the best interests of dues paying Glastonbury landowners that the past due assessments be collected?

Currently the past dues assessments are greater than our yearly budget. If the current GLA policy is left in place and more parcels do not fall behind in their assessments, the past due amounts will double in 4 years and quadruple in 8 years. Left unchecked the balance owed will be $640,000.00 by 2019 and over one million dollars in 2023. It is likely that more parcels will join the past due list once people understand that they can continue to live on their land, receive road maintenance benefits and eventually secure an interest free loan with owner specified monthly payments to pay their past due assessments.

It is recommended that the board adopt a policy that demands landowners who are past due in their assessments and not already on a payment plan, pay their balance in full or face foreclosure. A final demand letter should be sent that clearly spell out the problem and lists the consequences of not paying. People who are just beginning to fall behind should be promptly notified of the GLA collection process and the consequences of non-compliance. They should also be told that 18% interest is required by the covenants and that they will face foreclosure and loss of their property if they do not bring their account into compliance. It is further recommended that the board secure the services of a law firm that specializes in Homeowners Associations (HOA) and the full spectrum of the collection process. The final policy will depend upon the law firm’s recommendations but it is reasonable to expect that high dollar and long term debtors will face foreclosure while low dollar and newer debtors will first face collections and then graduate to foreclosure if they do not comply.

2) Is it in the best interests of dues paying Glastonbury land owners that debtors be offered an interest free loan?

Current GLA policy offers to freeze the interest on past due assessments if the landowner stays current and makes regular monthly payments. According to the GLA March 7th, 2011 Liens Filed report only two people have taken advantage of this offer.
Debtor number one owes $8,000.00 and makes monthly payments of $100.00 and is charged NO interest. She will have her bill paid in full in 80 months, 6 years and 8 months or October of 2018. The land owners will have collected $8,000.00.
If the covenants were followed and 18% interest was charged for the life of the loan then with land owner number one making $100.00 monthly payments the total amount collected by the land owners would be $36,000.00 and it would take debtor number one 360 months to pay in full. By waiving interest the land owners lose $28,000.00.
Debtor number two pays $35.00 a month on a loan of $2,289.00. It will take them 65 months, until August 2016, to pay off the loan. The land owners will receive $2,289.00. If the covenants were followed debtor number two would pay 18% interest on the life of the loan. They would make $35.00 monthly payments for 267 months and pay $9,345.00 in total. Because the loan is interest free the land owners end up losing $7,056.00 on debtor number two's loan while providing full services to them.
If all of the 41 remaining parcels who owe approximately $151,000.00 chose to set up an interest free payment plan with $75.00 monthly payments for each parcel the total amount paid to the land owners each month would be $3,075.00. The bill would be paid in 50 months, July of 2015 and land owners would collect a total of $151,000.00. If the Covenants were followed and each loan carried 18% interest then the land owners would collect $276,750.00 over a period of 90 months. Waiving interest charges would cost the land owners $125,750.00.

The interest free policy is injurious to land owners and does not treat them all equally. It is in violation of Covenant 11.05, 11.06 and 12.01. Calculations were done at:
http://www.bankrate.com/calculators/credit-cards/balance-debt-payoff-calculator.aspx using a credit card calculator with 18% interest and user defined outstanding amounts and monthly payments. Make sure you click on the Enter Data button to edit user defined data.

It is recommended that the GLA immediately discontinue the current payment plan and replace it with one that requires all interest be paid in full, that the debtor remains current and that the past due amount be paid in full within 3 years. As a courtesy a demand letter with the new payment policy terms could be sent to all past due accounts before the GLA turns them over to qualified law firm.

3) Is it in the best interests of dues paying Glastonbury land owners to face new assessments or special assessments while this crisis is being dealt with?

The GLA is currently formulating a plan to ask land owners to pay a special assessment to help cover the cost of road maintenance. The blizzard of last November put a serious dent in the budget that needs to be addressed. The interest on the current debt, minus the interest free loans provided to two land owners, is approximately $27,000.00 per year. Additionally approximately 11% of the parcels are not paying their assessments and that number is growing. It is reasonable to expect that the total amount raised by any assessments will be at least 11% less than it should be and will barely compensate for the interest charges on past due accounts.

It is recommended that the board place on hold all efforts to burden dues paying Glastonbury land owners with any additional assessments until the financial crisis is dealt with in a meaningful manner. Six months after a law firm is engaged and demand letters are sent the board should review the budget and make recommendations at a community meeting in regards to assessments and the current crisis.

4) Is it in the best interests of dues paying Glastonbury landowners to know the details of the crisis we face?

GLA members must act in the best financial interests of the landowners who elected them if they wish to retain the trust and confidence of the people.

It therefore recommended that the community be told about the crisis and its full scope, be reassured that the crisis is being effectively dealt with and told of specific actions the board is taking. Although the lien list is publicly available information discretion is advised when discussing owner’s names and parcel numbers.

Summary

The GLA faces an unprecedented financial crisis that could destroy its reason for existence. By refusing to make tough choices and act in the best financial interests of dues paying landowners the GLA has exacerbated a decade long problem. People who truly are in dire economic straits have been saddled with an exponentially increasing debt that they cannot afford to pay. Dues paying landowners have watched their assessments steadily increase as the amount of unpaid assessments mushroomed. The GLA has responded to the crisis by raising assessments and offering sweetheart, interest free deals to debtors while neglecting the financial costs to current landowners. The rules of good governance which require that government keep its promises to the people and treat citizens equally have been discarded. The GLA has created a road policy that divides citizens into 5 classes depending upon where they live and told them that they may expect diminished road maintenance based on their address. Some members of the GLA even wish to continue rewarding those debtors who have freeloaded on the backs of dues paying members for years, by extending their current offer of interest free payment plans.

Left unchecked, this financial crisis will bankrupt the community of Glastonbury. More people will opt out of paying their dues knowing that they can continue living in their homes, enjoy good roads and keep the money they owed in assessments for their own personal pleasure. If they finally decide to pay their bill they know that an interest free payment plan tailored to their needs is available. The GLA will be forced to continually raise assessments amongst an ever decreasing number of dues paying land owners to pay for services required by the covenants for all members. Eventually the tax burden will become too great for all but a few and the GLA will cease to be effective.

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