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COVID-19 and Maintenance Fees [MERGED]

BocaBoy

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Good Point, I can't see them adding that to our maintenance, though, unless they give us some additional benefits. somehow. On top of this, how do you think their new sales and additional sales, have been this year? I'm sure they're down tremendously, and that has to hurt revenue, also.
I would think the savings from washing towels and linens, housekeeping service, gas, water, soap, toilet paper, and electricity alone would more than make up for any added cost.
Extra 2020 costs will be dwarfed by the savings from having resorts closed or operating at low capacity. The 2020 savings should be enormous.
 

dioxide45

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While there are certainly some extra expenses due to Covid-19, there should be substantial savings in many of the operational expense categories due to resort closures and low volumes of guests--e.g., reservations and front desk expenses, housekeeping expenses, utilities costs, some interior maintenance costs, activities costs, and many more. Although I am not predicting what will happen, there should be enough net 2020 savings to cause a very significant reduction in the maintenance fees at many resorts for 2021 as surpluses are carried forward. If this reduction in 2021 fees does not happen, I would expect resorts at a minimum to freeze their maintenance fees at the current level for several years. I view this as a key test of fiscal responsibility in the management of our timeshares.
Are you taking into consideration adding in additional reserves to account for defaults? That may dwarf everything?
 

TXTortoise

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It will be interesting for the Hawaii resorts, giving the continuing restart unknowns. I expect the analyst establishing 2021 MFs for the Maui Ocean Club would start with whatever gets them the usual 5-7% increase, then they have to decide is there a carry-over credit or additional cost for 2020 that that needs to be incorporated. Since they don't know how the last half/quarter 2020 will play out, I wonder how late they can go before setting the 2021 MF.

Bottomline is we may see a secondary cumulative adjustment in 2021...or they treat it like a hurricane and establish the variance as a special assessment. Don't think I've ever heard of a Credit Special Assessment. ;-)
 
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bazzap

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While there are certainly some extra expenses due to Covid-19, there should be substantial savings in many of the operational expense categories due to resort closures and low volumes of guests--e.g., reservations and front desk expenses, housekeeping expenses, utilities costs, some interior maintenance costs, activities costs, and many more. Although I am not predicting what will happen, there should be enough net 2020 savings to cause a very significant reduction in the maintenance fees at many resorts for 2021 as surpluses are carried forward. If this reduction in 2021 fees does not happen, I would expect resorts at a minimum to freeze their maintenance fees at the current level for several years. I view this as a key test of fiscal responsibility in the management of our timeshares.
I totally agree about the necessity for fiscal responsibility.
I wouldn’t underestimate the Covid-19 extra expenses though, I see what they are at one of our resorts.
I do though expect the substantial savings to be reflected positively in the budgets for 2021.
 

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I agree there should not be an increase in fees, but I doubt there will be a decrease. Keep in mind the Marriott 10% management fee. Their profits have been dramatically impacted by lower sales, so I'm sure they will pressure resorts to keep fees stable at best.
 

SueDonJ

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Are you taking into consideration adding in additional reserves to account for defaults? That may dwarf everything?

I agree that defaults are going to be a factor going forward but question whether they can be wrapped into Reserves with adjustments averaged or anticipated over a period? Bad Debt Expense is a line item in the annual budgets, so doesn't that mean the actual dollar amounts have to be identified in the year that they occur and in that line item? If that's the case then I'd expect to see COVID-related bad debt effects in the MF's beginning with the 2022 budgets to reflect 2021 defaults.

You know this topic much better than I do - if I'm wrong don't hesitate to correct me. :)
 
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SueDonJ

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I agree there should not be an increase in fees, but I doubt there will be a decrease. Keep in mind the Marriott 10% management fee. Their profits have been dramatically impacted by lower sales, so I'm sure they will pressure resorts to keep fees stable at best.

There's only so much pressure that corporate can put on the individual resort boards when the resorts' annual budgets are routinely audited to ensure that owners aren't overcharged for actual incurred service/utility/insurance fees. I know there's some wiggle room in the Reserves studies and a few other items but over the years there hasn't ever been a charge that stuck that was levied against MVC for falsely assessing owners in order to prop up their 10% (and higher percentage at Euro and Asia resorts) piece of the pie. It's a charge that's easy for people to throw around but it's undeserved IMO.
 

dioxide45

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I agree that defaults are going to be a factor going forward but question whether they can be wrapped into Reserves with adjustments averaged or anticipated over a period? Bad Debt Expense is a line item in the annual budgets, so doesn't that mean the actual dollar amounts have to be identified in the year that they occur and in that line item? If that's the case then I'd expect to see COVID-related bad debt effects in the MF's beginning with the 2022 budgets to reflect 2021 defaults.

You know this topic much better than I do - if I'm wrong don't hesitate to correct me. :)
I don't see why the HOA can't set aside anticipated reserves in the same year they anticipate the bad debts. I would hope they do, otherwise we could end up with a shortfall mid year when people don't pay.
 

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There's only so much pressure that corporate can put on the individual resort boards when the resorts' annual budgets are routinely audited to ensure that owners aren't overcharged for actual incurred service/utility/insurance fees. I know there's some wiggle room in the Reserves studies and a few other items but over the years there hasn't ever been a charge that stuck that was levied against MVC for falsely assessing owners in order to prop up their 10% (and higher percentage at Euro and Asia resorts) piece of the pie. It's a charge that's easy for people to throw around but it's undeserved IMO.
I don't think anything is falsified, but I do see a lot of pet projects to prop up the MFs at a resort which in turn props up the 10% management fee. Did Grande Vista really need the $100K+ media wall at the main pool? Will the towel tracker system they installed ever save them $160,000. They spent $4.2 million on all new tile floors in the exterior hallways to save about $125,000 a year in paint. That $4.2 million is a big profit margin to Marriott now, where the paint would perhaps only be a long term gain. Though I don't know if they would ever said $4.2 million on paint.

At the board meetings I attended where they discussed these items, I asked if they ever reduce staff because of these "cost savings", and the answer was no. So how are these things saving us money. I don't see much of a savings, just costing us more money.
 

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I agree there should not be an increase in fees, but I doubt there will be a decrease. Keep in mind the Marriott 10% management fee. Their profits have been dramatically impacted by lower sales, so I'm sure they will pressure resorts to keep fees stable at best.
US resort owners are lucky (relatively).
The Marriott management fee in European and Asian resorts is 15%!
 

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I'm surprised that MVC has not put out a formal message to its owners about how Covid 19 may be impacting maintenance fees in the next year. To my way of thinking, nothing specific, just generalizations (like those speculated above, but carrying weight if they came from MVC).

Having said that, I am reading old mail from MVC, and I unearthed the Desert Springs Villas II Board Minutes, financials, and the HOA Board President's letter to owners (June 2020).

Let me say at the outset, that other than the board members who make a career of staying on the MVC HOA Board, and in some cases, multiple MVC HOA Boards, I think the DSV II HOA Board and President have done a spectacular job, over the long run. Ben Steinberg's (Board President), June 2020, letter to owners, is, in my opinion, well written, informative and candid. In that letter, Mr. Steinberg makes reference to the variety of places where DSV II has incurred a cost savings, during the Covid 19 Pandemic, where they encountered unplanned expenses, where/why they moved up some major capital/construction projects (brilliant, in my opinion), and some very peripheral mention of what may be ahead. I have attached that letter, to this post, FYI. Since it is historically the same people at MVC (staff), who have editorial prerogative on letters like this one, I would not be surprised if there have been similar letters from the Presidents of other MVC resorts, and HOA's to owners.

There were two (other) noteworthy mentions, to me: (1) MVC will no longer (until advised otherwise) be buying back defaulted weeks, that were reacquired by the HOA. If I understand that process right, historically, the HOA would encumber a defaulted week, and then MVC would buy that week, from the HOA (MVC would then assume responsibility for the maintenance fee on that week). What appears to be the case, now, is that the HOA is going to accumulate an inventory of these defaulted week, not be able to sell them to MVC, and as a result, the HOA will be left with the financial burden for the maintenance fee, on all of the weeks that they own (OR, hopefully find some other way to sell the weeks). Hopefully, the HOA will have the ability to "RENT" the defaulted weeks that they own, to recover the maintenance fees on those weeks. Of note, these weeks are independent of the weeks that Riverside County acquires by (tax) default/liens. (2) There is a list of all of the weeks that the HOA is placing a lien on, for outstanding maintenance fees; that number is 839 weeks, with an average outstanding debt of $1400.00/per week. I don't know what the true numerator and denominator are, but for FY 2020, that seems like a substantial number of units with liens (I assume a number of owners, intending to walk away from their weeks).

It would be interesting to know if other MVC HOA Board President's letters, carry a similar message.
 

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  • DSV II HOA Board, June 2020, President's letter to owners.pdf
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dioxide45

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I'm surprised that MVC has not put out a formal message to its owners about how Covid 19 may be impacting maintenance fees in the next year. To my way of thinking, nothing specific, just generalizations (like those speculated above, but carrying weight if they came from MVC).

Having said that, I am reading old mail from MVC, and I unearthed the Desert Springs Villas II Board Minutes, financials, and the HOA Board President's letter to owners (June 2020).

Let me say at the outset, that other than the board members who make a career of staying on the MVC HOA Board, and in some cases, multiple MVC HOA Boards, I think the DSV II HOA Board and President have done a spectacular job, over the long run. Ben Steinberg's (Board President), June 2020, letter to owners, is, in my opinion, well written, informative and candid. In that letter, Mr. Steinberg makes reference to the variety of places where DSV II has incurred a cost savings, during the Covid 19 Pandemic, where they encountered unplanned expenses, where/why they moved up some major capital/construction projects (brilliant, in my opinion), and some very peripheral mention of what may be ahead. I have attached that letter, to this post, FYI. Since it is historically the same people at MVC (staff), who have editorial prerogative on letters like this one, I would not be surprised if there have been similar letters from the Presidents of other MVC resorts, and HOA's to owners.

There were two (other) noteworthy mentions, to me: (1) MVC will no longer (until advised otherwise) be buying back defaulted weeks, that were reacquired by the HOA. If I understand that process right, historically, the HOA would encumber a defaulted week, and then MVC would buy that week, from the HOA (MVC would then assume responsibility for the maintenance fee on that week). What appears to be the case, now, is that the HOA is going to accumulate an inventory of these defaulted week, not be able to sell them to MVC, and as a result, the HOA will be left with the financial burden for the maintenance fee, on all of the weeks that they own (OR, hopefully find some other way to sell the weeks). Hopefully, the HOA will have the ability to "RENT" the defaulted weeks that they own, to recover the maintenance fees on those weeks. Of note, these weeks are independent of the weeks that Riverside County acquires by (tax) default/liens. (2) There is a list of all of the weeks that the HOA is placing a lien on, for outstanding maintenance fees; that number is 839 weeks, with an average outstanding debt of $1400.00/per week. I don't know what the true numerator and denominator are, but for FY 2020, that seems like a substantial number of units with liens (I assume a number of owners, intending to walk away from their weeks).

It would be interesting to know if other MVC HOA Board President's letters, carry a similar message.
Great information. I am not surprised that MVCI is pausing their buyback process of foreclosed weeks. This actually worked out to be a pretty good deal for owners and MVC since it essentially made the HOA whole and also got cheap inventory for Marriott to add to the trust and sell for huge profits. They probably only had about a 25% or less cost of inventory on those. The good thing about the trust is that the trust always pays its maintenance fees to the HOA. Of course if there are trust contracts in default, other trust owners will pay a bad debt expense in their annual fees. It probably won't be a good year for defaults. Many households may have only lost at least one income or had it significantly reduced and paying timeshare fees is at the bottom of the list.
 

Dean

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I don't see why the HOA can't set aside anticipated reserves in the same year they anticipate the bad debts. I would hope they do, otherwise we could end up with a shortfall mid year when people don't pay.
I'm sure they do for normal years but they aren't budgeting for these type of situations into the future so anything put aside will almost certainly not be sufficient to cover the next few years so they'll have to beef up that planning. The issue of a decade ago should help them anticipate somewhat where this may go.

As for the ultimate impact on maintenance fees due to the Covid situation, I really don't know. There are some savings and some costs but given that a lot of the increased costs are on the personnel side plus all the other hoops they're having to jump through, it's difficult for me to believe that the overall impact will decrease fees. It'd be great for some good to come out of this but I'm not counting on it. I guess I come from the school that says a pessimist is an optimist with experience and I don't recall many decreases over the years.
 

dioxide45

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I'm sure they do for normal years but they aren't budgeting for these type of situations into the future so anything put aside will almost certainly not be sufficient to cover the next few years so they'll have to beef up that planning. The issue of a decade ago should help them anticipate somewhat where this may go.

As for the ultimate impact on maintenance fees due to the Covid situation, I really don't know. There are some savings and some costs but given that a lot of the increased costs are on the personnel side plus all the other hoops they're having to jump through, it's difficult for me to believe that the overall impact will decrease fees. It'd be great for some good to come out of this but I'm not counting on it. I guess I come from the school that says a pessimist is an optimist with experience and I don't recall many decreases over the years.
I think what I was saying was in response to Sue's question/response. I got the impressing she was infiring that the HOA wouldn't try to bill/collect/reserve for bad debt until after the bad debt was incurred. Meaning, we wouldn't see additional bad debt expenses added to our bill until 2022. I expect that the HOAs will be increasing that line item for 2021 anticipating defaults.
 

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I think what I was saying was in response to Sue's question/response. I got the impressing she was infiring that the HOA wouldn't try to bill/collect/reserve for bad debt until after the bad debt was incurred. Meaning, we wouldn't see additional bad debt expenses added to our bill until 2022. I expect that the HOAs will be increasing that line item for 2021 anticipating defaults.
I would like to think the better Boards had beefed up this area after the last economic downturn but I still doubt it'll be sufficient to cover what's going to happen the next 2-3 years. Thus they should likely overfund this area for the upcoming budget cycle this fall then re-evaluate how next year goes. Ultimately they'll likely have to have a larger bucket to cover lower fee collections plus lower rental income where applicable to the HOA then hopefully be able to ease it back down in a couple of years but being aware of the need for an "emergency fund" long term. The next Maintenance Fee lists should be very interesting.
 

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I think what I was saying was in response to Sue's question/response. I got the impressing she was infiring that the HOA wouldn't try to bill/collect/reserve for bad debt until after the bad debt was incurred. Meaning, we wouldn't see additional bad debt expenses added to our bill until 2022. I expect that the HOAs will be increasing that line item for 2021 anticipating defaults.
Sounds like the info WBP got supports your idea that the manager (Marriott) would find new projects to spend Jones on, or "move them up," so they can benefit in their fee now.

It may be better in the long run to do them now with empty resorts, but I suspect the schedule for everything else will ultimately be advanced so owners will see no or little mf savings over time.
 

SueDonJ

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I think what I was saying was in response to Sue's question/response. I got the impressing she was infiring that the HOA wouldn't try to bill/collect/reserve for bad debt until after the bad debt was incurred. Meaning, we wouldn't see additional bad debt expenses added to our bill until 2022. I expect that the HOAs will be increasing that line item for 2021 anticipating defaults.

That's exactly what I was saying, guessing really, that for certain line items in the annual budgets, including bad debt, they're not allowed to anticipate but instead must report actual incurred amounts. Can they anticipate higher electricity costs? Lower insurance premiums? Etc etc etc ??
 
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Ralph Sir Edward

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So much of timeshare accounting is of the "Heads I win, tails you lose" type.

Consider:

Why should a HOA be responsible for bad debt in the first place. Overdue MF's yes, but bad debt?

The developer booked all the profit from the sales - why shouldn't the developer swallow the costs of a default? (If you want to play like a bank, you need to pay the price for your mistakes.)

As it is, it's heads the developer gets the profit, and the tails HOA gets the loss.

Imagine a credit card like that. The "bank" extending the credit, gets to books all the fees and interest received as profit, but the holders of the card have to pay extra for all the defaults. How much consideration for creditworthiness would that "bank" care about? They'd madly send credit cards out to anyone with a pulse, (and even people without one. . . )
 

SueDonJ

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I'm surprised that MVC has not put out a formal message to its owners about how Covid 19 may be impacting maintenance fees in the next year. To my way of thinking, nothing specific, just generalizations (like those speculated above, but carrying weight if they came from MVC).

Having said that, I am reading old mail from MVC, and I unearthed the Desert Springs Villas II Board Minutes, financials, and the HOA Board President's letter to owners (June 2020). ...
Thanks for sharing that, WBP. :)
 

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That's exactly what I was saying, guessing really, that for certain line items in the annual budgets, including bad debt, they're not allowed to anticipate but instead must report actual incurred amounts. Can they anticipate higher electricity costs? Lower insurance premiums? Etc etc etc ??
Isn't everything anticipated though since we pay early in the year to cover expenses through the end of the year?
 

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So much of timeshare accounting is of the "Heads I win, tails you lose" type.

Consider:

Why should a HOA be responsible for bad debt in the first place. Overdue MF's yes, but bad debt?

The developer booked all the profit from the sales - why shouldn't the developer swallow the costs of a default? (If you want to play like a bank, you need to pay the price for your mistakes.)

As it is, it's heads the developer gets the profit, and the tails HOA gets the loss.

Imagine a credit card like that. The "bank" extending the credit, gets to books all the fees and interest received as profit, but the holders of the card have to pay extra for all the defaults. How much consideration for creditworthiness would that "bank" care about? They'd madly send credit cards out to anyone with a pulse, (and even people without one. . . )
I am not sure your credit card analogy makes sense. Other credit card customers do pay for the bad debt of others either through merchant fees or interest on balances.

What we are referring to is overdue maintenance fees which turn into bad debt when the HOA has to foreclose on the unpaid fees.
 

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So much of timeshare accounting is of the "Heads I win, tails you lose" type.

Consider:

Why should a HOA be responsible for bad debt in the first place. Overdue MF's yes, but bad debt?

The developer booked all the profit from the sales - why shouldn't the developer swallow the costs of a default? (If you want to play like a bank, you need to pay the price for your mistakes.)

As it is, it's heads the developer gets the profit, and the tails HOA gets the loss.

Imagine a credit card like that. The "bank" extending the credit, gets to books all the fees and interest received as profit, but the holders of the card have to pay extra for all the defaults. How much consideration for creditworthiness would that "bank" care about? They'd madly send credit cards out to anyone with a pulse, (and even people without one. . . )
NO the HOA is not responsible for losses on sales directly but they are for dues that may never be paid. There's always a % of collections and the % almost certainly going down for a while. Plus they do have collection expenses.
 

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Isn't everything anticipated though since we pay early in the year to cover expenses through the end of the year?

Hmmmm. I dunno. I guess I've assumed (I know, I know! :) ) that budgets are based on bills in hand similar to the way my household expenses are billed, i.e. Nat'l Grid bills me for the electricity I've consumed in the prior period and not what I may consume in the next. Obviously, their budgets are annualized on a much larger scale, but still I thought they worked with actual previous amounts and not future anticipated (except for items which they've entered into multi-year contracts like their Audit firm.)

Looking at the 2020 budget for SurfWatch as an example, how can they correctly anticipate a 1.4% increase for electricity, 6.5% decrease for gas, 3.2% increase for Water and Sewer, etc? Those amounts aren't actual based on bills in hand?! This is hurting my brain.

(Eeeeesh. I hadn't looked at this line-by-line since getting the MF's package in December and I'd put out of mind the 25.6% increase in Insurance we'd been assessed this year because of the hurricanes of the last several years. Ignorance really is bliss.)
 

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Budget - an estimate of income and expenditure for a set period of time

Key word being "estimate".

Its their best guess what future revenue and expenses will be.
 

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So much of timeshare accounting is of the "Heads I win, tails you lose" type.

Consider:

Why should a HOA be responsible for bad debt in the first place. Overdue MF's yes, but bad debt?

The developer booked all the profit from the sales - why shouldn't the developer swallow the costs of a default? (If you want to play like a bank, you need to pay the price for your mistakes.)

As it is, it's heads the developer gets the profit, and the tails HOA gets the loss.

Imagine a credit card like that. The "bank" extending the credit, gets to books all the fees and interest received as profit, but the holders of the card have to pay extra for all the defaults. How much consideration for creditworthiness would that "bank" care about? They'd madly send credit cards out to anyone with a pulse, (and even people without one. . . )

In addition to our Marriott timeshares we own homes in two HOA's and land in a third, and they work exactly the same as the timeshares do - ownership as a whole is assessed the Bad Debt Expenses of MF's for all parcels that had been sold by the developer and subsequently defaulted by the owners. The governing docs all contain language that stipulate it. The only difference is that for the timeshares the HOA budgets/annual MF's include *all* operating expenses for every unit, while our others are assessed only common-area expenses.
 
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