Collecting Delinquent Assessments During the Coronavirus Crisis

The spread of Coronavirus (COVID-19) and the uncertainty it brings, especially to the economy, has caused concern among many association managers and members regarding the impact this crisis could have on their community’s ability to collect assessments. Assessments sustain operation of an association’s affairs, pay for upkeep of facilities on common areas/elements, and enable the association to provide a variety of services to its members. Non-payment of assessments by several owners can have negative consequences on the community as a whole and cut into an association’s budget and cause a crisis for community-supplied services.

The association’s board is responsible for maintaining the community’s assets and financial health. This includes timely collection of assessments as well as paying for services provided to the association. Under normal circumstances, the board would be well served to actively, consistently, and visibly pursue collection of delinquent assessments. The current global pandemic, however, is anything but normal. Because of the unprecedented nature of this event, boards should consider the impact COVID-19 may have on their associations’ revenue streams as well as their collection efforts.

What Should Associations Expect?

Facility Closure? Some owners may expect that because common area/element facilities are closed or inaccessible, they should be given a discount or relieved from having to pay assessments. The reality is, however, that owners in a community association have a legal requirement to pay assessments even if they do not or cannot use amenities or facilities.

This legal requirement recognizes that the closure of some amenities and services does not mean that the association’s expenses decrease. Existing contracts, ongoing maintenance and insurance obligations, management fees and employee payroll remain ongoing association costs and obligations. Further, virus-related activities such as disinfecting common areas/elements as well as a rise in the cost of cleaning products could drive up association’s costs for the year.  The pandemic crisis makes it even more important that assessments be timely paid.

Delinquencies Will Happen.  Regardless of the legal requirements, many owners may now face the prospect of losing their job or having a reduction in income, either for a short or extended time. Both scenarios make it more difficult for owners to pay their assessments on time, resulting in a decrease in assessment revenues.

How to Approach Collections

What should associations do about unpaid assessments during the current COVID-19 health crisis and corresponding downturn in the economy? Many boards may be tempted to outright suspend the owners’ obligation to pay assessments or, alternatively, to waive debt that accrues during this time, even for a temporary time. We advise against this approach.  While the current pandemic may be a basis for relaxing the aggressive collection process typically recommended, associations still have an ongoing duty to continue to collect assessments. If there is a significant disruption in the stream of assessment income, an association may find itself without adequate funds to perform essential services.

Remember that almost every creditor in the world is also a debtor, in that almost every creditor has its own obligations to meet.  Community associations are not exceptions to this rule.  Association boards should therefore consider the following when crafting their collection strategy during the current COVID-19 health crisis:

• Communication. Open a dialogue with owners who have fallen behind in paying their assessments.  The goal of such a dialogue will be to negotiate a payment plan that avoids the necessity of legal action to collect the assessment debt.
• Waive Some Fees. Consider waiving on a case-by-case basis late fees or interest on payments which come due during the pandemic.  We recommend against establishing a global association policy to that effect, inasmuch as it may disincentivize some owners who can pay their assessments from fulfilling their obligation.
• Hardship Payment Plans. Liberally grant payment plans to owners who demonstrate that their income has been diminished by COVID-19 issues. The owner can be asked to document or reasonably prove that their income has been affected by the pandemic.  Note that payment plans should be in writing and signed by the parties (the association and the debtor member).  If the payment plan is short term (e.g., a couple months), a brief payment plan letter can be appropriate.  However, for a longer term obligation where the debt has not yet been secured with a judgment, the board would be well-advised to require the owner to execute a promissory note with a confession of judgment that can be docketed as a judgment against the owner if he/she defaults on the plan. Further, the association’s management company and collections attorney should be apprised of any change in the board’s expectations regarding acceptable payment plan parameters.
• Maintain Liens. Remember, while agreeing to a payment plan to assist an owner in hardship is a responsible business decision, associations must still file timely assessment liens to protect their rights. An assessment lien secures the debt against the owner’s real property. The current health crisis should not cause an association to miss a filing deadline and thereby leave the debt unsecured.

Association Operations During Coronavirus Crisis

Communication with members is key. While the association may not yet have a clear picture of what the future holds, keeping members informed of the community’s recommended practices and any changes to the rules will benefit all. Such practices should include minimizing unnecessary physical assembly or contact, with members being encouraged to pay assessments electronically and not tendering payment in cash.

During the declared emergency, boards may also consider suspending or reducing discretionary spending. It may also be prudent to delay expensive projects, when possible, if there is a concern about the overall membership’s ability to pay assessments.  A project cannot be delayed, however, if by so doing the association is put in breach of a contract or if such delay poses a threat to the health or safety of the residents or the community.

To ensure that the association possesses adequate funds to complete such projects, and to avoid having to allocate reserve money to fund routine operations, the association should adopt a plan to collect delinquent assessments.

Summary

Reasonably collecting assessment debt to meet association obligations -- but doing in a manner sensitive to the current pandemic crisis -- is a narrow path association boards of directors must carefully tread, employing the best business judgment possible.  Your association’s legal counsel stands ready to assist you in that endeavor.

-- Mike Sottolano