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What HOAs Should Do When Owners Can’t Pay During The Pandemic

The coronavirus pandemic has delivered a multitude of horrors around the world. Along with the personal toll the virus has taken on individuals and families, the pandemic’s impact has shaken nearly all sectors of American economic life, and community associations are no exception. Millions of homeowners were under stay-at-home orders within a community association, and now many of those same homeowners face economic uncertainties that make it hard to pay their bills, including their condominium or homeowners association assessments.

Most community associations are naturally inclined to take the term “community” seriously and strongly consider ways to help their members affected by the pandemic. In fact, many associations around the country initially reacted to these tough times by considering a voluntary delay on collecting all assessments from their homeowners.

While well-meaning, this approach is unsuitable for condos and HOAs, which usually do not have endowments or reserves to cover income setbacks. Not-for-profit community associations typically have zero-sum budgets with little margin.

Associations also provide ongoing services essential for the residents, including electricity, water, trash collection and common area maintenance. A sudden, substantial dip in assessment income could mean a utility interruption or loss of a cleaning contractor at precisely the time such services are needed most.

This does not mean there is no room for associations to show leniency to owners hit hard by the economic effects of the pandemic, assuming only a few owners will be affected by income interruption and this will not become a long-term downturn like the 2008 recession.

Here are some approaches that may balance the needs of an association against those of owners who fail to make required payments during these difficult times…

Waive late fees: The board of directors could waive late fees or other penalties for those owners who apprise the association that they will fall behind temporarily, as long as the owners promise to catch up in a reasonable time. The loss of late fees, which are not out-of-pocket expenses, should have little impact on the association’s budget.

Make proactive payment plans: An association could be more lenient in granting payment plans for an owner who lost his or her job because of the pandemic. Payment plans allow owners with financial hardships to pay assessments in full over time, but without the typical penalties associated with late payments.

For short-term payment plans, the documentation can be less formal; for long-term plans, the parties should consider a promissory note.

Delay foreclosures: Many jurisdictions allow associations to foreclose on condominium or HOA liens. This tactic is usually pursued only for more extreme cases. Associations can consider delaying such actions during the pandemic, giving homeowners more time to address their overdue payments.

Delay unnecessary projects: From a business planning perspective, associations suffering a substantial loss of income would be wise to consider spending cuts to ease the budgetary burden of climbing delinquencies. Associations could delay construction projects, such as lobby renovations, or cut back on unnecessary services, such as concierge or valet.

Protect the association’s rights: While a more lenient approach to pursuing collection of unpaid fees is laudable during a crisis, associations must still protect their legal options. In some jurisdictions, like Virginia, there are legal deadlines for filing past-due assessment liens, and these requirements should be observed even while granting payment plans. Filing a lien does not mean foreclosure is imminent; it is a placeholder to preserve the association’s rights.

Some jurisdictions around the country have adopted or considered a moratorium on foreclosures or even debt collection altogether. In my opinion, such legal prohibitions are inappropriate for community associations that provide essential services. Associations could voluntarily adopt more lenient collection policies within their budgetary limitations.

The Community Associations Institute, an organization of homeowner and condo associations, adopted a “Statement of Foreclosure Moratorium,” which encourages a compassionate approach to pandemic-related delayed or missed payments. If associations voluntarily take a reasonable and common-sense approach, overreactive legislation will be unnecessary.

Just like residents staying at home to contribute to the collective public health, community associations can do their part to ease the economic burdens on their members while still carrying out the essential tasks needed to maintain their communities. This is a way all of us can emerge on the other side of the pandemic, perhaps wiser — and with a greater sense of community — than before.