Recently, an attorney that also represents California community associations sent out a newsletter that dealt with assessment collection during the pandemic. We already addressed this issue in our COVID-19 HOA Guidebook. We certainly do not agree with a lot of what that other attorney had to say on this issue and we know that most other community association attorneys that we have spoken with feel the same way. And we preface our comments by saying that we are certainly sympathetic to all those association owners who have been laid off or furloughed as a result of the COVID-19 pandemic. But we are also pragmatic and realistic about how the non-payment of assessments will negatively impact the hundreds of California community associations we represent.
The newsletter from the other attorney suggested that when addressing unpaid assessments as a result of the pandemic (which may not be that easy for boards to determine), association boards need to balance board duties. That newsletter correctly stated that boards have a fiduciary duty to keep their associations’ operational, meaning that they have to pay the utility bills, pay for insurance, for maintenance of the common area, the cost of dealing emergencies, pay vendors, etc. Our colleague suggested that boards need to balance these obligations against the fact that increasing numbers of members cannot pay their assessments because of the pandemic. The newsletter, however, offered no suggestions on how to do this as there is no way to effectively balance the obligations as associations need the money assessed to pay the association’s bills. Yes, boards can delay any discretionary projects, but most associations do not have significant discretionary projects.
As stated in the introduction, don’t misunderstand our pragmatic approach as suggesting that we are not sympathetic to those owners that have lost their jobs and cannot afford to pay their assessments; of course we are sympathetic. That said, those owners will need to find a way to pay their assessments or at the very least contact their associations to request a payment plan so that their associations can manage their expectation of payments and can continue to operate and meet its obligations.
What about late fees & interest? We understand that members of the association may have been laid off their jobs through no fault of their own. But that does not mean that association boards should immediately suspend late fees and interest on all delinquent accounts. To take that approach removes the incentive for responsible homeowners to pay their assessments on a timely basis. Clearly, if there is no penalty for paying late or not at all, why should anyone want to shoulder the burden of paying the association’s obligations on their own? Rather, owners should be directed to address their financial circumstances directly with their association’s boards so that the board can consider the facts and circumstances as they consider waivers of late fees on a case by case basis, while at the same time not treating owners differently. In fact, the Davis-Stirling Act has specific provisions that allow owners to approach boards directly for the consideration of the waiver of the late fees and/or interest and to request a payment plan the terms of which can be negotiated. Each owner’s financial circumstances will be different. Perhaps the reality is that those owners who just ignore their financial obligations to their associations should not be given any leeway in deferment or reduction of what they owe their associations.
What about foreclosures on liens? We agree that associations should not be foreclosing on owners who are not paying their assessments during the pandemic. But as the foreclosure process takes 6 months at the minimum, if an association were to foreclose today on a lien recorded on an owner, we know that the lien was recorded at least 4 months ago or earlier and that owner did not stop paying their assessments as a result of being laid off because of the pandemic.
We do recommend that associations move to record liens on new delinquencies (proposing voluntary liens with payment plan agreements, for example, for those owners who are forecasting that they will not have the funds to meet their financial needs). But, we do not agree that foreclosure actions should not be initiated against delinquent owners consistent with the association’s collection policy and the statutory requirements for same. Starting the process is not foreclosure and this does not mean that associations should actually complete the foreclosure action/sale while we are dealing with the pandemic. That said, remembering the lessons learned from the 2008 Great Recession, if an owner is not communicating with their association, not entering into a payment plan agreement, maybe boards should initiate a foreclosure sale as otherwise that owner may never be able to pay their debt to their association.
As the foreclosure process takes, at a minimum, 6 months to complete the actual foreclosure of the lien, we recommend that associations record liens and start the foreclosure process by serving and recording the Notice of Default while at the same time trying to work out payment plans with delinquent owners and then move forward to notice the foreclosure sale unless the owner contacts the board and requests payment options which would be set forth in a payment plan agreement. If an owner ignores the association and its good intentions, boards will have to consider foreclosure as the association needs to have owners that pay their assessments so the association has the money to pay the bills.
Don’t Waive Assessments! There is no way that a board can pay their associations bills and keep their association operational if it is not collecting the assessments, the associations only real source of income. Community associations were not part of the $2 trillion stimulus package or the payment of money that the Federal Government will be sending out to many citizens and businesses hurt by the pandemic. Associations cannot waive assessments. And a waiver is not fair to those owners that are paying their assessments there is no authority to allow the board to take such actions which expose the association and all its members to liability.
What is stated above reflects SwedelsonGottlieb’s current thinking on assessment collection during the pandemic. We will update our blog if we obtain new information or our views on this issue change as we weather the COVID-19 pandemic.
For more information regarding assessment collection during the COVID-19 pandemic, contact SwedelsonGottlieb at 800-372-2207 or email: firstname.lastname@example.org