Earlier this month, CAI released a Statement of Moratorium on Foreclosure Actions urging community associations to immediately suspend all foreclosure activity and not begin new foreclosure actions until June 1. We question how well thought out this position is as it is not all that realistic for California community associations.
Do not get this wrong. We at SwedelsonGottlieb are well aware of the impact that COVID-19 has had on our world and the fact that over 10,000,000 people filed for unemployment nationwide (so far). We recognize that community association boards are going to need to be sensitive to the fact that many owners may be temporarily (hopefully) unemployed and not able to timely pay their assessments.
As CAI said in its introduction to the Statement of Moratorium, the collection of community association assessments is a very serious and important responsibility of a governing board. Failing to collect assessments may impair a community association’s ability to pays its bills, provide essential services, acquire financing for continued operations, and may impact the ability of a potential purchaser to obtain a mortgage or impact existing owners refinancing of their loans.
The BIG issue for association boards will be the balancing act between being sensitive to the plight of many owners and ensuring that their associations can pay the bills and keep their associations operating. This will be tough for board members who themselves may be unemployed and unable to make their assessment payments to their associations.
Some of CAI’s “set of principles for community associations to adopt for addressing homeowners who can’t pay their assessments during this crisis” make sense; others not so much. See the “set” below with SwedelsonGottlieb’s comments:
1. If an owner is unable to pay assessments on time, the owner should notify their community association to work out a payment plan. Homeowners with a financial hardship should be encouraged to apply for government assistance, if available.
SwedelsonGottlieb agrees. An owner that does not notify their association and offer to enter into a payment plan agreement should NOT be offered the same consideration as those that do contact their association before their payment obligation comes due. Boards should consider voluntary liens in addition to reasonable payment plans.
2. Community associations should adopt a moratorium on foreclosures for 60 days (or until at least June 1, 2020).
SwedelsonGottlieb does not agree. Sorry CAI, but this is not realistic. Offering a moratorium now only helps the owners that stopped paying their assessments months ago and their delinquency had nothing to do with the coronavirus. Remember, in California, an association cannot even start the foreclosure process for at the minimum 2 months from the time the required pre-lien letter is sent out. Also, the foreclosure process takes (at the minimum) 6 months. A moratorium on actual foreclosures today would not benefit those owners who stopped paying their assessments because of the COVID-19 pandemic and would negatively impact community associations who need that money.
That said, we do agree that associations should work with owners and try to get them to enter into payment plan arrangements that are accompanied by voluntary or involuntary assessment liens. If an owner does NOT contact their association or makes no effort to work out a payment plan, then all bets are off and the association should move forward with the foreclosure process recognizing that an association in California will not be in a position to foreclose until at the earliest August 2020 and by that time we should know where things are going . . . we hope.
3. Community associations should waive late fees and penalties for owners who face temporary financial hardships due to COVID-19.
SwedelsonGottlieb agrees, provided the owner approaches their association and works out a payment plan that includes a lien which is necessary to secure the debt and protect the association’s position especially if the owner files bankruptcy. If an owner is not going to acknowledge their obligation to pay assessments, then why should their community association grant them such a waiver?
4. Community associations should amend, temporarily relax, or follow existing non-foreclosure collection policies that are fair and applied equally to all members.
5. Community associations should continue to record liens to protect their interests.
SwedelsonGottlieb agrees. We suggest that Board’s offer payment plans that are supported with a voluntary lien as this will help keep the fees and costs that the owner would have to pay to the lowest amount possible while at the same time protecting the association.
6. Community associations should emphasize the importance of owners paying their assessments on time, if possible.
SwedelsonGottlieb agrees as most community associations have NO other source of income and that is the point.
If you have questions regarding assessment collection, or what is set out in this blog post, contact SwedelsonGottlieb: firstname.lastname@example.org or 800-372-2207