Past Due Assessments: Working with owners who fall behind on payments during the COVID era

HOA Alert 5-2020 small

Past Due Assessments: Working with owners who fall behind on payments during the COVID era

To assist Boards of Directors in community associations navigate the many hazards of the challenging COVID era, NHE, Inc. — one of the largest association management firms in the Carolinas — is committed to sharing our experience and best practices working with board members across the region.  To provide guidance on many of the specifics on this important topic, we have enlisted the assistance of Ryan Oates, Esquire, from the law firm of McCabe, Trotter & Beverly, PC, to discuss association assessment collections during the COVID-19 crisis.

Over the last few months, COVID-19 has wreaked havoc with a once-flourishing economy, and driven unemployment to levels we never thought possible.  The sudden changes lead to an important question:  what should the board of a homeowner or condominium association do when an owner falls behind on their assessments?

The collection of assessments by community associations is vital to any association’s continued existence.  Most community associations are nonprofit corporations with budgets and bylaws, and like most organizations has its own set of financial obligations.

Consult Governing Documents First
As with most issues impacting a community association, it is important to begin by consulting the governing documents to understand the corporation’s duties and obligations.  The topic of assessment collection is typically addressed in the Master Deed, Declaration or Bylaws (or a combination of these), along with the duty to develop a budget, assess the membership and to collect funds.  This is important because the corporation must be funded to meet its tax, insurance and other contractual obligations.

Associations also have an obligation to own and/or care for property and must be funded sufficiently to do so.  One of the functions of community associations, and what makes associations attractive to current and potential owners, is the ability to share the burden of costs of amenities.  Therefore, in addition to the obligations noted above, the homeowners — members of the corporation — also have a practical expectation that their association collect on its budget so that every member is responsible for his or her pro-rata share — and  no member is paying on another member’s obligation.

It is also important to fully understand the legal consequences, if any, of a change in your association’s collection policy. It is wise to discuss such decisions with legal counsel who can provide advice on the issues, including time periods for when collections action may be taken, which you may be considering.

Communications and Compassion are Key
Once your board of directors has fully understood and discussed these matters, communicate any modification to the existing policy clearly and through as many means as possible.  Best practices include mailing and/or emailing the entire community and posting signs at the entrances/exits of the community.  It is better to overcommunicate these important changes, so send more notices than you normally might for less critical news.  Highlight that you take payment plans and are willing to work with your owners – always a best practice, but especially important right now.

From a legal perspective, there is no general prohibition against collections.  However, an association may want to consider altering some policies temporarily in the spirit of compassion and cooperation with owners.  Generally, adopting a posture of cooperation and flexibility is best.  If an owner needs to extend a payment plan a few months, this is probably the time to agree to do so.  You may want to consider stopping interest, late fees, or other penalties for late payers, especially if they are willing to make arrangements for the other charges.

Current Times May Impact Your Actions
Ultimately, the ultimate end of a foreclosure action is an eviction.  South Carolina’s state court system has issued orders prohibiting all evictions through mid-August 2020.  They have also directed judges not to advance foreclosure cases.  Some are putting a temporary hold on new liens or are pushing out deadlines.  Before considering these steps, consider:

  • Foreclosure Deadline: Be sure you are not missing any established deadline to file a foreclosure suit. There is no prohibition against filing suit – you just will not get far once you do.  Filing suit simply allows you to preserve your Association’s rights and give the member some time to get back on his or her feet financially
  • Bankruptcy: Check to be sure your documents make delinquent sums a lien against the property without further action.  Some documents say it is a lien from the time you record a lien or lis pendens.  If this is the case and you don’t file a lien, anyone who files bankruptcy during this period could claim the association is an unsecured creditor – meaning other parties would be paid before you even though, from a chronological perspective, the association’s debt was incurred first
  • Property Transfers: As with bankruptcy, you could lose out on collections if you do not have a lien filed.

In Closing
Our firm typically discourages waiving assessments unless there is a compelling business reason (as in a short sale where you risk collecting nothing).  Some documents have clauses that specifically state each lot must be assessed uniformly.  Avoid waiving assessments on a case by case basis, as this can expose the Association to discrimination claims.  We recommend any policy is a community-wide policy.  For example, stop late fees for the entire community vs. waiving late fees for certain individuals.  Even if the Board has a legitimate, non-discriminatory reason to waive, a disgruntled member can find a reason to complain and discrimination suits are expensive, even when you are right.

McCabe, Trotter & Beverly, PC (MTB) is a recognized leader in community association and construction law throughout the Carolinas, with offices in Columbia and Mount Pleasant.  Founded in 2012, the Firm represents more than 900 condominium and homeowner associations as well as developers and contractors in all facets of community association and construction law. Please visit our website to learn more, www.mccabetrotter.com.

 NHE provides professional association management, conventional and affordable apartment management, and service coordination to communities across the Southeast, and currently represents more than 14,000 homes, apartments, and condominiums in more than 15 states.  NHE’s clients benefit from expertise, experience and leading-edge technology delivered by a dedicated staff to assure premium performance and value. Actively engaged with national and state industry trade associations and government regulatory bodies, NHE holds the prestigious AMO (Accredited Management Organization) designation through the Institute of Real Estate Management.  Contact NHE at 864.467.1600 or visit www.NHE-Inc.com.

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