COVID-19 Collection Strategies

By Laura Manning Hudson

While the full impact the novel Coronavirus (COVID-19) will have on the economy remains uncertain, community associations are likely beginning to feel the financial crunch created by unpaid assessments—if they haven't already. As unemployment rates continue to increase, and businesses struggle to stay afloat, this crisis will undoubtedly impact owners' ability to pay. Given these hardships, many boards of directors are already considering waiving assessments in order to offer some comfort to their residents. But by implementing such a drastic initiative, would boards of directors do their association more harm than good?

Upon being elected, boards of directors have a fiduciary responsibility that requires them to place the welfare of the association above their own interests. This responsibility includes a duty of care, which imposes on boards a legal obligation to collect assessments and fund reserves. As a result, directors not only have a responsibility to implement a collection strategy, but they are also tasked with enforcing those policies uniformly. Therefore, it is not recommended that boards completely halt the collection of assessments or the enforcement of the association’s collections policy, as such suspension would not only result in a breach of the duty of care required but could potentially subject the association to significant financial distress. Instead, associations should find other ways to alleviate some of the financial pressure being felt by property owners.

Depending on the association's governing documents, the association may have the ability to assess late charges and interest against delinquent owners. Instead of refraining from collecting assessments from owners, associations might consider waiving late fees and interest instead. Another recourse an association can use to help struggling owners is to work with them by offering a payment plan option before their unpaid assessments get out of control. The payment plan should serve the interest of both the delinquent owner and the association and should carve out clear terms such as the total amount due, the amount of the monthly payment, the deadline, and the consequences for breaching the agreement.

Associations should also consider trimming unnecessary spending. For example, there may be projects that are not urgent or were planned solely to improve the residents' lifestyles or increase property values, such as redoing the landscaping. Projects like these can be costly, and temporarily postponing them can assist associations by putting them in a favorable position when bad debt starts to affect the community. Keep in mind that when community associations have delinquencies that cause a strain on their operational accounts, they might find themselves forced to cut back on essential services, such as pool maintenance and regular landscaping. If that happens, some associations will be obliged to specially assess their paying members to make up for the deficit and be able to continue to maintain their community properly. If bad debt begins to become a real issue, associations may want to obtain a loan with their bank. However, associations should also be wary of predatory lenders or “deals” that seem too good to be true.

More so than ever, it is vital that boards of directors continue to diligently serve their member’s and community’s needs, while still supporting owners who are experiencing financial hardships. We encourage community associations to reach out to us to discuss different options, as solutions to these issues are not "one size fits all" and should be personalized to your community. Our firm's collection department helped hundreds of associations with their collections efforts during the last recession. We want you to know that we were there for you then, and we are here for you now.