ASSESSMENTS, LATE FEES & COLLECTION ACTIONS DURING COVID-19
At the time of this publication, we are in the midst of a global pandemic. There is no disputing that many are hurting, financially and otherwise. When the COVID-19 health crisis hit in early 2020, many of us couldn’t imagine its duration or its impact. It is likely that the pandemic has or will impact Association revenue as a result of increased assessment delinquencies. If your Board has not already, I urge you to revisit your current collection policy to ensure the Association’s interests are protected while at the same time being mindful and sympathetic to those who are impacted.
Temporarily Decreasing or Waiving Assessments
While this is a compassionate idea, it is strongly discouraged. Associations are non-profit corporations that operate from zero-sum budgets, meaning there is no profit margin. Assessments received (revenue) equals monthly expenses, so any decrease or abatement in assessments is going to have a significant impact on the Association’s fiscal health and the ability for the Association to meet its financial obligations. While the devastating effects of the pandemic are truly unfortunate, assessment revenue is required to keep the Association solvent, and Board Members have a fiduciary obligation to the members they serve to ensure the Association can meet its operating obligations. Additionally, assessments must be equally and uniformly levied, so it would not be appropriate to waive assessments for some owners and not all owners.
Pre-Liens and Liens
For those who served on Association Boards through the Great Recession, you are no stranger to operating non-profit Associations through difficult times. A lesson learned from the Great Recession was that run-away delinquencies without concerted collection efforts significantly damaged the fiscal health of countless Associations. Delayed collection actions left many Associations strapped with exorbitant amounts of bad debt they would eventually have to write off, leading to regular assessment increases and special assessments.
While I understand some Board Members may be reluctant to proceed with pre-liens and liens when homeowners are out of work and having trouble meeting their financial obligations, it is critical that Boards secure the Association’s financial interest, and a lien is the best vehicle to accomplish this.
Pursuant to California Civil Code, certified pre-liens may be issued once an account is 45+ days delinquent. Boards may approve a lien 30+ days following the mailing of the certified pre-lien. Depending on the Association’s assessment amount, I recommend adopting and enforcing a policy that is consistent with Civil Code. Boards are not doing owners or the Association any favors by delaying the pursuit of delinquent assessments. As late fees, penalties, and collection fees amass, the delinquent owners are falling further behind and the Association is accruing more debt.
Foreclosures (Judicial & Non-Judicial)
California Associations have the legal right to foreclose on a property after an owners’ account balance is delinquent for one (1) year or reaches a balance of $1,800.00. That said, I do not encourage Boards to pursue foreclosure actions at this time. There are far too many state and federal moratoriums on foreclosures as a result of the pandemic, and depending on the type of loan, it is simply too risky. If your Board does decide pursue foreclosure, I recommend consulting with your Association’s attorney and pursuing a judicial foreclosure, as opposed to a non-judicial foreclosure, through your Association’s law firm.
It is difficult to watch our friends and neighbor’s struggle. While it is important to diligently pursue the collection of delinquent assessments, I recommend embracing compassionate collection efforts. Educational memorandums and reoccurring notices are great ways to remind owners of their obligation to pay their assessments and caution them of the ramifications of delinquent assessments. Oftentimes owners do not fully understand the repercussions of not paying their assessments until it’s too late. Education is critical. Consider a memorandum to the members outlining the Association’s collection policy, include a friendly reminder in the Association’s newsletter, and share cautionary notices about the consequences of late assessment payments, including late fees, interest, pre-liens, liens, and even foreclosure actions.
Board Members should consider proactive remedies to offer struggling owners, such as payment plans that will ensure at least a portion of the planned assessment revenue will be received, while at the same time mitigating late fees, interest, and other collection fees that could exacerbate the problem for both the owners and the Association.
Remind owners of the methods of payment available to them. Unique to the current health crisis, we are learning that the United States Postal Service (USPS) workforce has been significantly impacted and mail service has been delayed. To avoid late payments, which result in fees and interest, suggest signing up for complimentary electronic payment options through PMP Gateway, our exclusive online homeowner portal.
We are all being impacted by the current pandemic. It is important to have compassion for those who are struggling, while at the same time protecting the Association’s interests. This struggle is temporary, we will get through this, and by being fiscally responsible Board Members and the Association will be in a better position to return to normalcy once this crisis passes.
If you have specific questions related to your Association, please do not hesitate to email Brad Watson, President of PMP Management at email@example.com.
Please Note: PMP is not a law firm and nothing contained in this document should be considered legal advice. Legal questions should be directed to your respective association attorney.