Mitigate Increasing Delinquency Rates

Assessment Collection Delinquency

As COVID-19 first began disrupting our lives, community associations were concerned, of course, with health and safety issues facing their communities and their residents. The big question, as it should have been, was: What should we be doing to keep our communities safe? But now that we are becoming uncomfortably accustomed to changes to our lives and routines, the rising concern is economic—a fear of increasing delinquency rates.

This concern is certainly justified. April 1, 2020, marked the first due date for monthly and quarterly assessment/maintenance fee installments since we began social distancing, closing schools and non-essential-businesses, and entering Safer at Home Orders. With such a large segment of the South Florida economy being service-, entertainment-, and hospitality-based, one would have to anticipate that many unit owners will face employment issues and decreases in income. The result may likely be an increase in delinquencies. The question, then, is this: What can and what should an association do in the face of a potentially-increasing delinquency rate?

First, it is important for associations to communicate with their owners the need for timely payment of assessments/maintenance fees. Owners often overlook the fact that assessments/maintenance fees are NOT the repayment of funds loaned to them by their association—the association is not a bank or lender. The association provides continuing services to the owners and the community, and the assessments/maintenance fees are the only source of payment for those continuing services. Within a condominium, for example, the association usually provides for insurance on the condominium building and maintains the common elements and amenities (and must continue to do so whether or not owners are able to utilize them), and the association often provides water as well as television and/or internet service to the units. The association does not have the ability to simply delay or stop paying its bills for any period of time. Consequently, the association cannot simply introduce a policy which allows owners to delay or skip payments of assessments/maintenance fees.  Remember, unlike individuals and other businesses, federal financial aid being offered during this crisis has NOT included any direct relief to community associations.

I have heard that some community associations wish to notify their owners that the associations intend to be more lax, under these current circumstances, in pursuing delinquencies. With all due respect to those associations’ board members, and though understanding the desire to lessen the burden on those who may be suffering, this would likely be a grave mistake. Allowances made for one owner must be available to all—an association cannot be selective in application of its policies. Announcement of a policy implying a lack of consequences (or delayed consequences) for non-payment may result in a drastic increase in delinquencies. With the announcement of such a policy, an association which may have otherwise expected a 10% delinquency rate may actually face a 25% delinquency rate. This potential result is not an exaggeration. Many owners with an ability to pay, but seeing uncertainty in their financial future, may decide to withhold payment if they perceive no consequences for doing so (or if they are told that it is acceptable to do so). With this in mind, I would NOT suggest that community associations make drastic changes to their payment, delinquency, and/or collection policies. Rather, I suggest that community associations generally stay the course. But what is that course?

An association’s collection policy probably includes issuance of late-notices to owners after an owner is delinquent for 10 or 15 days. Continue to send those letters. The policy may include the application of late fees and/or interest. Continue to apply late fees and interest. The policy may include a second, final payment demand-letter, advising that an account will be referred to the association attorney if a delinquency is not paid. Continue to send those letters. This may sound harsh, but it is necessary. The association must remain a payment-priority for its owners. This is not to say that letters cannot be reworded a bit to take current circumstances into account, and this is not to say that late fees and interest cannot be waived (perhaps, they can be). Rather, the urgency in payment to the association must be clearly communicated to owners. Governmental policies and programs have been introduced which impact FHA and FNMA mortgages, and owners may have the ability to delay mortgage payments without penalty, but a community association does not have the luxury of government assistance nor bailouts. Without such assistance, associations do not have the same flexibility in addressing delinquencies. More to the point, and as alluded to above, most associations cannot afford to address delinquencies in this fashion.

If an association follows its collection process and an owner contacts it to make reasonable arrangements to quickly bring an account current, the association should, of course, exercise some flexibility and work with that owner to reach a reasonable resolution. But if a delinquent owner does nothing (or offers nothing reasonable) to resolve a delinquency, the association should refer the account to its attorney. Again, the even-handed process should be followed, and the message to the owners should remain that payment of assessments/maintenance fees must be a priority. (After all, imagine an owner working remotely from home and utilizing internet service provided by the association—it is completely appropriate for the association to insist that the owner pay his/her share of that service.)

Once an account is referred by an association to its attorney, the association should anticipate that the attorney will follow its general process of issuing a statutory intent-to-lien letter and, if payment is not timely received, follow that with filing a claim of lien and issuing a statutory intent-to-foreclose letter. As with the possible waiver of late fees/interest and short-term payment arrangements discussed above, an association should consider giving its attorney similar flexibility should owners contact the attorney to resolve their delinquencies. Though, as indicated, community associations may continue to pursue their collections and even foreclose on units carrying delinquencies—to date, governmental policies have NOT been imposed which stay association collection activities (though some items within the foreclosure process have been delayed)—common sense and human compassion dictate some level of flexibility for those who have truly been hard-hit by the economic impact of COVID-19 while, at the same time, balancing the associations’ continuing need to convey the message that payment of assessments/maintenance fees must be a priority for owners and consequences may result if payment obligations are ignored.

While the foregoing suggestions should, generally, be followed by community associations, policies can be revised to account for particular circumstances or situations within a community. One size does not necessarily fit all. With that in mind, should you have any questions or concerns about the foregoing recommendations, or should you wish to further discuss implementation of a new policy or modifications to an existing policy, please feel free to contact me.

Stay safe and healthy!

Charlie

Charles F. Otto, Esq.

Board Certified Attorney

Condominium & Planned Development Law

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