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Assessment Collections and COVID-19

First, I want to thank Julie Howard and her firm NowackHoward in Atlanta, Georgia for much of this Blog (adjusted for Wisconsin Law and my commentary).  She is the former president of the College of Community Association Lawyers (“CCAL”), an excellent association attorney, and has been kind enough to allow us  to use much of their article.

The law does NOT require a Board to extend additional time to owners to pay assessments just because of the COVID 19 pandemic.  While such policies may show a concern for members of a community, probably without realizing it, those policies may also have significant adverse effects on the Association, especially in 2020.

With this background, Associations should first look to see which of their expenses are variable (those that can be cut or reduced because of the pandemic).  Secondly, the Board must ask can the Association really afford to extend the payment of assessments for some or all of its owners?  Associations faced this same challenge during the last financial crisis.  In an editorial published on February 5, 2008 in The Atlanta Constitution, George Nowack (another former president of the CCAL) explained that because many Associations had allowed members to not pay and suspended collection actions, the balances on unpaid accounts reached levels that members gave up trying to pay.  The lesson learned from that past is that a Board is not doing any member a favor if it allows an Association’s accounts receivable to go unaddressed.  That advice is equally true today.

The problem is three-fold:

  1. Larger debts make it harder for individual members to repay the debt;
  2. Larger accounts receivable force Boards to increase assessments to cover the bad debts or to dip into reserves, which results in the reserves being even further underfunded; and
  3. Larger assessments cause those unit owners who are already behind to owe even more.

You can see how this can quickly become a bigger and bigger problem.  In the end, one way or another, there will be a shortage of funds.  The Associations that successfully come out of this crisis will be those in which Boards and Managers have worked hard to educate their members that assessments are a “must pay” bill and where the Board requires members seeking an extension to prepare a financial statement with a plan for repayment of the missed assessments.

Now that we recognize the problem, here are the answers to some frequently asked questions:

Q:      Are homeowners legally responsible to pay assessments during the crisis?

A:       Yes.

Q:      Are homeowners entitled to a refund or to deduct any amount if the amenities are closed? 

A:       No.

Q:      Should the Board agree to waive assessments? Late fees? Interest?

A:       Boards have the authority and discretion to make good-faith business decisions, which include waiving late fees and interest, when appropriate.  Monthly assessments should not be waived without obtaining some opinion from your attorney as to whether your Board has that authority.  Boards also have a fiduciary duty to treat the Association and all the unit owners in a non-discriminatory manner.  Meaning, Boards should review requests for a waiver of late fees and/or interest on a case-by-case basis, but applying a consistent rationale.

Q:      How do you recommend Boards handle delinquencies?

A:       Follow your Collections Policy.  If it needs adjustment, make the adjustment (like adding the requirement for a financial statement for any requested delays), but for the reasons set forth above don’t uniformly waive assessments.

Q:      What are some examples of flexibility a Board can allow for persons who contact the Board?

A:       Offer payment plans, waive interest and/or late fees, but only if you have a signed financial statement and a repayment plan.  Any payment play must be in writing to be of any value.

Q:      What about members who become delinquent and do not contact the Board? Any flexibility?

A:       Follow your Collection Policy.

Q:      Once amenities are reopened, should Boards deny use for delinquent owners?

A:       Follow your Collection Policy.  If this is not in your Collection Policy, consider amending it.  I am sure we would be happy to help.

Q:      What do you recommend for dealing with owners who had pre-existing delinquencies?

A:       The crisis is not a free pass for those with pre-existing amounts due.  For most accounts with pre-existing delinquencies, we recommend the Board follow its Collection Policy.

Q:      What should a Board be doing now?

A:       Communicate with your members about the need to continue to pay as normal and that anyone seeking a modification to assessment due dates and obligations must obtain the written consent of the Board after submitting a repayment plan and financial statement.  At the same time encourage members to communicate their situations with the Board. Policies, even Collection Policies, may need to be amended to deal with the particular issues facing your Association.  Should you need to amend a policy contact your Association attorney to assist you.

Q:      Are there other actions a Board should consider to afford members some economic relief?

A:       Boards can also look to reduce Association expenses like:

    • Decrease discretionary services or the frequency of those services;
    • Cancel or postpone non-essential repairs and improvements to common property;
    • Look at renegotiating contracts, price and services;
    • Prepare upcoming budgets based on the evolving financial condition of the Association, including a line item for bad debt; and
    • Ask those members who can pay in advance or pay more than due, to do so as a way of temporarily subsidizing those who cannot pay in full.

If your Wisconsin Association has any questions relating to any of the above, please feel free to reach out to Attorney Daniel Miske, CCAL or Attorney Lydia Chartre, CCAL.  We love what we do and are here to help.  Dan and Lydia are the only two CCAL attorneys in the State of Wisconsin, a distinction reserved for less than 175 attorneys in the United States who practice in the area of Community Association Law.

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