We all remember just how bad our communities suffered about a dozen years ago during the great recession. Our firm represented condominiums where nearly half of all units went into foreclosure. It was terrible for community associations. The paying owners were often times forced to pay double to make up for the monies not being collected from all the delinquent owners.
So, here we are during this Corona Virus crisis and the same questions are being asked again. How bad will this get for community associations if the unemployment numbers continue to spike? Can we simply tell everyone they don’t have to pay assessments for a while? Can we move reserve funds? Can we borrow money? Can we change our collection policy to show some mercy?
I don’t think that this time is going to be as bad as last time. No way. I’m optimistic that the economy will be bouncing back shortly. This virus will go away sooner than later, and the government is throwing massive amounts of money at the problem. In addition, it was a different kind of problem a dozen years ago, where people who couldn’t afford to buy a home, over extended themselves. It was a time where everyone was upside down on their homes and you didn’t lose much by simply walking away, other than that 5% down payment you made. Sometimes it was even less. Now, more people have more equity in their homes so I don’t see them walking away from their property.
Associations obviously cannot tell the owners not to pay assessments. The association has bills that need to be paid each and every month for employees, insurance, landscaping, repairs, supplies, etc. These bills can only be paid if owners pay their assessments. But…. If things get tough, there is no doubt that many owners won’t be able to pay each month. So what is an association to do?
Some associations have reserve funds. If the unit owners vote to move these reserve funds into operating, the board can amend the budget and reduce the monthly assessment amounts. Perhaps an even better idea would be to simply have access to a line of credit that is simply there is the association needs it. Money is very cheap right not. This is actually the right time to borrow. I would strongly suggest applying for that line of credit now, before delinquencies kick in, because once delinquencies are high, the bank is likely to say no.
Some attorneys may be telling associations that now is the time to be tough and make sure to vigorously go after all owners who are delinquent. I don’t buy into that. If someone can’t afford to pay the $500.00 they owe you now, why should I send them immediately to collections and inflate that number to $5,000.00? Are they now suddenly able to pay it? Did they magically get their job back? Of course not. Always try to enter into a reasonable payment plan. If they are a few months delinquent, perhaps agree that they pay the full amount each month going forward but the delinquencies to be brought current within six months. Whatever is reasonable.
Boards have to balance the need to pay the bills with the ability to show some compassion and common sense. If an owner ignores all demands for payment, there may be no choice but to proceed legally. But, if an owner is truly in dire straits for the time being, is not ignoring the board and simply needs some time, then give them that time. Sometimes you can’t get blood from a stone, but you can extend a reasonable payment plan to an owner fallen on hard times.
These are tough times everyone. Hopefully we will never see anything like it again in our lifetimes or our children’s or grand-children’s lifetimes. History will record how we treated each other during these times. I hope those history pages show that we did all we could to help each other.