Assessment collections during the Coronavirus pandemic
With the devastating economic impact caused by the COVID-19 pandemic and spike in unemployed Californians, homeowners associations are now faced with dealing with the inevitable rise in individual homeowners becoming delinquent in the payment of their monthly assessments. The Board of Directors (“Board”) of many homeowners associations will now need to consider how to navigate collecting assessments from delinquent homeowners, while keeping in mind the current reality created by the pandemic and its effect on their fellow association members and neighbors.
As an initial matter, an important point to note is that regardless of how many homeowners may be experiencing hardship, the obligation to pay assessments cannot be suspended. A Board has a legal duty to collect regular and special assessments sufficient to perform its obligations. This requirement is set out in the California Civil Code at section 5600(a) and it is not discretionary. Failing to collect assessments would eliminate the only revenue source for the association and would ultimately result in deferred maintenance, higher assessments in the future, and dilapidated common areas causing a reduction in overall property values. As such, Boards cannot simply forego assessment collection, despite many of its association’s homeowners having seen their income reduced or eliminated entirely.
Instead, Boards should continue to take all steps necessary to collect delinquent assessment debt. Specifically, this means sending pre-lien letters to delinquent homeowners at the earliest time allowed pursuant to the Association’s collection policy, and subsequently recording a lien to secure the debt, even though enforcement of that lien is currently stayed due to the moratorium on all foreclosures pursuant to executive order by California Governor Gavin Newsom.
With that said, we must recognize the hardship this pandemic is creating for many homeowners. A compassionate and reasonable, middle-ground approach to assessment collection is most appropriate and can still be taken while adhering to the recommended collection steps stated above.
When homeowners contact the Board to attempt to work out a resolution of their delinquency, Boards should take each matter on a case-by-case basis giving individual attention to each situation, and making reasonable considerations based upon the individual circumstances. Payment plans should be considered and approved whenever appropriate. Boards may also want to consider payment plans with longer repayment periods than what would normally be approved. If a homeowner requests a payment plan before a lien has been recorded against the property, the Board should continue to record the lien, which will remain in place for the duration of the payment plan and inform the member of this fact. Furthermore, soft costs, such as interest and late fees, which do not affect an association’s bottom line can be forgiven for certain members, if needed. We do not however, recommend offering a blanket policy of forgiving these costs.
Making it easier to pay down an assessment debt is a win-win is situation for associations and individual homeowners during this unprecedented period of uncertainty, as it affords homeowners the opportunity to address their delinquency under their current circumstances, while allowing an association to collect the income it needs. Furthermore, taking this approach to collecting delinquent assessments will allow Boards to fulfill their fiduciary obligations, while also considering the hardship this pandemic has created for their fellow association members, neighbors, and friends.