Waive Assessments Because of the Coronavirus?

By Adrian Adams, Esq.

The coronavirus pandemic is throwing tens of thousands of homeowners out of work. Many of them live in community associations and have stopped paying their assessments. Should boards waive late fees and interest? Should they waive assessments for a month, three months, longer? Should they waive for some members but not others?

BALANCING BOARD DUTIES

Boards have a fiduciary duty to keep their associations operational. That means paying utility bills, paying for insurance, maintaining the property, responding to emergencies, maintaining security, paying vendors, etc. At the same time, boards need to balance these obligations against the fact that increasing numbers of members cannot pay their assessments because of the pandemic.

LATE FEES & INTEREST

Members have been laid off through no fault of their own. Accordingly, boards should immediately suspend late fees and interest on all delinquent accounts related to the coronavirus. Older delinquencies having nothing to do with the pandemic can be treated differently. With those accounts, boards can choose to continue late fees, interest and foreclosures.

FORECLOSURES

While liens can be recorded against new delinquencies, no foreclosure actions should be initiated against them. With older delinquencies, it may be appropriate to move forward with foreclosure actions, up to and including selling units. This would be the case for delinquencies that predate the coronavirus where there is no chance the person will pay the delinquent amounts. For others, foreclosure actions might move forward to the point of sale and then stop if amounts owed will be paid.

WAIVE ALL ASSESSMENTS?

Waiving assessments altogether is compassionate but also problematic. As noted above, boards have a duty to keep the association operational and pay its bills. It can't be done if no one pays their assessments. What about waiving assessments for delinquent members only? This presents a different problem. Do you waive for delinquent accounts that have nothing to do with the coronavirus? That would not be prudent. Forgiving assessments for those laid off because of the coronavirus is easier to defend but still a problem.

WAIVE SOME ASSESSMENTS?

How do boards decide which ones are pandemic related? How long do they waive assessments? What if there is a rolling waive of layoffs for months to come because of the virus? At what point do boards stop waiving assessments? Also, waiving them creates a budget shortfall that increases the financial burden on everyone else. The best solution is to work out payment plans with members laid off from work.

PAYMENT PLANS

Fortunately, most (hopefully all) layoffs will be temporary. The coronavirus will soon peak, stay-at-home orders will be lifted, businesses will restart, and workers rehired. In addition, last night's approval by the Senate of a $2 trillion stimulus package includes cash payments to individuals hurt by the epidemic. Boards should work out payment plans on a case-by-case basis with members. Each will be a little different depending on how long the person has been laid off. Boards should be balanced and reasonable in their payment plans.

BORROWING FROM RESERVES

To meet cash-flow problems created by the pandemic, boards are allowed to borrow from the association’s reserves without a vote of the membership. (Civ. Code §5515(a).) Boards are required to give notice of their intent to borrow reserve funds by listing it as an agenda item in its notice of board meeting. The notice must include the reasons the reserve transfer is needed, some of the options for repayment, and whether a special assessment may be considered. If the board authorizes the transfer, it must issue a written finding, recorded in the minutes, explaining the reasons for the transfer, and describing when and how the money will be repaid to the reserve fund. (Civ. Code §5515(c).)

REDUCED FEES?

Some owners will inevitably demand a reduction in assessments since they cannot use the association's amenities such as the pool, spa, fitness center, tennis courts, etc. because of the coronavirus. Boards should politely decline all such requests. The loss of use is temporary. Besides, how do boards calculate the amount of reduction and who do they give it to? Many members do not use the facilities or only use them occasionally. Should they get a reduction? Do those who use the facilities more often receive a greater discount than those who don't? This is a non-starter.

CONFLICT OF INTEREST?

What about board members who are delinquent? Can they vote on issues involving assessment relief? To avoid conflicts of interest, a director who is delinquent must recuse him/ herself from votes involving their own delinquency. They can still vote on matters related to payment plans and foreclosures for others but may want to recuse themselves to avoid any appearance of conflict.

STEADY THE SHIP

The storm will soon pass. Board members need to keep a steady hand on the ship's tiller. Homeowners need to be patient.

ADRIAN J. ADAMS, ESQ. is founder and managing partner of ADAMS | STIRLING PLC, a state-wide law firm specializing in community associations with offices throughout California. Adrian is on the board of the Foundation for Community Association Research, is a founding member of the Critical Issues Think Tank and serves on the national Task Force for Aging Infrastructures. Adrian is creator of the award-winning research website Davis-Stirling.com.