FOR BOARD CONSIDERATION

Temporarily Relaxing Association Collection Policies as a Result of the COVID-19 Pandemic

MR. CALVIN ROSE, ESQ., BEAUMONT TASHJIAN

With the spotlight shining brightly on the coronavirus (COVID-19) pandemic, association boards should be prepared to navigate some of the complicated issues it has created, particularly in regard to assessment collections. As we know, Governor Gavin Newsom has proclaimed a State of Emergency to exist in California as a result of the threat of the pandemic. What is more, he issued Executive Order N-33-20, ordering all residents, unless exempted, to stay at home. He also issued Executive Order N-28-20, which effectively suspended actions by a housing provider which would eject a person from their home (i.e., foreclosures).

Many Californians, including the members of over 45,000 homeowner associations in the state, are experiencing, or will experience, substantial losses of income as a result of business closures, the loss of hours or wages and layoffs arising from the COVID-19 pandemic. Members of associations experiencing substantial losses of income may be unable to meet their current financial obligations, including the payment of assessments.

Assessments are literally the lifeblood of associations. Without assessments, essential expenses and services to members, including, but not limited to, insurance, trash removal, maintenance of common areas, such as walkways/sidewalks, driveways, roads, landscaping, pools, structures, etc., cannot be funded.

With that said, community associations, through their boards of directors, are charged with the fiduciary duty to operate and manage community association affairs, including managing and maintaining the common areas. This also includes, among other things, enforcing the provisions in the CC&Rs, and any related collection policies, that speak to the timely payment of assessments, and the implications for not doing so.

In order to strike a reasonable balance between the needs of members experiencing substantial losses of income as a result of the pandemic, and the fiduciary obligations for boards to exercise (among other things) prudent fiscal management, boards may consider temporarily relaxing their collection policies. For example, boards may consider temporarily suspending late fees and interest on delinquent accounts; and, in certain situations, temporarily reducing and/or suspending assessments, based on members providing objectively verifiable documentation of a substantial loss of income.

THE OBJECTIVE HERE IS TO STRIKE A REASONABLE BALANCE BETWEEN THE NEEDS OF MEMBERS EXPERIENCING SUBSTANTIAL LOSSES OF INCOME AS A RESULT OF THE COVID-19 PANDEMIC, AND THE FISCAL WELL-BEING OF THE COMMUNITY ASSOCIATION.

Further, boards may consider temporarily imposing a moratorium on initiating and prosecuting an action to foreclose, as well as membership termination proceedings. Note, there is currently proposed emergency legislation, being considered by the state legislature, that will place a moratorium on community associations from initiating and prosecuting an action to foreclose as a result of the COVID-19 pandemic. Thus, any temporary moratorium adopted by boards would be superseded by more restrictive mandates imposed by law.

In light of the unique challenges presented by these unprecedented circumstances, as well as developing changes in the law relative to same, community associations, through their boards, should consult with legal counsel to consider adopting/updating their assessment collections policies, in order to meaningfully address this situation.

Note that waiving members’ assessment obligations altogether should be strictly avoided. To learn from lessons of the past, some boards elected to waive assessments for owners during the 2008 financial crisis and recession. This resulted in budgetary shortfalls for their associations. Given that the board is charged with the duty of acting in the best interest of the community as a whole, waiving assessments would not align with this responsibility. Instead, boards should view each case with an eye toward compassion, and if necessary, propose payment plan options for the delinquent owner.

Again, the objective here is to strike a reasonable balance between the needs of members experiencing substantial losses of income as a result of the COVID-19 pandemic, and the fiscal well-being of the community association. Boards should be wary of owners taking advantage of the pandemic to avoid their assessment obligations, versus the owner who is experiencing legitimate financial hardship. In the former case, the board should exercise greater scrutiny, while in the latter, a temporary suspension of late fees, etc., may be prudent. In either case, however, documentation substantiating a legitimate hardship should be required.

Calvin Rose is an associate attorney with Beaumont Tashjian, where he devotes his time to representing associations as both general and litigation counsel. Mr. Rose advises boards and managers in the preparation, interpretation and enforcement of contracts; levy and collection of assessments; insurance coverage issues; governing document enforcement and regulatory compliance matters; and all other matters affecting associations.