Beaumont Tashjian Law Blog

Friday, September 25, 2020

Addressing Homeowner Delinquencies in the Era of COVID-19 By Lisa Tashjian, Esq. and Calvin Rose, Esq.

Addressing Homeowner Delinquencies in the Era of COVID-19

Question: I’m serving on my homeowner association’s board of directors, and we are noticing an uptick in delinquent homeowner accounts in our community that may be due to the COVID-19 pandemic. Is there anything we can do to address this?

Answer: 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. 

The “uptick” that you reference may, in fact, be due to the economic challenges faced by owners as a result of the COVID-19 pandemic (i.e., business closures, the loss of hours or wages, layoffs, etc.). Of course, each delinquent owners’ situation is unique, and the board should strike a reasonable balance between the needs of owners experiencing financial hardship as a result of the pandemic, and the fiduciary obligations mentioned above. For example, your board may consider temporarily suspending late fees and interest on delinquent accounts; and, in particular circumstances, temporarily reducing and/or suspending assessments. However, such proposed action should be based on owners providing objectively verifiable documentation to the board indicating a considerable loss of income.

Question: I manage a large residential common interest development, and recently my office has been receiving homeowner requests for the board to waive unpaid assessments as a result of financial challenges created by the [COVID-19] pandemic. How should this be handled by the board?

Answer: A decision by the board to “waive” unpaid assessments creates risk to the homeowners association, as well as to individual directors, and should be strictly avoided. This is so, as many boards waived assessments for owners facing financial hardships during the 2008 recession, and such action, albeit well intended, resulted in substantial budgetary shortfalls for their associations. Those shortfalls caused deferred maintenance and repairs, and in many instances the levying of special assessments to fund same. The board can certainly acknowledge homeowners’ financial plight arising from the COVID-19 pandemic, and consider extending a courtesy by temporarily reducing and/or suspending assessments, as opposed to “waiving” assessments, as a reasonable and fiscally responsible gesture of goodwill. 

Question: My colleagues on the board have received several requests from owners to allow them to pay less than the required monthly assessments since the gym and pool are temporarily closed as a result of COVID-19. Is this a reasonable request that the board should approve?

Answer: Under most CC&Rs, owners are not exempt from the payment of assessments due to non-use of common area recreational facilities. The reason behind this is simple; assessments are literally the lifeblood of associations, and in the absence of assessments, essential expenses and services to owners, including, but not limited to, insurance, trash removal, maintenance of common areas, such as walkways/sidewalks, driveways, roads, landscaping, structures, etc., cannot be funded. 
With that said, the board should not allow owners to pay less than the required monthly assessments that become due simply because they can’t use certain common area amenities due to COVID-19. Although the pool and gym in your community is temporarily closed, there are certainly other common area components and/or facilities that are not closed, and which owners continue to use and enjoy. 

Question: Recently, our small 12-unit HOA has been faced with a shortage of operating funds which is due, in part, to four owners not being able to meet their monthly assessment obligations after being laid-off from work as a result of COVID-19. Help!!

Answer: Your community is fairly small, and losing one-third of monthly assessment payments can certainly create a fiscal challenge. Nevertheless, the board can address short-term cash flow issues by borrowing from reserves, and can do so without seeking and obtaining owner approval (Civil Code Section 5515). In fact, this statutory provision provides that the board may authorize the temporary transfer of funds from the reserve account for non-reserve expenses if, and only if, the board satisfies the following:

  1. Provide at least four (4) days’ notice to the members, of an open Board meeting, that the Board intends to transfer money from the reserve account to the operating account;
  2. Explain in an open meeting the reasons for the transfer and when and how the money will be repaid;
  3. Document its decision and findings, as required in #2 above, in the meeting’s minutes; and
  4. Issue a written finding to the members.

The reserve funds must be repaid within one year, unless the Board, after fulfilling 1 through 4 above, decides that a temporary delay is in the Association’s best interests. While borrowing from reserves is permissible, the board needs to be mindful that it must exercise prudent fiscal management in maintaining the integrity of the reserve account (Civil Code Section 5515).

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