Though the United States, along with the rest of the world, is in the throes of the Covid-19 pandemic, businesses and other organizations have had to do their best to continue to operate. These operations, however, have taken on a new look in many instances as everyone adapts to "the new normal". This rings true in many areas of community association operations, including collections. According to Attorney Tim Sellers of Sellers, Ayers, Dortch & Lyons, P.A., this "new normal" will likely continue versus things going back to how they once were and there will be long lasting economic impacts that affect everyone.
Community associations and those who are charged with running them want to of course be compassionate and considerate of those who are facing financial hardships during this time; however, there are still association bills to be paid and responsibilities to be handled. That being said, it is important for community association board members to find the right balance in their collections efforts and take into account all the facts and circumstances of each individual situation as it's presented. In order to properly navigate the collections process during this precarious time period, community associations must make adjustments to their attitudes, actions, expectations and take extra care in planning for their financial futures.
Adjustments in Attitudes Towards Collections
With many homeowners currently facing financial hardships, it is important that community associations engage in "compassionate collections" - collection actions carried out with a sympathetic consciousness of others' distress coupled with a desire to alleviate it. However, board members must keep in mind that while Covid-19-related hardships are very real and often not the fault of homeowners, it is not within a fiduciary's authority to forgive debts. Board members are responsible for seeing that the association operates in a financially sound and reasonable manner. So, with the increase of homeowners facing financial troubles, a balance must be found when it comes to collections and an adjustment must be made to how collection actions are approached.
A key thing to keep in mind regarding collections during this time period is relative consistency, meaning that you must take similar actions in similar situations. However, this of course doesn't mean that "one size fits all" when it comes to collections. For example, if an association member has been delinquent for three years, the pandemic didn't have anything to do with their failure to make payments. That situation doesn't merit the same action as an owner who has been faithful in making their payments over the years but suddenly can't due to loss of wages or other hardships brought on by Covid.
One of the best things community association board members can do right now regarding collections is take initiative - find out how you can help delinquent members pay. If a homeowner's financial situation has been negatively impacted by the pandemic, encourage them to let the association know as soon as possible. Board members should also be continuously monitoring the association's financial state during this time. This could include meeting more often to ensure that prompt actions are being taken when members fall delinquent.
Overall, community association boards need to be willing to be less rigid with policies and more flexible with processes during this time. It is advisable for associations to adopt policies to ensure that there is consistency (not uniformity) in how they approach collections.
Prompt Actions and Proactive Communication
The importance of proactive communication cannot be stressed enough in regard to collections. In other words, boards should actively reach out to the membership and invite them to inform the board if they're facing financial hardships due to the pandemic. Not only does this show good faith on behalf of the association, but it also opens up the possibility of earlier payments or more reliable payments without the expense of having to begin the collections process.
With the likelihood that every association will have some members facing pandemic-related financial hardships, board members should discuss in advance what kinds of payment arrangements will be acceptable. There should be records kept of these discussions and decisions and the reasons behind such decisions as this will help protect the board should questions arise down the road.
As association members present the board with their financial hardships and begin to request payment plans or other arrangements, it is the responsibility of the board to respond to these requests promptly. Responses can be accepting or denying these arrangement requests or proposing alternatives, but regardless of the decision made, a response is necessary from the board in order to keep the collections process moving at a steady pace.
As life in the pandemic continues, community associations need to be realistic about what they expect in the coming months and beyond. Unfortunately, the number of people filing for bankruptcy is likely going to increase. With that, if associations haven't filed proper claims of lien (we'll dive into claims of lien in our next article), there's no recourse for obtaining the money they're owed. Boards who expect these conditions and properly prepare for such will put themselves in a better position to be able to collect debts.
Foreclosures Will Increase
Another hardship that will be on the rise in the future is lender foreclosures. Though they're currently being delayed due to various government moratoriums, those will eventually come to an end and payments will be due again. And remember, liens from community associations will fall subordinate to mortgages and deeds of trust. Right now, everyone has a bit of a reprieve because big mortgage backers are unable to proceed with collections but once the current moratoriums come to an end, there will likely be a dramatic increase in foreclosures filed by lenders.
Uncollectible amounts or "bad debt" is another thing set to rise in the coming months and this is something that should be anticipated by community associations for the remainder of this year and well into the next. This should be anticipated as associations draft their annual budgets. While few associations create a "bad debt reserve", it is something that may be worth considering given the current financial environment. There is really no downside to having those extra funds set aside - if you have more than you need then it is money that can be reallocated elsewhere.
Overall, community associations and those who are charged with governing them must keep in mind that conducting "business as usual" simply won't cut it right now. If associations are unwilling to adjust their attitudes and policies, this will almost certainly result in less money coming in and higher unrecovered amounts and costs to pay.
As you can see, there is a lot to unpack here as we all continue to move forward into a decidedly uncertain future. Now that we've been living in a pandemic for several months, however, we are able to understand a bit more about what is going on and what will likely happen in the coming months when it comes to finances and the housing market. Being flexible, compassionate and prepared for whatever comes your way will put your community association in prime position to handle future hardships properly and continue to be successful as we wade through the final portion of this year and into the next.
Stay tuned in the coming weeks for our next article which will dive into filing claims of lien, installment and delayed payment plans and foreclosures as they relate to the Covid-19 Pandemic.
If you would like to watch the webinar presentation that touches on these subjects, you can find it here. And, if you have any questions on any of the topics we've touched on in this article, please reach out to your CAMS Community manager via your owner portal or at 877.672.2267 for trusted guidance.