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Paying Assessments in Turbulent Times

08/01/2020 4:27 PM | CAI Rocky Mountain Chapter (Administrator)

By Gabriel Stefu, WesternLaw Group, LLC

All around the country, businesses, non-profits, and organizations of all kinds are dealing with the ramifications of the COVID-19 pandemic.  Homeowner’s HOAs (“HOAs”), as volunteer-based, non-profit organizations, are uniquely affected by this pandemic.  From homeowners being financially impacted, to decisions regarding the restrictions the virus places on access to communal facilities, HOAs are left to make decisions on how best to manage their funds, the income of assessments, and the possible financial leniency given to homeowners.

A Balancing Act

Though it is tempting and commendable to offer leniency to homeowners during these trying times, it is important to realize the necessity of collecting HOA assessments.  On the one hand, boards can provide leniency to homeowners, including staying foreclosures, covenant enforcement violations, and “soft” costs, such as late fees.  On the other hand, HOAs need funds to continue to operate.  Continuing to collect monthly assessments from homeowners is the best way to ensure that HOAs can pay their expenses and can continue to provide for the needs of the HOA.

Keeping the HOA Running

Monthly assessments are vital to an HOA.  Because HOAs do not make a profit or generate other revenue, many times, assessments are the only source of funds for an HOA.  These incoming funds provide the bedrock to allow HOAs to continue to operate.  Boards and homeowners must realize that, though times are currently hard for many people, the HOA still has a duty to provide for the needs of its community.  Much of the incoming assessment funds are used to pay HOA bills, to contract with landscapers, to maintain and repair buildings and common property, to afford security, to keep insurance, and to provide for other benefits to the homeowners.  When money is saved from assessments in the form of a Reserve Fund, that fund is also used for the benefit of the community to fund future capital improvements.

The reality is that HOAs have both financial and legal responsibilities owed to their homeowners and to other businesses that an HOA may contract.  Monthly assessments that fuel HOAs are a necessary and pivotal part of fulfilling these obligations.

Consequences of Non-payment

Unfortunately, the contracts and legal obligations of an HOA do not halt when a pandemic occurs.  HOAs are still required to fulfill their contracts and pay their expenses. 

For example, if an HOA did not collect monthly assessments, even during this pandemic, they could find themselves open to liability from other entities with whom they have a binding contract.  HOAs contract with numerous companies and persons to maintain and repair common elements and units, and their duty to fulfill these contracts does not stop.  If an HOA does not perform on these contracts, the services provided may stop, or the HOA may be liable to the contracting party.  Furthermore, the board of directors of HOAs has a fiduciary duty owed to their homeowners. They may violate these duties if they do not fulfill their legal obligations by breaching contracts, letting common elements remain in disrepair, or not collecting monthly assessments.

In addition, not collecting or lowering assessments right now may harm an HOA in the future.  The steadiness and reliability of monthly assessments allow an HOA to plan and prepare for future expenses.  If assessments stopped, not only would the HOA not have funds to address situations in the future, but they may have to charge homeowners an increased amount in the future to make up for the lack of funds.  The lack of collecting dues now may lead to a build-up of missing funds that will be exponentially harder to recoup.  This is not ideal for either the homeowner or the HOA.

If an HOA does not collect homeowner assessments, many of the consequences above, and others unforeseen, will manifest.

Leading with Empathy

The sign of a well-run HOA will be their ability to handle the continued collection of assessments effectively and empathetically against the backdrop of these turbulent times.  No board is perfect, but there are a few things that both boards and homeowners can do to create transparency and work together through the current struggles.

  • Communication.  Both sides should converse and reflect on the information above that assessments are necessary for the current and long-term stability of an HOA.
  • Leniency Outside of Assessments.  Boards can grant leniency to homeowners by holding off on foreclosures, covenant enforcement, and waiving soft costs such as late fees and interest, but should be encouraging all homeowners to at least pay the monthly assessment.  
  • Mutual Benefit.  Monthly assessments go to the benefit of all homeowners in a community, not just for a select few.  Rally around each other during these hard times and communities will come out even stronger than before.

It is during times like these that communities should come together.  HOA boards around the county would do well to recognize the need for empathy and leniency - where it can be given - while reinforcing the importance of homeowners timely paying their monthly assessments.

As always, we recommend that HOAs reach out to legal counsel for any advice to ensure that boards meet their fiduciary duties and properly communicate with the homeowners during these difficult times.

The law firm of WesternLaw Group, LLC focuses on the preventive aspects of Homeowner Association (HOA) procedures, and interpretation of governing documents. They develop methods for associations to operate and communicate with a level of efficiency that enhances a sense of community. They encourage open communication between the owners, board of directors, and management companies in an effort to resolve conflicts prior to taking legal action.

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