Have you heard the phrase, “many hands make light work?” That adage also applies to your Association.
When all Owners carry their share of the financial responsibility by paying their Association fees on time, your community thrives: amenities are funded, reserves are maintained, routine maintenance is performed on schedule, et cetera. Plus, because everyone shares the community’s costs fairly, everyone’s fees remain lower than they would if you had to cover for people who were not contributing their fair share.
But sadly, some people do not pay their fair share, and in those cases, Associations need to deal with the delinquencies.
Delinquent accounts harm communities by straining their financial resources. Communities plagued with delinquent accounts are forced to make the remaining neighbors pay more, or to spend less on community amenities and maintenance or to collect special assessments.
It’s important to note that not all delinquencies are created equal. There are several reasons why homeowners may neglect to pay their dues.
One innocuous source of missed payments is simple forgetfulness. In these cases, the Association management company simply issues a letter to the Homeowner, the Homeowner receives the notice and pays the fee, and the problem is solved. Most governing documents permit charging late fees for delayed payments to incentivize homeowners to be more prompt with future payments. This type of delinquency is the best-case scenario.
Other homeowners may miss payments due to more serious circumstances. Perhaps one neighbor loses her job, or another is dealing with serious health issues and struggling to pay unbudgeted medical expenses. The good news for these homeowners is that many Associations will work with the Homeowner by instituting a payment plan.
Boards should feel free to work with delinquent Homeowners, as long as they follow two guiding principles:
1. All procedures outlined in the Association’s governing documents must be followed consistently
2. All Homeowners must be treated equally. That means if they offer a payment plan to one neighbor, then that option needs to be available to all neighbors with similar circumstances.
Finally, some Homeowners miss payments because of serious financial crises. This situation requires more drastic measures, such as involving the Association attorney, placing liens on the property possibly leading to foreclosure, as well as filing a personal judgement lawsuit.
For Homeowners with heart-rending circumstances, some Board members may feel compelled to forgive the delinquent payment altogether. It’s understandable, since Boards are comprised of neighbors who develop friendships and care for one another. But forgiving a delinquent balance is counterproductive in several ways: it may encourage the Homeowner to miss subsequent payments; it’s not fair to the other Homeowners; it may set a dangerous legal precedent; and last, most Associations’ governing documents expressly forbid Boards from excusing Association dues.
Dealing with Delinquencies
Are there measures that Boards can take to help their Association members avoid delinquencies?
According to WPM Controller Karen Green, the answer is “yes and no”:
“If Homeowners are dealing with lost wages or unbudgeted expenses, they may not be able to afford the Association fee. Board members may certainly reach out to these Homeowners to encourage them to submit a payment plan, but if they are on the path to foreclosure, there is little that Boards can do.”
On the bright side, Boards and the Association Management Company can be proactive about communication.
Monthly or quarterly letters to Homeowners can be sent that (1) describe Association concerns, and (2) consistently include messaging about the importance of dues and what they support. Plus, Associations hold regular board meetings to build better community and open the lines of communication between Board members and their neighbors. While there may be nothing Boards can do to alleviate a Homeowner’s financial problems, opening the lines of communication between Board members, the Association Management Company and Homeowners helps delinquent account holders know whom to reach out to, should they encounter problems.