Dealing with the Financial Fallout of a Public Health Emergency
As the federal and state governments took unprecedented measures this spring to confront the coronavirus pandemic, the economy largely collapsed. The dramatic surge in job losses that resulted has led many community association boards of directors to rightly worry about the impact on their financial footing. The fallout is likely to continue for months, if not longer, so managers need to help their clients plan accordingly now.
While compassion certainly is warranted, boards may find their hands more tied than they realize. After all, they owe their fiduciary duty to the association itself, not to owners who might find themselves in dire financial circumstances.
Governing documents generally state that the association “shall” levy assessments, meaning boards usually don’t have the option to suspend assessments altogether. Even if they do, boards must understand that such well-intentioned approaches generally are ill advised.
“What people aren’t comprehending is that these vital services have to continue, and you still have the utilities, the ongoing maintenance,” says Katie Anderson, CEO of Aperion Management Group, LLC, which manages around 65 associations in Central Oregon. “You’re not abating any costs enough to say we’re going to stop assessments.”
Sandra Gottlieb, a founding partner of California homeowner association law firm SwedelsonGottlieb, seconds that sentiment. “The one thing we learned from the Great Recession in 2008 is that costs are constant. They don’t go anywhere.”
Modifying Collections Practices
Boards do have some discretion in addressing assessment delinquencies, though. “The advice we’re giving is that, as a nonprofit corporation, you still have a fiduciary duty to operate,” says Kevin Hirzel, managing member of Hirzel Law, PLC, a Michigan-based firm that works with community associations, “but there are steps you can take to be more sensitive.”
For example, Hirzel’s firm is helping its association clients amend their existing collection policies to provide greater flexibility in dealing with owners undergoing a financial hardship. But he’s adamant that his clients continue to place liens.
“If you don’t, you may lose priority to the bank or not get paid if the unit is sold,” Hirzel says. “After liens are placed, an association is in a better position to be flexible with respect to waiving interest and late fees, entering into payment plans, or delaying foreclosure.
“However, many collection policies don’t currently permit this type of flexibility.” Boards should consult with their attorneys about making the necessary policy amendments sooner rather than later.
As always, it’s critical that boards avoid selective enforcement of collections policies. But association attorney Michael Kim of Schoenberg Finkel Newman & Rosenberg, LLC in Chicago cautions boards against following previous practices religiously in these exceptional circumstances.
“You can keep in mind what you might have done earlier, but my advice is to think about what makes sense now and exercise present-focused decision making,” he says. “Whatever might have been done in the past isn’t precedent for this situation because you didn’t have an emergency where a huge part of the economy is shut down.”
Paul Grucza, director of education and client development at the Seattle-based management company CWD Group, Inc., expects to see different approaches than in the past.
“I think there’s going to be a greater sense of compassion and creativity in the forbearance and payment plans simply because of the incredible depth of this situation,” he says. “People across economic strata in all kinds of communities are suffering because of nothing they did wrong. The circumstances are entirely different today than in 2008 and 2009.”