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Board Members: Tips for Handling Delinquencies

As the fallout from the COVID-19 pandemic persists, financial uncertainty is still a reality for many homeowners. Boards are tasked with making difficult decisions when it comes to how to manage assessment delinquencies, which may be on the rise. On one hand, the HOA board has a fiduciary duty to protect the association’s assets. On the other hand, compassion is crucial as homeowners continue to  struggle.

Here are some expert tips – grounded in California civil code as well as our decades providing successful property association management ­– to help board members navigate these challenging times.

Make sure homeowners understand the purpose of dues

As a non-profit corporation, all homeowners in the association (“members”) must provide equal financial contribution, including board members. These fees (“dues”) are vital to the successful management of the association, and include cash for daily operations, amenities, maintenance and repairs, as well as reserves for major improvements and more. Many homeowners are unclear as to exactly how association assets are allocated and don’t recognize the full value generated by their dues.

Make sure homeowners are informed by communicating frequently how their HOA dues are spent. Your manager will utilize the appropriate communications channels to share information with the membership and can assist in drafting a clear, informative reminders about the importance of dues.

Defer to your governing documents

Though the COVID-19 pandemic may have increased the number of delinquencies, your HOA’s governing documents already specify rules for enforcement. Be sure to follow them. The association’s governing documents stipulate a delinquency process, which is mailed to homeowners every year. Encourage homeowners to refer to the association’s written delinquency policy should any confusion arise. Though members may approach you personally or the board collectively, you must proceed with enforcement uniformly across the entire membership. Any indication of favoritism or discrimination from the board could expose the association to liability.

Follow your delinquency policy through the lien stage

In order to secure the association’s accrued debt, we recommend following the association’s delinquency policy through the lien stage. However, based on an individual homeowner’s circumstances, the board may opt to suspend late fees and interest on all delinquent accounts related to COVID-19. We discourage boards from proactively enacting an across-the-board suspension of late charges and interest because it inhibits the association from beginning the delinquency process and ultimately securing the debt through a lien.

Consider offering payment plans

Financially strapped homeowners may be able to pay their dues in full if they can extend their payments over a longer period of time. Your manager will present payment plan requests on the board’s Delinquency Report. If your Board meets infrequently, payment plans can be reviewed by established Executive Committees if added to their Committee Charter. This may be a useful option for homeowners who are willing to pay but simply unable to at this moment.

Pause immediate small claims actions and foreclosures

For delinquencies due to COVID-related financial hardship, we do recommend the board file the lien to secure all outstanding current debt. However, after the lien is filed, the board may choose not to take further legal action and monitor the accrual of continued debt to take action at a later date. When the courts reopen, the board may choose to pursue legal action while taking into account an owner’s personal circumstances.

Defer discretionary expenses

Is there an opportunity to defer discretionary expenses that are not necessary to preserve property and/or safety? Some discretionary expenses for backburner consideration include landscape upgrades, gate upgrades, aesthetic upgrades, and other capital projects. Loss of income from dues will directly impact the association’s operations, maintenance, and upgrades. However, postponing certain tasks until a more financially stable period may ease cash flow concerns without placing undue burden on members or the association.

Proceed with assessment reduction or abatements carefully

The board has a fiduciary duty to maintain appropriate cash flow to fulfill the maintenance obligations outlined in the HOA’s governing documents. Therefore, if the board is considering abating or reducing assessments, we recommend meeting with the association controller at your property association management company. Your controller will review your current cash flow and accumulated equity and discuss a feasibility plan that addresses your association’s unique needs.

As a board member, you have a legal responsibility to protect the association’s financial health. We understand your compassion for struggling homeowners, but your role is to ensure the rules are followed uniformly and consistently. Remember that you don’t have to go it alone. Your property association management company, legal counsel, and other business advisors are here to help you make the smartest, most responsible decision for your HOA.

Want more tips to handle complex HOA management scenarios? Our property management experts can help.

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