Daily life across southern California has changed dramatically in the last few weeks. Shelter-in-place orders have disrupted schools, businesses and social activities, effectively pressing “pause” on most communities across the nation. As a result, many homeowners who have been laid off are now forced to balance living expenses against temporarily suspended income.
As some mortgage lenders and utilities offer payment deferrals, we have recently received numerous calls from homeowners and board members asking how associations should handle assessments during these uncertain times.
Here is some useful context surrounding assessments as well as industry best practices for how HOA boards should proceed.
Why does my HOA need to collect assessments?
HOAs are non-profit mutual benefit corporations and the assessments paid by every member (homeowner) in the association directly support the programs and services that preserve the property values of homes in your community. HOA administration is handled by a volunteer board of directors who responsibly manage your association’s collective funds according to legally-mandated fiduciary duty. In short, your assessment fees fund the entire scope of operations of your association.
What are assessments used for?
As a non-profit corporation, all funds collected by an HOA must be funneled back into the association, either in the form of operational expenses or reserve funding.
Your assessments are directed toward a huge breadth of expenses associated with successful HOA management. These fees are applied to the costs of running the association, including utilities payments, vendor payments, common area upkeep and maintenance, as well as administrative support from your HOA management company.
Your board’s fiscal responsibility also means making sure the association maintains appropriate cash flow, funding for long-term improvements and sufficient reserve funds to maintain solvency.
For more information, here’s a detailed breakdown of what HOA assessments are used for.
Can an HOA board temporarily waive assessments?
We strongly caution boards against across-the-board or selective waivers of monthly assessments at this time. First, the board maintains a fiduciary duty to the association, which means they must continue caring for common areas and paying utilities, bills, insurance and vendors, even during this pandemic. Forgiving assessments unilaterally will bring the association’s income to zero, which would violate fiduciary duty. Determining rules for who qualifies for a selective waiver would also present problems, as each case will vary greatly.
That said, now is the time for the board to take a compassionate approach to association members who are experiencing layoffs or temporary financial instability. Therefore, we recommend the following:
- Boards may consider suspending late fees and interest on all delinquent accounts related to the coronavirus
- While liens can be recorded against new delinquencies, we recommend that no foreclosure actions should be initiated against these cases
- Older delinquencies that predate coronavirus would not apply to these circumstances and should be processed as normal
As always, these decisions are at the discretion of each individual association’s board of directors. As an HOA management company, we provide advice, guidance and industry best practice insight but all decisions ultimately rest with your board.
What if a homeowner can’t pay their assessment?
The best solution to manage assessment delinquencies during COVID-19 is to handle each on a case-by-case basis. Homeowners who become delinquent due to coronavirus should contact their board and discuss options to initiate an achievable payment plan. Boards should take a balanced and reasonable approach to each of these cases, recognizing that homeowners are doing their best to comply with association requirements and are also experiencing stress due to this uncertainty.
Planning for a brighter future
HOAs will feel the impact of this economic interruption in the short term as well as further down the line. It’s important for board and association members to keep in mind that nothing is permanent and this, too, will pass. Boards can ease the uncertainty by maintaining open lines of communication with membership (your HOA manager can help) and asking their management company for additional guidance in upcoming planning and budgeting to get the association back on track as soon as possible.
Do you have questions about how your association can further support your membership during COVID-19? Our HOA management experts are here to help.