Real Estate & Property Law

What Are Some Options for Struggling Boards and Homeowners?

In my last blog I had to pass on some discouraging information about the options HOAs and Condo Associations have with regard to collection of assessments. It's discouraging for the owners of course because owners tend to think they may be able to just "walk away" from the assessment obligations. It is common to assume that the collections processes for mortgages and for assessments are the same, but they are not. Assessments can be pursued either through foreclosure (if the documents allow it, which most do) or through personal debt actions and there are different parameters for mortgages (and I am not here to advise you on either, just to pass on information).

And times are difficult for boards too, because they often have to pursue debt collection or authorize it to be taken against neighbors and people they know are struggling, for the benefit of the membership.

So what are some things that can be done? Owners can try to work out a payment plan with regard to the delinquent assessments by communicating with the Board. California law gives owners the option of asking for a meeting with the Board to discuss a payment plan. Of course, this assumes that they will be able to pay the continuing assessments as they fall due and a reasonable amount toward the debt. Remember, associations have obligations to meet also. Some are simply unwilling or unable to offer payment plans, it is true; however, those that can would do well to open up their minds to the realities of "incentives" that come with a payment plan for an owner who is able to pay with one. Do not operate in a box such that important opportunities for "workouts" are ignored.

And associations, in difficult cases, you need to consider whether payments toward delinquencies are better than receiving no money at all and try to find a way to allow those who fall behind a reasonable way out of the hole they have dug, often completely unaware of what the ramifications of missing assessment payments is.

For years Boards have been advised to put assertive ongoing collection "policies" in place - with the idea of pursuing the assessment obligations quickly and diligently ... because the further behind an owner gets, the more difficult it is for them to fix the situation. The short timelines are still important, staying on top of the delinquencies are still important. The difference is that in these tough economic times, people are more inclined to throw their hands in the air let someone else tell them what a good plan is. Lots of people are having a hard time thinking straight. So you may be able to help persons who are open to considering, or come willingly to seek a plan.

Payment plans can be drafted with protective measures such that late fees and interest are waived either on the total due or on the continuing debt so long as payments are made on time. These costs are often referred to as "soft costs" unless they become "hard costs" because of charges made by management" . Or, a plan could put collection costs or soft costs "on hold" or "in abeyance" during the term of the payment plan with a provision they will be waived if payments are made on time, and will be added back in if the payment plan is violated, or some creative language that allows all the parties to take the best advantage of a difficult situation. All payment plans should be in writing, and should clearly specifiy when money is due, how it will be allocated, and what causes termination of the agreement, so there will be no confusion about how it works, what the "benefits" are (in legal terms, "consideration", for example the waiver of costs, the Board's agreement not to proceed with foreclosure, etc.) I think it best to also address the right to put and keep a lien on the property until the debt is satisfied, but there may be a reason to consider otherwise.

And one more thing. It is best not to "assume" that owners or boards have a personal vendetta or disregard for each other over these issues. That only adds a highly stressful emotional component to an already difficult "business" or "personal" financial issue. And adding that component often clouds one's judgment in making rational decisions.

Full post as published by California Condo & HOA Law on April 23, 2009 (boomark / email).