It’s hard to believe, but 2021 is almost here. With the current year bringing so many ups-and-downs and uncertainty, we are hopeful 2021 will bring us back closer to a sense of a “new normalcy”. For many property owners associations (POA), that sense of normalcy begins at the start of year with the annual assessments. What will the annual/quarterly/monthly assessment look like for 2021, and what will 2021 bring for the collection of delinquent assessments as COVID-19 continues?
Throughout the COVID-19 pandemic we have seen several news stories and received many questions about POA assessments including whether the POA should reduce or reimburse 2020 assessments? As stated previously, we do not recommend POAs consider reimbursements or a reduction of their 2020 assessments. Remember, POAs are non-profit organizations bound by their governing documents, Chapter 22 of the Texas Business Organization Code and various chapters of the Texas Property Code. Also, a reduction in services due to COVID-19 does not necessarily mean a reduction in the price of the contract, or the obligation to pay. Many contracts cannot be suspended or terminated without paying a penalty or the full contract price, and as we have touched on in previous articles, even contracts with force majeure clauses may not excuse payment obligations.
In addition to contract issues, most deed restrictions do not give the POA authority to grant reimbursements or reductions of assessments. Typically, the restrictions do not permit the POA to provide for any offsets or reductions for any reason, including the reduction or failure of the POA to provide services. Therefore, if the POA does not have the authority to reduce or reimburse assessments for any reason, the POA cannot take this action mid-year.
However, going into 2021, some POAs may find themselves in a position of having reduced services compared to previous years and may be able to lower their assessments for the 2021 fiscal year as a result. Please note, this will not be the case for all. With the expectations of social distancing and occupancy restrictions continuing into 2021 until there is an available vaccine, many POAs will continue to have the added expense of pool monitors, regular cleaning and disinfecting of common areas and other necessary procedures to keep the amenities and common areas open for the POA’s owners and residents. As a result, many of our POAs’ assessments will be maintained at their current level or perhaps even increase to address the added COVID-19 expenses.
If a POA anticipates additional expenses due to COVID-19, it may be difficult for the POA or its management team to estimate what those costs are for 2021. So, what should the POA do? To comply with the various standards of care applicable to POAs, the POA’s Board of Directors should rely on estimates provided by the vendors that will cause the added expenses in 2021.
Let’s take a POA pool amenity as an example. Here are some scenarios a POA may want to consider in reopening its pool for the 2021 season:
- Pool is open 6 days a week with lifeguards that double as intake;
- Pool is open 6 days a week with lifeguards on Saturday & Sunday and pool monitors on the other 4 days;
- Pool is open 6 days a week with only pool monitors; or
- Pool is open less than 6 days a week with lifeguards and/or pool monitors
Please note that for all of the above scenarios, a pool cleaning day is assumed and there must be at least a pool monitor present to monitor intake. You will also need to estimate the added costs for janitorial services assuming daily or twice-daily cleaning. Once pricing for each scenario has been estimated and a scenario chosen, the Board can either adjust funding to cover 100% of the scenario or only cover a percentage of the scenario’s cost with the understanding that if pool restrictions remain in place, the scenario originally chosen will have to be changed to a more cost effective one.
Collection of Delinquent Assessments
When an assessment becomes due, many homeowners pay on time, but unfortunately, there are a few who choose not to pay their obligated assessment. The POA is then forced to pursue collection action against the homeowner. Throughout the COVID-19 pandemic we have been asked by many of our POA clients whether they should continue their collections process. The short answer is yes.
The POA relies on the payment of assessments for the various duties and obligations it must perform to serve its owners and residents. When assessments are not paid or collection action is not consistently instituted, the POA’s available funds decrease which, in turn, either forces the POA to draw from its reserve, which creates its own set of issues, or it begins reducing services it is obligated to provide. This can then create a domino effect where services continue to deteriorate and more owners refuse to pay due to the lack of services received for the funds paid. In order to avoid a situation like this from occurring, the POA should continue with consistent collection practices.
While continuing consistent collection practices, it is still important for POAs to be reasonable. The economic uncertainty is continuing with hundreds of thousands of Americans filing for unemployment benefits every week, and the unknowns of when a vaccine will come for this deadly virus have brought hardship and loss to countless Americans. On a case-by-case basis, the POA should:
- Consider reasonable hardship exceptions for residents who are unable to make their payments as a result of financial or other hardships relating to COVID-19. When an owner contacts either management or our law firm requesting assistance, one of the first questions to ask is how the owner is affected by COVID-19. Some ways to assist affected owners includes:
- Limited abatement of late fees and interest,
- Limited abatement of assessment payments,
- Extended payment plans,
- Deferred payment plans, and
- Payment plans with lower initial payments for a short period to allow the resident to recover once the COVID-19 orders expire or lessen in severity.
As we move in to 2021, we all hope that a sense of normalcy returns. For the community managers and board members of POAs around Texas, it is important the operations of your POA proceed as close to normal as possible. The amount of the assessments should be dictated by the annual budget for the POA, and the collection of assessments should proceed normally. The collection of assessments is key for the association to continue to be able to perform its obligations and duties for the residents and homeowners. As the uncertainty surrounding the COVID-19 pandemic persists, it is crucial POA community managers and board members be reasonable in their collection efforts. The pandemic has created challenges for us all and everyone may not be in the same position financially as they once were. You should continue to examine your collection matters on a case-by-case basis and come to an agreement with the homeowner that will be satisfactory for both parties.
To learn more about what to expect in the collections process during the era of COVID-19, join Equity Shareholder Clint Brown on Thursday, November 12, from 11:30 a.m. to 12:30 p.m. During this webinar, Clint will go into further detail on the collections process, what POAs can anticipate as the pandemic continues to progress, actions the POA should be taking and much more! To register for the webinar, please click here.