As the stay-at-home orders and business shut downs rock the nation’s economy and workers the impacts will increasingly be felt by community associations. This post is about how to handle assessment collection at your Homeowner Association (HOA) or Condo Community during the Coronavirus crisis.
Last week (ending April 10th) we saw another record six million workers file for unemployment for the 2nd week in a row. We’re now at over 17 million workers in the last 3 weeks. As stay at home orders are extended in duration we are going to see additional workers file for unemployment as businesses run short of sales and savings (in a recent poll 35% of small businesses had savings to cover 1 month or less of expenses) to keep workers on payroll.
But how long will it take for the unemployment benefits to get into the hands of the unemployed? We heard in a CAI webinar last week that in Miami Florida there was a line several blocks long to file for unemployment and that forms were being handed out and recipients told the forms would probably be processed in 3-4 weeks and then they’d have to wait for checks – that is a long time for people to go without a paycheck or assistance from state and federal government. The statistics are that 40% of the US population has less than 1 week’s worth of savings. They will have to make decisions about what bills to pay and of course feeding their families will come first. Maybe part of this 40% live at your community.
The Mortgage Bankers Association on April 7, 2020 released results of a Forbearance and call volume Survey, the total number of loans in forbearance grew from 0.25% to 2.66% from March 2 to April 1, 2020. Loans backed by Ginnie Mae seeing the largest growth from 9.19% to 4.25%. As of April 1, independent mortgage bank servicers now have the largest share of loans in forbearance (3.45%) reflecting their focus on Federal Housing Administration (FHA) and Veteran Affairs (VA) home loan programs and servicing low-to moderate income borrowers.
Problems for HOAs and Condo Communities are going to continue to increase.
From our experienced team and other industry expert experience:
Michele: “My opinion is that in “normal” economic times, the 60-day delinquencies would not increase more than 5% at a given community as a baseline.”
Lori: “This is a hard one to predict what will happen to delinquencies. I would like to go with a 5% increase over your baseline delinquencies, but I do fear it will be closer to 10% increase in delinquencies.”
Cecilia: “I believe the % of the Accounts Receivable is going to depend on 1st which community and 2nd the difficult time we are living now. There are communities that no matter what they are between 5 to 8% in arrears, well now, it could reach up the 10%. Communities that at this time are in good shape maybe fall into 1 to 2% arrears max 5%. Overall it will depend on the Community.”
Tammy: “I think we are going to start seeing the 15-20% range over 60 days. All this unemployment will trickle down to the HOA dues…”
Jacqui: “Delinquency overall skyrocketed in the Great Recession – AZ was slaughtered. Some communities went from 2-7% to 20-30% – a very, very high amount and then all the foreclosures could start happening again. Hoping everyone gets back to work relatively quickly.”
The board is in a tough spot. The Board has a fiduciary responsibility to the association to collect assessments and pay for services. And I don’t know many boards that can waive collecting 1 month of assessments they usually run a tight budget as it is and can’t forego 1/12 of their income. So what are your options?
The following are options for owners specifically impacted by the COVID-19 crisis (and not previously in a collection process):
1 – Discourage boards from suspending owners making payments
2- Waive late fees & interest payments
3 – Some communities waiving late fees on a case by case basis
4- Offer a payment plan
5 – Offer a credit card payment option
6 – Start a moratorium on foreclosures to suspend foreclosure actions related to COVID-19 (read CAI’s statement about this policy here).
7 – Can ask some owners that have the financial means to pay assessments in advance to help with cash flow.
8 – Send out notice to Owners – some HOAs saying next 3 months not applying late fees.
9 – Reserves to pay operating costs (assessment forbearance) – can loan itself money -good idea? Or bad idea – have to do a special assessment later on. Another idea is reserve contributions can be 15-40% of your budget but you can temporarily reduce this contribution without having a significant impact on your long term reserve funding.
10 – Problem paying vendors for services due to cash flow? Maybe come up with a vendor payment plan to help spread your costs.
11 – Ask your bank about getting a line of credit if a cash flow issue – some communities may already have these – ex: some in Florida already have it to help deal with hurricanes.
If you have questions we are going to have a webinar to address this issue and answer your questions:
Webinar – Assessment Collections during the COVID-19 Crisis Q&A with Legal & Collection Experts 4/29/20 at 2:30 PM EST
Douglas Levy Counsel for Community Association Practice Group at Rees Broome, PC in Tysons Corner, VA.
Mitchell Drimmer a licensed CAM and President at Axela Technologies a National Collection Agency specializing in Condo and HOA collections.