Vaccines are being distributed as quickly as possible. Indiana’s Governor Holcomb recently began easing some of the restrictions that were in place for bars and restaurants in hopes of slowing the spread of the COVID virus. Schools are slowly returning to in-person education. There appears to be a light at the end of the tunnel.

While we are celebrating these cautious steps toward our new normal, very little has really changed when it comes to the collection of past due accounts for Indiana community associations. Nonetheless, the decisions boards are making right now about collecting delinquent accounts can have a significant impact on how quickly and completely a community’s finances can recover from the pandemic.

Indiana and Federal Protections

Before we discuss specific board decisions, let’s look at where community association collections stand today. A search of all COVID-related protections and orders on the legal compilation website Justia reveals that in Indiana, there are no statewide protections from evictions, mortgage, or other lien foreclosures based on the impact of COVID-19.

However, the Indiana Supreme Court has weighed in on the matter by issuing guidance to lower courts regarding eviction filings that are initiated after federal moratoria expire. In addition, the Court has published the results and resources from a Landlord/Tenant Task Force.

Through executive order, President Biden directed the Center for Disease Control (CDC) to extend its emergency eviction and foreclosure moratorium to at least March 31, 2021. These protections have been extended through June 30, 2021. In addition, Congress may approve legislation that will further extend eviction and foreclosure protections through September 30, 2021.

Important Board Member Decisions

Based on current and proposed future limitations regarding what associations can and cannot do to collect delinquent property owner accounts, board members face some tough decisions. The following are some important considerations for your board.

1. Fiduciary Duty – First and foremost, board members have a fiduciary duty to act in the best interest of the association. Collecting the funds necessary for the ongoing operation of the corporation from members of the association is part of that duty.

2. Be Consistent – Boards do have to be realistic about the fact that some property owners have been impacted by the pandemic. Sometimes entering into payment plans with property owners whose accounts are delinquent may, in the long run, be the best way to ensure the association will be made whole. The key to this is to act with consistency.

• Allow each delinquent account to move through the association’s normal collection process.
• Do not pre-emptively fail to pursue all delinquent accounts.
• Maintain your fiduciary duty to protect the debt owed to the association by utilizing all available avenues of collection, whether that be through seeking a money judgement in small claims or superior court, or by filing a lien against the property.

Once these steps have taken place, the board is now in a much better position to perhaps negotiate a compassionate payment plan for those property owners who need it, rather than across the board.

3. Be Fair – In addition to being consistent, the board must also consider being fair. Failure to pursue the collection of a delinquent account balance can be quite unfair to the property owner. Allowing an owner’s balance to balloon to the point that it becomes overwhelming can lead to an owner filing for bankruptcy protection and even losing the property.

Pursuing collection of past due balances can often be the incentive for an owner to make their personal budget modifications while it’s still early enough to make a course correction. Likewise, being fair also means that the board does not expect paying owners to absorb the gap in funding that is created when the board fails to collect past due balances from other owners who are not being held accountable to pay their fair share in a timely manner.

4. A Well-Written Collection Policy Promotes Consistency – If you do not have a good collection policy, the board should work with the association’s legal counsel to establish a policy that is in alignment with your community’s governing documents. The board should formally direct your management company to adhere to the recognized collection policy. If your association is self-managed, ensure that the board adheres to the policy. Adherence to the policy safeguards that all property owners are treated consistently.

The pandemic is giving every community the opportunity to think about its collection process, notice, late fee policies, and payment plan terms. For best results, have your attorney review or develop the collection policy for you.

5. A Word About the Impact of the Pandemic on Household Incomes – According to a study published by Rand Corporation, a well-respected research organization in May 2020, only 31% of households with annual incomes of greater than $25,000 have seen a reduction in income as the result of the pandemic; while the other 69% of the same income level saw their annual income remain the same or actually grow. Unfortunately, 36% of those with annual incomes of less than $25,000 saw their annual income decline as the result of the pandemic, while 64% saw their annual income remain the same or grow. However, in an update to this study publishes in November 2020, the numbers had worsened for the tier of households with annual incomes of $25,000 or less with 43% of them earning less as the result of the pandemic and 57% earning the same or more. The bottom line from this study: Annual household incomes of roughly two-thirds of property owners most likely to own a home in a community association were not negatively impacted by the pandemic. This means that community associations, on average, should expect about two-thirds of property owners to pay assessments in a timely manner as usual. And it supports the idea that blanket breaks on collecting past due balances are not necessary.

However, it is important to note that for those whose households incomes have been negatively affected by the pandemic, this situation will not be resolved overnight. Association board members will need to plan for the impact of reduced assessment revenue as the result of a certain percentage of property owners paying slower and increased write-offs as the result of a significant increase in bankruptcy and foreclosure filings.

6. Proactive Board Leadership is Everything – One thing a board cannot afford to do in this pandemic and its aftermath is to sit back and do nothing. Failure to actively pursue the collection of the community’s financial resources can prevent the association from carrying out its maintenance responsibilities in ways that could do irreparable damage to the association’s reputation and property values for years to come.

Do not hesitate to contact our law firm if your community has questions about governing documents, recording documents, document retention, or other legal concerns. Contact KSN by calling 855-537-0500 or visiting www.ksnlaw.com.

Since 1983, KSN has been a legal resource for condominium, homeowner, and townhome associations. Additionally, we represent clients in real estate transactions, collections, landlord/tenant issues, and property tax appeals. We represent thousands of clients and community associations throughout the US with offices in several states including Florida, Illinois, Indiana, and Wisconsin.

This article is made available by the lawyer or law firm publisher for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By reading this article you understand that there is no attorney client relationship between you and the article author. This article should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. © 2021 Kovitz Shifrin Nesbit, A Professional Corporation.

Sources:

• Justia Website: “Indiana COVID Protections & Orders”, 2020-2021
• “How Are Americans Paying Their Bills During the COVID-19 Pandemic”, Katherine Grace Carman, Shanthi Nataraj, Rand Corporation, May 2020; Updated November 2020
• “The Impact of Coronavirus on Households Across America”, Robert Wood Johnson Foundation in collaboration with National Public Radio and the Harvard T.H. Chan School of Public Health, August 2020.