Board Members and property managers are looking for guidance through these historic times. Board Members need to continue to serve their Indiana communities as they are needed now more than ever with the ever-shifting economic climate. As we continue through this unprecedented journey, below are four factors to keep in mind.
1. Board Obligations
Given the current economic climate, it is plausible that many Owners may be out of work in the coming months. However, waiving assessments can be detrimental to the Association. As with every other corporation, whether it’s for profit or not-for-profit, Boards need to continue to bring in income to cover operational expenses. Accordingly, now is the time to ensure the Association has financial stability by collecting assessments.
Executive Order 20-06 has stopped Indiana foreclosures and evictions to at least June 4, 2020. Boards should continue to protect the Association’s interests by pursuing delinquent accounts and recording liens on properties. Further, each Owner within the Association must continue to pay assessments and Boards must enforce their delinquency policies. This is not to say that Boards cannot be flexible; however, under no circumstances should a Board waive assessments or refund assessments. This is part of the fiduciary duty Board Members undertake when they are elected to the Board of Directors.
2. Assessment and Fee Waivers
As mentioned, Board should not waive or refund assessments to Owners who are experiencing difficult times. Waiving or refunding assessments is unfair to the Owners who have paid their assessments and is a breach of the Board’s fiduciary duty. While this may seem unfair, Boards have other viable options. In fact, many governing documents in Indiana allow Boards to create their own delinquency polices. If your Association has not done so already, talk to your attorney about creating an “Amended Delinquency Policy” where you can allow Owners to establish payment plans to get back on track. This helps Owners to pay the Association over time while still being financially stable.
The cautionary tale of 2008 is worth sharing: Boards stopped pursuing the collection of assessments out of sympathy for struggling owners. This forced the remaining owners to take on larger obligations to cover for the losses caused by non-paying members. This led to a waterfall effect resulting in more people failing to meet their obligations and owners walking away from their homes. Foreclosures then began to plague the communities. The 2008 crisis thought us the lesson that Boards should help owners get back on track as soon as possible rather than to sit by on the sidelines.
3. Assessment Collection
Indiana is beginning to slowly lift its “stay at home” order throughout the State. To date, nothing has changed with regard to collection matters going through the court system (other than foreclosures). As counties begin to reopen, courts will be accelerating their dockets to moves cases through. If Boards have not done so already, they should turn over their delinquent accounts to their legal counsel so that the Association can use every legal remedy available to ensure its cash flow does not decline.
While Indiana foreclosures and evictions have stopped until the State of Emergency expires on June 4, 2020, Boards should plan ahead and still consider foreclosure as an option when the Executive Order lifts. Despite the language in the Executive Order, homeowners are still required to pay assessments.
Further, it is KSN’s opinion that Executive Order 20-06 does not bar Associations from enforcing its covenants. For example, if an Owner is breaching a “no rental provision”, the Association can still seek an injunctive order to have the tenant removed from the home or unit. This is different from an eviction as the Owner is breaching a contract.
4. Legal Actions
Indiana Governor Holcomb has not issued an order that bars the Association from moving forward with filing collection matters. While foreclosure actions cannot be filed at this time, filing lawsuits for unpaid assessments can allow the Association to garnish wages and bank accounts (if available). Further, filing collection matters now will put the Association in a better position when courts open back up to their full potential.
In fact, with the anticipated backlog of cases once the restrictions are lifted, moving forward with proceedings now will put your association toward the front, rather than at the end, of the line.
In conclusion, now is the time for your association to take all necessary steps to protect the critical flow of assessments. KSN will continue to offer guidance to our clients during this uncertain time and, together, will assist in helping associations reach the other side of this coronavirus pandemic in as sound financial condition as the circumstances allow.
If KSN can answer any legal questions for or assist your Board, do not hesitate to contact our law firm. Please call 855-537-0500 or visit www.ksnlaw.com.
Since 1983, KSN has been a legal resource for condominium, homeowner, and townhome associations. We have four office locations, serving hundreds of clients and thousands of communities throughout Illinois, Indiana, and Wisconsin. Our attorneys are also licensed in Arizona, Florida, and Missouri.
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