Update to Association Collections and Enforcement in the Midst of COVID-19
As of the date of this article, according to the Centers for Disease Control and Prevention (CDC), the total number of COVID-19 cases in the U.S. exceeds 605,000, while the total number of deaths has reached 24,582. In Pennsylvania, the total number of confirmed cases is 26,490. As Pennsylvania Governor Wolf previously ordered the closing of in-person operations of all non-life-sustaining businesses, many Pennsylvania citizens have either been furloughed or lost their employment. Since Sunday, March 15, 2020, a total of 1,423,180 unemployment compensation applications were received by the Pennsylvania Department of Labor & Industry Office of Unemployment Compensation (“Office of Unemployment Compensation”). Now in the second month of the pandemic, many community and condominium associations are beginning to experience the financial effects of COVID-19, whether by requests for waiver of late charges, payment plan proposals, or extensions to remedy violations. We anticipate that with the impacted numbers continuously increasing, these requests will continue.
The Federal Government adopted the Federal Coronavirus Aid, Relief and Economic Security (CARES) Act and the Families First Coronavirus Response Act to help mitigate a financial disaster. Aside from providing stipends to eligible citizens, the CARES Act also enhances Unemployment Compensation benefits for Pennsylvanians, including extended eligibility for individuals who normally would not be eligible for benefits (i.e., self-employed, independent contractors), providing for an extended benefit period of up to 39 weeks, and an additional $600.00 per week until July 31, 2020 for those eligible.
However, even with these measures in place to help curtail the financial impact, we anticipate that COVID-19 will significantly increase assessment delinquencies in community and condominium associations. As the only source of association income is from the payment of assessments to cover budgeted common expenses, forgiveness of assessments is not an option (and the waiver or offset of assessments is specifically prohibited in most association’s governing documents and by law). Assessments income is thus vital for associations to continue operations and to fund essential services.
On March 18, 2020, the Pennsylvania Supreme Court declared a state-wide judicial emergency. The Courts of Common Pleas of many counties in Pennsylvania have similarly declared judicial emergencies and have strictly limited filings and Court appearances to those related to emergency matters. The expiration date of these judicial emergencies varies from county to county (Bucks County- May 15, 2020; Chester County- April 30, 2020; Delaware County- April 30, 2020; Montgomery County- May 31, 2020; Northampton County- April 30, 2020; Philadelphia County- May 1, 2020). Moreover, on March 18, 2020, the Pennsylvania Supreme Court issued a moratorium on evictions and foreclosures (this was later ordered to extend to April 30, 2020). Additionally, the CARES Act requires suspension of federally backed mortgage foreclosures for not less than a period of sixty (60) days beginning March 18, 2020. Forbearance options are also available.
Several states have already adopted moratoriums prohibiting collection of consumer debt for certain periods after formal end of the pandemic. Although not currently under consideration in Harrisburg, a similar measure was recently proposed (and preliminarily held) in New Jersey. As part of Congress’ negotiations during adoption of the CARES Act, a collection moratoriums was also considered (but left out). If they become law on a state of federal level, such moratoriums could prevent debt collectors (i.e., Association attorneys) to proceed with collection action, at least on a temporary basis.
Accordingly, in consideration of Court closures, the limited ability to file complaints, motions and execution on existing judgments, coupled with potential legislative restrictions, it is advisable that during this pandemic, collection procedures of associations warrant review. Interim resolutions can be entered by association boards, temporarily extending the time periods after which an account is turned over to legal counsel for collections, and establishing a method in which owners struggling with hardship can request waivers of late charges and/or propose payment plans.
With respect to other violations of the association’s governing documents, where these violations do not impact the health, safety and/or welfare of the owner or other occupants within the Association, we recommend that similar courtesies are extended in an attempt to resolve these violations in a timely but less aggressive manner, while ensuring that the integrity of the association remains intact. Difficulties will also arise where non-emergency exterior work by a professional contractor may be required, as Governor Wolf has not deemed construction services as being life-sustaining. Accordingly, extensions, leniency and concessions may need to be considered. Many associations have already adopted interim resolutions to respond to violations and enforcement during pendency of the COVID-19 pandemic.
Compassion, understanding and cooperation are advised at this time in responding to new or recent assessment delinquencies and violations, where appropriate. However, as the payment of assessments and enforcement of the association’s governing documents is essential, this compassion must be weighed with the reality that the payment of assessments and compliance with the governing documents are required in order for community and condominium associations to properly operate.
In the event of a significant increased assessment delinquency, associations should resort to temporary measures to ensure essential services are provided, including, but not limited to, the following: pre-payment of assessments by owners in good financial position; borrowing from reserve funds; deferring non-essential projects; cancellation of contracts with vendors no longer necessary; securing loans; payment deferral to some vendors upon agreement and/or in accordance with specific contract provisions. Prior to determining the appropriateness of these options, consultation with legal counsel and the association’s accounting professional is strongly advised.
As always, the first priority of associations during this time is the health, safety and welfare of the association members, tenants, occupants, and guests. Care should be given that proper precautions are taken as advised by the CDC in order to limit the spread of COVID-19, and to attempt to assist the Commonwealth and the nation in ending this pandemic.
This article is not legal advice and is provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction.