COVID-19 & Community Association Foreclosures: Boards Encouraged to Enact COVID-19 Related Moratoriums on Foreclosures

Covid-19 has upended normal life for all Americans, from widespread job losses, scrambling for daycare, to working from home while watching the kids at the same time. Community associations have likewise been affected. Such significant disruptions in daily life have, in many instances, made it difficult or sometimes impossible for owners to pay their community association dues.

When the Governor of Michigan originally declared a state of emergency, she put in place various restrictions requiring employers to allow workers to work from home if possible, and in other instances simply shut down businesses entirely. The Governor also placed a moratorium on evictions, and many community associations held back on collections efforts in general due to the hardship that practically everyone was feeling in some form or another.

Of course, without incoming revenue (or with revenue in significant decline), nonprofit community associations quickly became hard-pressed. While Boards of Directors were of course sympathetic to such widespread hardship, nevertheless the lawns need to be mowed, the grounds kept, the buildings maintained, the roads repaired, etc., and the longer Boards waiting to get back to normal collections activity, the tighter the budgets and belts had become (and the more complaints from unhappy owners increased as well). In July 2020, the Governor lifted the eviction moratorium, and at approximately the same time many community association property managers, Boards, and attorneys began to proceed with collections activity that had been held in abeyance.

One of the most powerful tools available to community associations to ensure unpaid assessments or dues get paid is lien foreclosure. Often times, the mere threat of foreclosure is enough to prompt payment. Nevertheless, with no real end in sight for Covid-19 related personal hardships, the national Board of Trustees of the Community Associations Institute (“CAI”), of which this firm is a member, has issued a statement encouraging community associations to adopt a voluntary foreclosure moratorium until at least December 31, 2020.

We likewise encourage community associations to adopt this moratorium, but to be clear, it would only apply in cases where the delinquency itself is related to Covid-19. In cases where a delinquency has persisted since before the Covid-19 outbreak, or in cases where the delinquent owner has refused to communicate with the Association whatsoever, the Association may and should proceed as normal.

Where an individual owner documents a hardship due to Covid-19, we recommend Boards hold off on foreclosure for the remainder of 2020. Below are the principles outlined by CAI that we recommend our clients also adopt:

  1. If an owner is unable to pay assessments on time, the owner should notify their community association to work out a payment plan. Homeowners with a financial hardship should be encouraged to apply for government assistance, if available.
  2. Community associations should adopt a moratorium on foreclosures, in cases where the delinquencies are a result of COVID-19, until at least December 31, 2020.
  3. Community associations should consider waiving late fees and penalties for owners who face temporary financial hardships due to COVID-19.
  4. During the moratorium, community associations should only record liens or other legal complaints when failure to do so jeopardizes the association’s interest.
  5. Community associations should use compassionate language in communications with residents regarding COVID-19 delinquent assessments.
  6. Community associations should emphasize the importance of owners paying their assessments on time, if possible.

We and CAI encourage everyone to treat each other with respect and kindness during this unprecedented time. This voluntary moratorium is just one more way we can to treat our neighbors with respect while at the same time ensuring our communities remain vibrant and desirable places to live.

Should you have any questions on this voluntary moratorium or any other Covid-19 related matters, please do not hesitate to contract on of the experience community association attorneys at our firm.