Should We Cease Collecting, Given The Coronavirus

27 Mar 2020

Given that our Governor has decreed a State of Emergency for the State of Florida and given the devastating economic impact this virus has caused, many Associations may feel compelled to try to help their Members by ceasing or delaying their collection efforts. As you know, collections are the lifeblood of Associations as Associations need funds with which to operate. Unfortunately, when Owners cease paying their Assessments, this does not decrease an Association’s expenses. To the contrary, the Association’s expenses generally remain constant, if not increase as the number of delinquencies increase. Because of this, to the extent the Association forgoes collections; the rest of the Owners may have to make up the difference between what the Association should have received vs. that which the Association has received.

Given the above, it is imperative that Associations and their Boards appreciate that Associations, generally, must continue to fulfill their functions and pay all of their corresponding expenses, irrespective of the extent of their delinquencies.  As such, allowing owners to forgo timely paying their assessments can put an ever increasing financial strain on the Owners who are paying.  Therefore, rather than Associations immediately forgoing their collection process, waiving interest and late charges and/or any other factor that may prove detrimental to the Association, the Association may want to consider expediting its collection process so that it obtains as much financial capital as possible in case the coronavirus makes collections in the future even more problematic.[1]  While this course of action may seem harsh and while Board Members may want to help their neighbors, Boards need to consider the financial impact on the Association and the Owners who are timely paying their assessments.  Unfortunately, the Association is not the Federal Government which may have an inexhaustible amount of money, especially as it can print it.  As such, we have to recommend that our Association clients undertake a course of action which places them in a position to have the financial wherewithal to withstand these uncertain times and the onslaught of the resulting detrimental economic impact Florida and the U.S. are experiencing.[2]

Given the above, before any of our clients even consider halting or slowing down their collection efforts, and/or waiving fees that are due and owing to the Association, we would encourage them to first discuss the details of such matters with us so that the Association, its Board of Directors, and management are in a position to properly and fully appreciate their legal situation and most importantly, be prepared to fulfill their fiduciary duty to the Association and its Owners.

[1] Compounding the problem and the strife Association’s may face, is the fact that proposed legislation exists which would further curtail if not completely stop, association’s from being able to pursue collections.

[2] While some Associations may just presume that they can immediately use their reserves to make up any shortfall, please appreciate that risk and legal impediments exist.  In fact, Associations generally should be very cautious of using reserves to pay ordinary operating expenses.  In addition to the legal barriers (e.g., a membership vote) to diverting reserve fund from their intended purposes, it must be remembered that the Association may encounter other major problems (e.g., hurricanes)