Page 6 - New England Condominium July 2020

6 NEW ENGLAND CONDOMINIUM -JULY 2020 NEWENGLANDCONDO.COM policies,” advises Piekarsky. “However, reach- ing out by phone and offering payment plans versus getting nothing is a very sensible ap- proach. At one site, we are making phone contact with owners, and we’re seeing positive results. I just got off the phone with a physi- cian who did not understand the nature and urgency of his account delinquency. I think that perhaps by waiving some late fees, we will be seeing a large check very soon.” One Hand Feeds the Other Cash flow in co-op and condominium communities is a matter of survival, not profit. Communities pay their way by collect- ing revenue. That revenue comes from two general categories. The first is monthly pay- ments from owners, known as maintenance in co-ops and common charges in condo- miniums and HOAs. These monthly charges cover operations—everything from salaries to upkeep of buildings to payments of real estate taxes, and in the case of co-ops, underlying mortgage payments. The second category of income comes from commercial tenants and other non-owner sources like laundry room concessions. Not all co-ops and condos have these types of tenants, but those who do may be experiencing a ‘double-whammy,’ with ar- rearages from both resident owners and com- mercial tenants. Andrew Wagner, an attorney with An- derson Kill, a law firm based in Manhattan, says that “\\\[t\\\]he pandemic has rendered many co-op and condo unit owners and commer- cial tenants alike unable to pay their monthly charges. This has placed great financial stress on co-ops and condos, which have financial obligations of their own: payroll, utilities, underlying mortgages, just to name a few. Presently, New York co-ops are prohibited from commencing nonpayment proceedings in Housing Court to collect arrearages from their unit owners and commercial tenants, and condos cannot commence lien foreclo- sure actions in Supreme Court. These mora- toria are in place until mid- to late August 2020. As an aside, although an argument can be made that these cases can be commenced based on certain language in the governor’s Executive Orders, there is enough ambiguity ing actions against lease guarantors of certain debt to a creditor; in them to dissuade me from recommending types of commercial tenancies, so that must the commencement of any arrears-related liti- gation at this time. “Since boards have fiduciary obligations to applied for a Paycheck Protection Program a capias warrant; their cooperative corporations or condomin- ium associations,” Wagner continues, “they ceeds can be applied towards rent and related place of employment of a debtor at any time; must take whatever steps are necessary to col- lect arrears, even though doing so in the short term may not be possible. But there are things that can and should be done. For example, de- fault letters should be sent to unit owners and Goldman and Pease, notes the evolving na- tenants in arrears, hopefully inviting them to ture of law as it applies to this conundrum in on the Regulation is that standard debt col- contact management to discuss their situation Massachusetts. He explains: “In a decision on lection practices may now resume,” explains and enter into a forbearance agreement.” This Wednesday, May 6, 2020, Federal Court Judge Goldman, “including initiating phone calls type of agreement temporarily suspends their Stearns granted a temporary injunction en- obligation to pay monthly charges for some joining the Massachusetts Attorney General letters, and preparing and filing lawsuits to specified period of time—but also contains an from enforcing its prohibition on certain debt collect unpaid debt. Creditors are no longer acknowledgment of the balance owed, and a collection activities during the COVID-19 restricted within the 90-day moratorium on repayment schedule on a mutually agreed ba- sis. Generally, such an agreement will require the AG’s 90-day moratorium on debt col- that the payor remain current on subsequent lections activities was a violation of the First ers, and all other creditors are now permitted charges as they become due, once the repay- ment period commences. What happens if residential unit owners for consumers. We previously advised our demand letters and initiating legal complaints do not respond, or decline to enter into an Massachusetts clients to refrain from initiat- agreement? Wagner explains: “In the case of ing collections procedures during this mora- cooperative shareholders, a rent demand can torium. We now advise our Massachusetts be served so that a nonpayment proceeding clients, particularly creditors, condominium owners that condominium fees and costs are can be commenced promptly after the litiga- tion moratorium ends. Additionally, a default activities that are permissible due to the new the entire community, and that lien enforce- notice should be sent to the unit owner’s lender court injunction. pursuant to the recognition agreement, which might result in the lender paying the arrears 26,” Goldman continues, “\\\[Regulation\\\] 940 to preserve its interest in the unit. Similarly, a CMR 35.00, known as ‘Unfair and Deceptive when deciding whether to pursue aggressive condominium lien can be recorded without Debt Collection Practices During the State of tactics against arrearages, both at the owner/ violating the moratorium, so a foreclosure ac- tion can be commenced when permitted.” For commercial tenants, Wagner says, tive debt collection practices by prohibiting problem relative to how bad that long-term “A negotiated forbearance agreement is also various collections activities such as initiating problem may become if they evict owners, preferable, but other considerations apply as phone calls, drafting demand letters, and ini- well. For example, the lease should be care- fully reviewed to determine whether, and un- der what circumstances, the security deposit may be applied towards arrears. This is very that it was an unfair or deceptive act or prac- important, because if the business files for tice for any creditor, including a debt collector, up to boards and their legal advisors to de- bankruptcy protection, it will be more dif- ficult to apply it if the petition is filed within 90 days of its application by the landlord to- wards arrears. If the security is in the form of a letter of credit, however, it generally may be or equitable remedy for the garnishment, sei- applied without consequence. Notably, there zure, attachment, withholding of wages, earn- is presently a prohibition against commenc- be evaluated as well. Finally, an inquiry should the repossession of any vehicle; be made as to whether or not the tenant has (PPP) loan, since up to 25% of the loan pro- expenses.” All Venues Are Not Equal Howard Goldman, a principal in the with a debtor regarding the collection of debt Needham, Massachusetts-based law firm of in public. State of Emergency. The decision found that initiating their normal collection activities. Amendment Rights of collection agencies, to resume their debt collection communica- without providing meaningful protections tions with unit owners and other debtors, with associations, and property managers, on the essential for the maintenance and support of “Issued and made effective on March not resolved promptly.” Emergency Caused by COVID-19,’ sought to shareholder and at the commercial tenant lev- protect consumers from unfair and decep- tiating lawsuits to debtors during the corona- virus pandemic.” Specifically, the Regulation established and impact of the COVID crisis on owners, to: • Initiate, file, or threaten to file any new prudent compassion trump real financial ob- collection lawsuit; • Initiate or threaten to initiate any legal either decision. ings, property, or funds for the payment of a • Initiate or threaten to initiate remedy for • Apply for, cause to be served, or enforce • Visit or threaten to visit the household or and • Confront or communicate in person “The effect of the temporary injunction to discuss payment options, drafting demand Condominium associations, property manag- to obtain unpaid common area charges and other unpaid debts. “So,” he says, “continue to remind unit ment actions will proceed if delinquencies are Overall, boards must consider two factors el: First, how critical is their current cash flow shareholders, or commercial tenants? And second, what is their obligation to their com- munity to be understanding about the depth shareholders, and commercial tenants? It’s termine whether community cohesion and ligation, and what liability could result from n A J Sidransky is a staff writer/reporter for New England Condominium and a published novelist. COPING... continued from page 1 large proportion of an association’s or corpora- tion’s operating expenses. For other recurring costs that are discre- tionary or can be reduced with some effort, boards must balance maintaining or enhanc- ing the services their communities expect with the costs of those services. Boards—usu- ally with support from their managing agents and financial advisors—have to use their best judgement about what their communities will require for a given year and the costs antici- pated for those goods and services. “Building a budget is really a bit of an art and science,” says Jim Stoller, president and er when the budget is as accurate as possible, don’t want to spend the money.” CEO of The Building Group (TBG) in Chica- go. “As I tell clients, a budget is not something one having the proverbial ‘crystal ball.’” that is cast in stone; it’s a good faith estimate of income and expenses. The world changes, and carrying charges as low as possible may not be day-to-day operations—and a plan to replen- one has to adapt to the environment that we a main consideration, boards still have to plan ish those funds, should they be used to cover live in. But we can make educated assumptions and prioritize based on expected cost increases unplanned, emergency expenses. Most ac- based on facts and building conditions, reserve like utilities and payroll, along with infrastruc- studies, and cost escalations. So it’s a balancing ture and systems maintenance. And in the cur- act between what residents want, what they rent environment, those priorities can be a bit serve account with approximately three to six need, and what they can afford.” “Budgets are just a predictive tool used to done to budgets—that’s a big issue,” Stoller that if a corporation’s or association’s yearly help to try to control the finances of an opera- tion,” adds Gary M. Daddario, Partner at Mar- cus, Errico, Emmer & Brooks, PC, with offices person standing by the front door polishing That way, when emergencies happen—as they in Braintree, Massachusetts and Merrimack, the door every time someone goes in and out, often do—there are funds available to pay for New Hampshire. “Of course, life goes smooth- but 100% accuracy is not likely absent some- Even in affluent associations where keeping of savings—a reserve account separate from mercurial. “What the current conditions have months worth of operating funds. That means continues. “We’ve had some buildings where budget is $12 million, it should keep $3 million some residents want to have a maintenance to $6 million in a reserve account at all times. and there are other people who just say they Accounting for Crisis The best of budgets will include some form countants experienced with multifamily com- munity budgets recommend maintaining a re- BUDGETING... continued from page 1 continued on page 8