One of the most difficult issues for board members and residents of co-ops, condominiums, and HOAs is that of arrears. The problem poses practical, procedural and ethical issues, and can ultimately lead to neglected maintenance, delayed projects, financial insolvency – even legal repercussions. Residents may go into arrears on monthly maintenance or common charges for many reasons. The question is how to manage the problem effectively and efficiently, without undue embarrassment or acrimony.
A Matter of Responsibility
The most obvious and consistent responsibility one has as a member of a common interest community is not to serve on the board or a committee, or to act as a watchdog for one’s neighbors, but rather to pay one’s fair share of the community expenses—known as maintenance in a co-op and common charges in a condominium or HOA. This obligation is contractual. As a cooperator or member of an association you enter into it when you buy your unit. It is of vital importance, as the operation of the community depends on your timely payments to make their payments, for everything from cleaning supplies to underlying mortgage payments or debt payments on other community financing. Regardless of the type of ownership, the structure is non-profit and every penny collected is accounted for and used to maintain its financial health.
Frank Flynn, Managing Partner/Owner of the Flynn Law Group in Boston, says, “It comes down to fiduciary duties. Board members or trustees are also required to abide by their fiduciary duties—things like self-dealing, engaging in fair practices, and maintaining an ethical obligation to the condominium trust. Board members must uphold the trust amendments and condominium documents. They must abide by those documents they are supposed to uphold. Timely payment of obligations falls under their fiduciary duties. If they are in violation, they can be removed. They must be in compliance of all trust provisions. It’s a real conflict if they are delinquent. In Massachusetts, after 60 days we would have to bring notices and start a foreclosure proceeding.”
The extent to which non-payment might affect the ability of the entire community to meet its obligations differs with the size of the association or corporation. Clearly a $1,000 monthly obligation is more critical in a 20-unit property than in a 250- or 2,000-unit property, but nevertheless, arrearages have a negative effect and can pile up. Ultimately, they can have a negative effect on resale prices if there are too many for too long, as buyers often look to that information as an indication of what their potential investment’s financial health looks like.
Reasons for Delinquency
No one buys into co-op, condo or HOA with the intent of defaulting. The purchase decision is saturated with tests on all sides to insure financial success. The buyer wants to feel comfortable knowing they can afford the monthly obligation. The board of the co-op or condo wants to feel secure knowing they have a dependable member and the lender providing the financing for the acquisition of the unit wants to avoid foreclosure, a costly and painful experience for everyone involved. The assumption of monthly financial obligation in the form of maintenance or common area charges is made carefully by all parties and with the best of intentions.