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Planning For A Possible Increase in Delinquencies as a Result of the Pandemic

Planning For A Possible Increase in Delinquencies as a Result of the Pandemic

The coronavirus pandemic has been with us for approximately one year and among many unanswered questions is the potential future impact on the ability of community associations to collect monthly maintenance fees.

While the majority of communities have not seen a significant increase in delinquencies as a result of the pandemic, there remains concern that once the economic relief some received ends, (such as mortgage forbearance), we could see an increase in foreclosures. If that occurs, it may have a significant impact on the very lifeblood of community associations: the monthly income stream from its residents. To ensure stability and the capacity to keep essential operations in place, community associations need to plan accordingly.

A good place to start is communication with the membership with respect to the association’s budget and expenses.

Be sure the members of your community understand the importance of monthly common expenses in the role of essential services provided to the community, including necessary building maintenance, management, operations, and vendors who supply services and other essential upkeep. While your community may be saving some expense due to the closure of certain amenities, it is likely that other areas of your budget, (particularly those dedicated to cleaning and sanitation), have seen a significant increase. Make sure this is presented and explained to the membership.

Demands from residents for a refund in maintenance fees need to be appropriately addressed with a transparent explanation as to why it is not possible or recommended. For example, even in the unlikely event that your community has seen a cost savings, it is much more prudent to put those amounts in reserves. We do not yet know what the future holds in terms of a potential increase in delinquencies.

In addition, even if your community does not ultimately suffer from increased delinquencies, there will be additional expenses associated with re-opening amenities, such as cleaning, sanitation and other safety protocols that may need to be put in place. Thus, while it is critical that members understand your community’s budget, it is just as important to communicate the potential negative impacts on the association’s finances in the coming months and the need to plan for same.

Given the current climate and the uncertainty associated with potential future delinquencies, you should also consider delaying non-essential projects until the crisis passes. While essential services will need to remain in place, it is sensible to defer spending on items like upgrades and other enhancements to your community for at least a short period of time.

At a minimum, discretionary spending should be suspended during the pendency of the state’s emergency. This will allow time for the governing board to assess the final impact of the pandemic on the community and cultivate a practical budgetary plan for the future.

We are all looking forward to the day when this crisis is in the rearview mirror. Every community has gutted through it thus far and hopefully in a few short months this will be behind us.

If your community is currently experiencing financial issues due to the pandemic, or you just want to plan for that possibility in the future, you should consult with management, counsel and the association’s accountant before making any budgetary decisions. Your professionals will be able to provide appropriate advice and counsel to decrease the impact of delinquencies and assist in keeping your community on good financial footing.

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