Board Arrears When Board Members Fall Behind

One of the most difficult issues for board members and residents of co-ops, condominiums and HOAs is that of arrearages.  The problem poses practical, procedural and ethical issues and can ultimately lead to legal repercussions.  Sadly, and for many reasons, residents may go into arrears on monthly maintenance or common charges.  The question is how to manage the problem effectively, efficiently, and with the least overt embarrassment possible.

Responsibility

Perhaps 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 your neighbors, but rather to pay your 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, and 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 – everything from buying cleaning supplies to making underlying mortgage 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 the community’s financial health.

According to William Chatt, a partner with Chicago law firm Cervantes, Chatt & Prince, “It doesn’t look good when the very person or persons who are responsible for overseeing the finances of the association don’t have their own personal finances in order.  It’s a matter of credibility.  From a legal point of view, a board member must be treated the same as any other owner.  They are subject to all the same sanctions.  In Illinois, where we have a very powerful condo statute, the board member faces the same consequences: collection suit, order of possession, eviction, lien, whatever the remedies are.  To be fair, they must be treated exactly the same as any other unit owner.”

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 cooling effect on resale prices if there are too many that have gone on 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. Buyers want 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.

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