Coping With Arrears When Residents Fall Behind

 The foundation of any properly run condo association or co-op building rests on  residents paying their monthly maintenance fees on time and in full, with no  delays or delinquencies. However, thanks to the lingering effects of the  recession causing job losses and financial uncertainty—especially here in the Chicagoland area—many buildings and associations are feeling the pinch of late and/or missing  maintenance payments. Many owners are also unable to cover the cost of special  assessments to fund much-needed capital repair and improvement projects.  

 Hard Times vs. Hardball

 Most real estate industry pros have seen the effect that non-payment and arrears  have on buildings and HOAs, and say that it’s a problem that has surged in some buildings in recent years, for an array of  reasons.  

 According to Tom Skweres, regional vice president of ACM Community Management in  Downers Grove, the reasons for non-payment vary. “It can be because of financial hardship. They've lost their job, or have other  expenses that have come up—but it’s mostly employment.”  

 Residents going into arrears deliberately is another issue that can make for  serious administrative and budgeting headaches for boards, says Jeffrey Cagan,  president and CEO of Chicago-based Cagan Management. In these cases, “It doesn’t have anything to do with financial hardship—it’s because they're angry with a board member about something.” Fortunately, says Cagan, “It doesn’t happen a lot. We manage what I consider established condominiums and co-ops,  so we don’t find that as a big problem. Conversions with a lot of renters in the building  can be different, but when it’s owner-occupied, we don’t find a big issue with it.”  

 When to Act

 Regardless of the reason for an owner's arrears, says Skweres, “The budget still has to be met—and the unit owners in good standing have to bear the expense of the unit owners  who are not paying. Hopefully they would collect the money back, but in the  short term everybody bears that burden.” Multiple and ongoing arrearages can have a trickle-down effect across an entire  association, limiting the funds the community has available for both regular  maintenance work and important capital projects.  

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5 Comments

  • Patrick Shaughnessy on Thursday, August 1, 2013 5:51 PM
    As a 10+ year plus board member I support Mr. Erwin's hesitation to extending grace periods. I might also add that if a board extends this courtesy to one resident it must do so for EVERY resident. Where does the board draw a line? What/who defines financial hardship? What if the person doesn't follow-through on their payment plan, then what? Better, I feel, to avoid the situation and stick to existing processes and not allow the practice. Also, the monthly assessments ARE the payment plan. At the beginning of an association's year each owner owes assessments and are allowed to pay monthly. I do not believe an association should offer a payment plan for the already-in-place payment plan. If they do, how much interest should they charge? An excellent article, Mr. Loria! Thank you!
  • I understand the law about evicting a nonpaying owner and renting out the unit to get the unpaid assessments. In theory. In actuality, the unit may not be in good enough condition to rent to a desirable tenant. Then, how do you get a short-term tenant (if the amount owed is say, $2,000)? And what if this tenant won't leave after the unpaid amount is collected? It seems that there will simply be more hassle and possibly eviction of the tenant.
  • My 6 unit condo association obtained a Order of Possession for a unit in our building against the owner for non-payment of HOA fees back in 1996. Since then, we have been renting the unit out and paying the unit's HOA from the proceeds. The account set up for the surplus rent money has accumulated enough funds for the unit's HOA fees to be paid for the next 20 years. Do we, the condo association, have to continue renting out the unit or can we just keep it empty and continue drawing the HOA fee from the rent account? Also, if we do not want to continue with this strange situation, do we have any recourse to force a sale on this unit even though the HOA fees are up to date because we have used the rent money for it? The evicted owner has no mortgage on the unit and continues to pay the property tax on time, but she has made no movement to try to remove the court order from 1996! She also does not respond to any attempts from us to contact her to try figure out what her intentions are. We are sick and tired of managing her unit but don't know what legal recourse we have since she is technically not in arrears with her HOA fees.
  • Lauren Peddinghaus on Thursday, May 7, 2015 12:07 PM
    This article indicates that the typical route for collections is placing a lien on a unit and then moving to foreclose the lien. Since this is the Chicagoland Cooperator and we're dealing with IL Condo law, it should be noted that Illinois has a specific remedy for addressing delinquencies that is used much more widely - particularly in a maket in which an owner might owe more on their mortgage than the property is worth. The association can file a forcible lawsuit and take possession of the unit, allowing them to evict the owner and rent the unit to recover delinquencies (or, if rented, order the tenant to deliver their rent to the association rather than the owner/landlord). This is not an option in most other states, making it fairly unique to Illinois.
  • My HOA,has threaten to confiscate my unit. I withheld / escrow my June assessment as soon after I learned they refused to communicate or cooperate with my Ins. Co. Who was to cover other loses. This isn't in the By-laws. They've been very secretive and lacks integrity. They perform like a "just us club". The HOA recently extended their positions to 2 yrs. Owners have not been allowed to review contracts, Ins. claim, payments etc... My Units suffered terrible water damage roughly 5 mos. ago, due to their neglect and lack of integrity. Contractors said, my restoration should've been 3-5 days. I've asked several times about this. The President's words are not consistent. The claim was filed late February funds received shortly afterward. It's July. My unit still lies in despair. I suspected and suggested fraud. The reprisal was the threat to diminish my credibility. Do I have the right to put my Assessment in Escrow because of their poor judgement and lack of responsibility?