In the tough environment that has characterized both the national and world economy over the past few years, many condo owners have faced job loss, reduced salaries, or just financial uncertainty. While the situation has made things extraordinarily uncomfortable for individuals and their families, it has also had a ripple effect on the buildings and HOAs these individuals call home—particularly when owners don't pay their assessments or common charges.
“Unfortunately, in our current economic climate the volume of delinquencies, foreclosures and bankruptcies causes cash flow to be a burden at times. Bills still have to be paid and the main source of income to any association is the assessment dollars,” says Andrea Sorgani, former president of the Illinois chapter of the Community Associations Institute (CAI-IL) and owner of Alma Property Management in Schaumburg. “I strongly recommend that when preparing an annual budget a line item for bad debt be recognized and assessment increases adjusted to accommodate the loss of revenue.”
When unpaid, overdue debt is not collected, it can wreak havoc on a condominium association. In small communities, it can quickly cause the association to have trouble meeting operating expenses. Even larger associations will eventually feel the effects of the shortfall if multiple units fall into arrears.
Once an owner has become delinquent, the association should take action. The first step in the process, depending on the nature and type of association, could be a friendly reminder notice as soon as the due date has passed.
“If an assessment is due on the 1st, but is not considered late until the 10th, then a simple notice to the owner on the 15th, letting them know that their payment was not received and is now subject to the late penalty, is recommended,” says James Erwin, a partner with the Chicago-based law firm, Erwin & Associates LLC. “However, once the account is 30 days late, it is recommended that the association’s legal counsel send out a 30 day notice together with an account ledger.”