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. There are plenty of reasons why residents may go into arrears on their 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.

Frank Flynn, Managing Partner/Owner of the Flynn Law Group, a firm located 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 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. 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.

Read More...

Related Articles

Non-Resident Board Members

How Do They Affect Operations?

Holiday Decorating

Keeping it Festive, Tasteful, and Fair

Clarifying Board Roles

Who’s On Board?

 

Comments

  • If a Board member is in arrears for a period in excess of the Co-op rules but is allowed to extra time to catch up before "catastrophic" action is taken, then the time limits go out the window. Any shareholder must now be given the same extension, lest a court challenge to eventual seizure find that the Board member received that special treatment. Discrimination, self-dealing, fiduciary failure could all be claimed. Of course, any shareholder being given extra time without a payment plan in place would also lead to claims of discrimination, but a Board member would surely ruin the arrears management system.