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 Collecting Assessments in the Time of COVID-19

Collecting Assessments in the Time of COVID-19

April 22nd, 2020

    As of April 16, 2020, more than one million Michigan residents have filed for unemployment benefits, according to the federal Bureau of Labor Statistics. This is a staggering number and is expected to grow as the State enters its fifth week of operating under the stay at home order, first enacted by Executive Order 2020-21. The effects of this economic downturn are being experienced in various sectors, and community associations are not insulated from its impact on their operations. Not only are community associations anticipating a rise in owner delinquencies, but other remedies typically available to associations, such as pursuing eviction actions, are temporarily suspended. Boards are torn between the fiduciary obligation they owe to the membership and their desire to not worsen their neighbors' situations during these challenging times. This is a new reality boards are facing, and it is vital for boards to know what actions are and are not permissible during this crisis, as well as what relief an owner may avail themselves of.

    Eviction Actions

    Threats to remove or exclude people from their residences while the crisis is ongoing may exacerbate the already heightened risks to the public health. Individuals cannot seek out alternative housing while the State-wide stay at home order is in place, and given the lack of options, these individuals would possibly find themselves homeless. Further, self-quarantining and self-isolating in a residential home promotes public health and safety during this pandemic and an eviction action would be directly contrary to this goal.

    To address this concern, an executive order was issued to provide temporary relief to those individuals that may have been, or would have been, facing eviction-related requirements during this state of emergency, which was further extended on April 17, 2020 with Executive Order 2020-54 (the "Order"). Pursuant this Order, unless the occupant of the dwelling poses a substantial risk to another person or an imminent and severe risk to property, no individual may be removed or excluded from a leased residential premises through May 15, 2020. Further, during this same time period, no person may enter residential property to remove or exclude occupants from the dwelling or execute a writ of eviction to restore possession of the premises to the owner under an eviction action. The Order specifically states that it does not alleviate the obligation to pay rent, nor prohibit the landlord from making a demand for the payment of rent. However, any demand for payment of rent must be limited to just that, and not include a demand for possession while this Order is in place. It should also be noted that pursuant to this Order, any demand for payment of rent may not be made by personal delivery, due to the self-quarantine and self-isolation restrictions the State is currently operating under.

    For community associations, this Order has several implications. First, during the timeframe specified in the Order, a community association may not pursue an action to recover possession of a dwelling. Second, condominium associations looking to avail themselves of the tenant eviction and rent diversion remedies provided in Section 112 of the Michigan Condominium Act will need to be cognizant of the type of relief they may demand. This Section of the Act provides that 15 days after notice to the co-owner of a breach of the conditions of the condominium documents, the association may institute an action for eviction against the non-co-owner occupant if the association believes that the alleged breach is not cured or may be repeated. The association will not be able to avail itself of this relief while the Order is in place, nor can it demand that the landlord co-owner remove their occupants during this timeframe. However, the Order does not otherwise negate the responsibility for residents to abide by the condominium documents and condominium associations can still provide notice of violations and demand that the behavior be corrected. Further, this Order does not prohibit the condominium association from providing a notice of rent diversion to the non-co-owner occupant in instances where the co-owner has failed to remit assessment payments. Although, if the non-co-owner occupant fails to remit payment to the association, the association cannot yet provide a statutory notice to quit for rent diversion, as provided under MCL 559.212(5)(a). In other words, the obligations and responsibilities still exist for tenants and occupants during this pandemic, and community associations will need to be aware of what remedies are appropriate during this time and which remedies need to be deferred until the state of emergency is lifted.

    Collection of Assessments

    Typically the only source of revenue for a community association is the assessments that are collected from the owners. These assessments are intended to pay the association's bills, which are generally set by contracts the association already entered into with its contractors, management company, insurers and the like. Due to the terms of the contracts, these are not discretionary costs and they become due pursuant the terms of the contract, whether or not a pandemic exists. The association must continue to collect assessments in order to meet these obligations; however, boards are being compelled to adapt to the struggles its residents are facing.

    What Actions Should Boards Refrain from Taking

    Much like the discussion concerning eviction actions, boards need to mindful of whether drastic actions to collect on a delinquency are appropriate given the crisis and hardships being experienced by many. Demands for nonpayment should provide a reasonable timeframe for an owner to remit payment and take into account the timeframe for the current restrictions in place for the State. Likewise, it is still permissible and important to record liens for nonpayment with the county. However, community associations should refrain from pursuing garnishments and foreclosure actions until the state of emergency is lifted. Indeed, Community Associations Institute (CAI) issued a statement urging communities throughout the nation to immediately suspend all foreclosure activity and not begin new foreclosure actions until June 1, 2020. Further, several counties have postponed all foreclosures by advertisement until the state of emergency is lifted, and non-emergency judicial proceedings have also been postponed pending the same. Demanding or threatening relief that the association cannot necessarily obtain during the pandemic may expose the association to undue risk and negative publicity.

    Options Boards Can Extend to its Owners

    Generally, boards cannot waive the obligation for owners to remit assessment payments without amending the documents. Instead, as a starting point, the board may choose to send out a communication that encourages its residents to reach out to the board if they are facing financial stress so that payment arrangements or alternatives can be made during this crisis.

    If an owner then contacts the board, the board can determine an appropriate approach to the owner's request. Oftentimes, the first option offered to owners is a waiver of late fees and interest while the state of emergency exists. However, further relief may be requested by the owner, such as to not remit assessment payments for a period of time. In reviewing this request, the board should consider the extenuating circumstances established by the owner. The board will want to have the owner submit the request in writing and detail the reasons why they are asking for a payment plan for the board's consideration (e.g. laid off from retail job because closed as a result of coronavirus and Governor orders).

    If the board is inclined to permit a hiatus for the owner to make payments, the relief should be short-term, such as 2 months, as the association will still have bills to pay during the state of emergency and it likely cannot operate for long without a stream of income. Additionally, the agreement should further provide that once the hiatus is over, the owner is to remit the missed payments over a specific period of time set by the association, such as 6 to 12 months.

    Other Relief Options Available to Owners

    Step Forward Michigan permits an eligible owner to obtain assistance if they are delinquent in payment of their assessments. The Step Forward Michigan program was established during the 2008 financial crisis and is a federally funded loan program designed to help Michigan homeowners who are struggling with their mortgage, association fees and/or property taxes retain ownership of their homes and the program is still in operation today. If an owner is approved, Step Forward covers the outstanding balance, including assessments, legal fees and costs, but not late fees. While funding for the program is limited, given the current crisis and its financial implications, additional funding for the program may very well become available. If an association is not already participating in the Step Forward program, now would be a good time to enroll in the program. The documents needed by the State can be prepared and submitted while the state of emergency exists, and enrollment in the program can benefit the association when the state of emergency ceases. The benefits extend to owners regardless of the existence of a pandemic and can be of assistance to associations and owners alike.

    * * * * *

    The best practice for community associations during this time is to approach these issues as reasonably and calmly as possible. Community associations still have remedies available to them in addressing owner delinquencies. However, some remedies typically available to the association may not be currently available or advisable, given the state of affairs. As necessary, the board should discuss its issues and concerns with its community association professionals and take whatever measures are warranted in its best judgment for the community.

    Author

    Sarah R. Karl
    Sarah R. Karl

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