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COVID-19 came in like a lightning rod and started closing down our country within the last few weeks.   Nearly every state in the U.S.  declared a state of emergency, state health departments are overwhelmed, and dozens of states and localities have instituted Stay at Home orders mandating people stay at home, work at home – in their communities, foreclosure moratorium and more.

It also meant community associations closing common areas; including club houses, gyms, playgrounds, and more to comply with CDC and government regulations and for the healthy and safety of residences.

But what happens when you temporarily close common areas?  They still need to be cleaned and maintained and they are still owned by the association.   Some residents who may not be familiar with the financial model of the community association may compare the community association work out facility with a gym membership and wonder why they need to continue to “pay" for the work out facility if it isn't open and available for use.

Here is a brief explanation of the financial model of a community association that may be helpful to share with residents, so they have a better understanding.

  • Community associations are usually organized as non-profit corporations in the state. (Note:  they are usually do not have a non-profit tax determination by the IRS, i.e. 501c).   However, they file taxes as a non-profit corporation. 
  • The non-profit corporation has shareholders (every owner in the community).  The owners each pay their fair share of the non-profit corporation expenses by paying assessments.   Further, the owners select, by election, the board of directors to make decisions on their behalf.  
  • Assessments can be thought of like property taxes.  The assessments pay for the services delivered by the community; including trash and snow removal, street maintenance, lighting, insurance, recreation facilities, stormwater management, landscaping, and more.
  • Assessments are usually the only form of income for an association.
  • Association expense are usually fixed expenses that are spent on contracts like trash removal, elevator maintenance, roof maintenance, landscaping, street maintenance, insurance, and  payment for maintenance and repair of other amenities. Unfortunately, these expenses haven't gone away with the outbreak of COVID-19.  IN some cases, the expenses may have increased as community association board of directors have engaged additional cleaning services and/or consultation with legal counsel to determine appropriate course of action to manage these unprecedented times, to name a few.
  • Community association boards of directors have an obligation, by statute, to act in the best interests of the corporation and one of these actions is to work to ensure the financial health of the community.  One way to do this is to continue to manage the financial affairs, by collecting assessments from the owners.
  • One of the challenging factors of COVID-19 is the economic impact on individual residents.  When owners become unable to pay their assessments, the community has to be prepared to handle the situation.   That's why the CAI Board of Trustees, in March, adopted a Statement of Moratorium on Foreclosure in Community Associations. 
  • The collection of community association assessments is a very serious and important responsibility of the governing board. Failing to collect assessments may impair a community association's ability to pays its bills, provide essential services, obtain financing for continued operations, and may impact the ability of a potential purchaser to obtain a mortgage.

    Dawn M. Bauman, CAE, SVP Government Affairs
    Community Associations Institute (CAI) 

Click here to see both the Federal and State Foreclosure Actions in Response to COVID-19.