Cohousing-L Mailing List: Re: protecting your HOA from homeowner bankruptcy

[Dale Grover (dgrover]

The lawyer we used for drafting our bylaws (state of Michigan) told 
us we needed to keep some provisions in place that grant the holders 
of mortgages many rights, including that they are not liable for 
unpaid association fees if they take possession of a unit--that this 
was something lenders would want to see.  So that's at one end of the 
spectrum--if we can't collect from the owner, we can't collect at 
all.  I have to imagine this is a common provision.  But like most 
aspects of association bylaws, different states will have different 
laws and regulations.

Just up from that, our bylaws do specify that unpaid association fees 
constitute a lien on the property, and the association can foreclose, 
etc.  We really don't want to ever get to that point.

It seems to me it's much more important to address the other end, 
when problems start.  Our current policy is if someone has not paid 
their association fee within 15 days, there's a late fee, and after 
30 days there's a letter that goes out outlining what options the 
community offers.  The late fee is just motivation to pay on time, 
and isn't meant to penalize a household with actual financial 
problems.  If a household is in financial straits, they can get the 
late fee waived by making a commitment to bring their balance up to 
date on a certain schedule.  If there's just no way they can pay, 
we've authorized the creation of a fund (funded by donations, 
probably on an "as needed" basis) that is administered by our caring 
committee and used to pay the association fee for a few months if the 
caring committee feels it appropriate.

We have not had any household request waiving fees, but we've had 
cases where postponing complete payment helped out households.  (We 
always prefer getting partial payment to none at all.)  Not letting 
things go is consistent with our financial responsibilities to keep 
the community going, and if done in a caring way does not conflict 
with our values about people's privacy and our desire to help each 
other when we can.

So we do have legal protections as a last resort, but have tried to 
put in place policies to catch problems early on.

As far as checking on people's financial situation, we're like the 
other responses--we leave that to their lender.  (Though who wouldn't 
enjoy a scene like the one in "LA Story" where the restaurant owner 
grills Steve Martin's character about his financial resources before 
granting him a reservation.)

--Dale


> Dear Fellow Cohousers,
>
> Help please.
>
> What have you found effective in protecting your cohousing community from:
>
> -       Loss of owed condo fees and assessments due to owners filing
> personal bankruptcy?
>
> -       Loss of same from owners failing to pay their mortgages and being
> foreclosed with subsequent bank ownership of cohousing units?
>
> Does your community require financial statements from potential buyers?
>
> We are updating our policies and procedures in these areas.
>
> What protections can you suggest?
>
> Sample policies and court rulings would be very helpful.
>
> What proactive initiatives can we take to prevent losses or reduce their
> magnitude?