The first of the month rolls around and it’s time to pay the bills that keep your building operational. Repairs might need to be made, staff salaries paid, maintenance done to keep all the common elements running, and supplies reordered. The consistent influx of funds from residents' monthly fees is what makes all of this possible, and keeps a building or HOA functional and solvent from month to month. But sometimes—not often, but sometimes—residents don't hold up their end of the association-living contract, and fall into arrears.
Reasons for Nonpayment
“According to most owners, it's just that they simply don't have the money," says Anne Ward, an attorney with the law firm of Ehrlich, Petriello, Gudin & Plaza in Newark, New Jersey of the most common explanations given for arrears. "And then sometimes you get people who just don't pay because they think they're entitled to withhold payment for various reasons—some of which are just completely irrational and irresponsible. Sometimes they allege claims against the association that they're not providing the services that should be provided, or they've requested documents that they're entitled to see and the board has refused to allow them access. Or there may be no articulate reason at all."
“My theory has always been that most Americans take on obligations with a full understanding and expectation that they're going to comply with them," says David J. Byrne, a partner with Ocean Township, New Jersey-based law firm of Ansell, Grimm & Aaron, PC’s Community Association Practice Group. "They get married, they buy a house, sign a mortgage. I think people expect to comply with the promises they make, but then something happens and intervenes, and things change. So I think most people would rather pay their assessments but for whatever reason, they don't.”
The Short End of the Stick
Regardless of the reason for nonpayment, financial and legal pros advise boards to move swiftly—and fairly, of course—when it comes to recouping lost revenue from an owner in arrears. Steven Mlenak, an associate with the Community Association Practice Group at the law firm of Greenbaum, Rowe, Smith & Davis LLP in Woodbridge, New Jersey, notes that an association is usually either the first group to stop getting paid, or the last.
“Usually, the mortgage and utilities are always going be paid, because there's a general understanding that if you don't pay your mortgage, you're going be foreclosed on," Mlenak says. "If you don't pay your utilities, the lights are going off. With the association maintenance, there's not always that same understanding of consequences—so that's why we're usually the first to stop getting paid."