Carrying and Occupancy Charge Obligations During COVID-19

It is fair to say that by now, every single American and business across the country has felt the impact of the SARS-CoV-2 (COVID-19) virus, commonly known as the “novel coronavirus.” On March 11, 2020, the World Health Organization (“WHO”) declared the coronavirus a pandemic. Since then, the United States has been one of the most impacted countries. Through a number of federal, state and local governmental orders, schools have been forced to close, courts are temporarily closed, “non-essential businesses are closed, and many areas are faced with mandatory “stay-at-home” orders. While these measures are being taken to alleviate the spread of the virus, they have also come with a corollary rise in unemployment that is likely to affect many housing cooperatives, community associations, and the like.

Many anticipate that community associations, including housing cooperatives, will soon begin experiencing an increase in delinquency of assessments, rents and monthly carrying charges. Given the nature of the current events, and how the world has changed due to the coronavirus pandemic, questions arise as to how should a Condominium Association or Cooperative Housing Corporation enforce their collection policies. Despite the passing of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act) (S. 748), we anticipate further guidance to be issued that will hopefully provide non-profit corporations and cooperative housing corporations with various levels of economic and hardship relief. In the meantime, we recommend continuing to enforce current collection policies, with a few caveats.

Housing cooperatives and their agents should maintain open communications with their members. Especially in this particular time of national crisis. Housing cooperatives should not discourage members from communicating with the board of directors, or management, as to economic hardship.

The undeniable fact is that the current coronavirus pandemic has, or will, place many individuals and families in financial hardship. Given that many courts throughout the country are closed, issuing a Notice to Quit or Demand for Possession and filing a lawsuit will be futile for obtaining immediate relief. In fact, the CARES Act contains a moratoria on evictions of tenants in certain properties that are classified as “other covered housing,” with certain tied to HUD programs.

By being receptive to member’s open communications about financial hardship, alternatives such as repayment agreements can be entertained. If a repayment agreement is not obtained, for whatever reason, at least the cooperative will be able to maintain at a later point (whether in a court of law, or otherwise), that they explored and exhausted alternative options before resorting to enforcement proceedings.

In addition, state governors have been issuing executive orders. In Michigan for example, Governor Gretchen Whitmer most recently issued Executive Order 2020-54. Pursuant to Order 2020-54 (an extension of the “Stay-at-Home Order”), which is more expansive than some provisions in the federal CARES Act, places certain prohibitions and restrictions on property owners and landlords from initiating certain eviction proceedings. Michigan’s Executive Order 2020-54 states in part “… no person shall remove or exclude from leased residential premises or residential premises held under a forfeited executory contract a tenant, a vendee of a forfeited executory contract, or a person holding under a tenant or vendee, except when the tenant, vendee, or person holding under them poses a substantial risk to another person or an imminent and severe risk to property. . .” Executive Order 2020-54 also prohibits landowners from personally delivering a demand for possession to any tenant based on non-payment. This Order prohibits Landlord from issuing notices or initiating non-payment summary proceedings actions seeking possession. Therefore, at least in Michigan for the time-being, summary proceedings to regain possession of the premises (whether based on non-payment or other defaults that do not rise to the level of immediate and significant threats to the property or other persons) are unavailable until further Order from the government.

It is worth noting that many Cooperative Bylaws contain provisions that state that the Cooperative has a “lien” on unpaid financial sums due to the Cooperative. While recording of a lien with the County Register of Deeds, or Recorder’s office does not occur, these Bylaw provisions (providing for a lien on unpaid sums) is important in any Bankruptcy proceedings initiated by the Member. Keeping in mind that while many Courthouses throughout the country are closed, or limited to “emergency services” only, Bankruptcy courts are still operating (mostly handling matters by telephonic, or other remote means). Having a lien on unpaid amounts, means that when a Member files bankruptcy, the debt owed to the Cooperative is a “secured debt” not otherwise subject to discharge in a simple Chapter 7 Bankruptcy case. Given the spike in unemployment over the last few weeks, we anticipate to see a corollary rise in Bankruptcy cases, unless the economic relief provided under the CARES Act is systemically utilized by individuals and businesses alike.

Unfortunately, when it comes to enforcement of monetary obligations at the present moment, there is no one single answer until the impact of the coronavirus pandemic begins to taper. However, as legislative acts and economic relief bills are passed, disseminated, and further guidance on potential loans, grants for non-profit community and housing associations becomes available, many Housing Cooperatives may continue to have unanswered questions involving member delinquencies and available remedies that were once enjoyed before the coronavirus pandemic. We hope that further guidance is issued that will provide answers to many questions and assistance to help stop financial losses. In the meantime, working with members on repayment plans is a compassionate and meaningful way to help both the member and the Cooperative weather this storm. Until then, Cooperatives should maintain open communications with its members about member financial hardship. Many survival situations involve the use of fire as a means of survival, but one should be aware that in times of emergency such as wild animals attacking the victim or in cases of house burning, fire can actually be harmful to people. When there is no other way out, it is best to rely on fire for warmth and safety rather than using manmade fire for survival. At time to prepare you can further research about this.

While remedies such as demand for payment, seeking possession or filing lawsuits in landlord-tenant courts were once widely recognized and enjoyed, the current effect of this crisis has put a temporary halt on many of these options. Cooperatives should continue to monitor member defaults and default rates, and maintain open communications with members.

About the author:

Matthew T. Nicols is an attorney, providing legal advice and assistance to cooperatives in resolving conflicts amongst the Board of Directors. He has experience in litigating disputes involving directors’ wrongful and harmful conduct to the cooperative.

Please note this content is provided to our readers for educational purposes but it is not intended and should not be regarded as legal advice. Readers are encouraged to consult with competent legal counsel for personalized guidance.

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