Connected Management Blog

Helping condominium board members run a successful community.

Bill proposes mandatory payment plans for delinquent owners

Illinois House Bill proposes mandatory payment plans for delinquent owners

HB 4154 (Rep. Madigan and Rep. Kifowit)
ALTERNATIVE PAYMENT OF DELINQUENT ASSESSMENTS.

Overview of the bill

This bill proposes the creation a new Sec. 1-47 of the Common Interest Community Association Act which would mandate that common interest communities of more than 14 units adopt “reasonable guidelines” for delinquent owners to pay regular and special assessments. The bill would require the association to adopt and record in the county recorder’s office guidelines for a payment plan. The payment plan would need to be a minimum of 3 months and not extend greater than 18 months.

The payment plan cannot include “additional monetary penalties” but could include costs associated with monitoring the payment plan. An owner would not be entitled to relief under the guidelines if that owner failed to honor the terms of a prior payment plan within the 2 previous years.

The Property Management Perspective

This bill would force communities to create a payment plan that owners are eligible to enter into with the association should they become behind in their assessment payments. The idea here is that owners would be able to jump into a payment plan before the association would have the ability to use legal means to collect unpaid assessments. It appears that the board could define the terms of the mandatory payment plan and specify repayment terms ranging from 3 to 18 months. It also looks like an owner would only be able to invoke this protection once every two years.

Ultimately this gives the unit owner an additional method for extending their payment of assessment funds. I can certainly understand the thought of giving owners more flexibility; that is simply neighborly. As a property management company, however, I will tell you that delinquencies can be devastating to an association. Especially in smaller associations, each unit's monthly payment is critical in order to pay the required expenses of the property. When an owner does not pay on time, cash flow is impacted and many associations are forced to perform unsavory measures such as adopting special assessments.

I do agree that if an association is running under a "proper budget" then delinquencies would have been taken into account and a small percentage of past due payments shouldn't cause much of a problem. In reality, however, many associations aren't flush with cash and collect just enough in assessments each month to remain afloat. Taking away the only real tool that a board has to deal with a delinquent owner, legal action, may be just enough to kill some smaller associations.

Do Payment Plans Work?

Perhaps a more important focus should be considering if payment plans even work. In my experience, unfortunately, "non legal" payment plans rarely do work. First I need to explain that my definition of "work" here means that the owner adheres to the payment plan and repays all of the money owed per the schedule. If the owner fails to make the scheduled payments then the payment plan failed and the board is back to square one; very painful. Secondly I need to make the distinction between legal and non-legal payment plans.

A legal payment plan is one that is agreed to in court, and these definitely "work". Such plans are normally a result of a legal collections action against a delinquent unit owner. In some cases the parties will agree to a payment plan instead of continuing the case in court. The reason that these payment plans work is due to the failure clause that you'll almost always find in the agreement. If the owner fails to make all payments defined in the plan the association is typically provided with immediate possession of the unit. The point is, even if the owner does not pay as agreed, the association is protected and is able to immediately proceed with the next step.

In a non-legal payment plan there is no penalty should the owner not hold up his or her end of the bargain. I have monitored many of these types of deals between boards and unit owners over the past decade. The owner is faced with an option of agreeing to a payment plan with the board, or disagreeing to the plan, in which case the board will proceed with a legal suit. Of course the unit owner will almost always agree to the payment plan, which is the better of two evils. Their consent typically has little to do with whether or not they have any intention or ability to make the payments. At least it buys the owner some time.

Consider that you are also asking the unit owner to not only make their ongoing normal monthly payment, which they have recently been unable to accomplish, but also add-in an additional sum towards the past due balance. If you were a Las Vegas odds maker where would you set the probability of the owner successfully fulfilling the terms of the payment plan? Probably not too likely and this has matched my experience with such plans. Going purely from memory I would estimate that less than 10-15% of these plans are ever paid successfully.

The reason this matters is that these payment plans have no legal recourse and are essentially unenforceable. If the owner does not pay as required, what can the board do? Nothing. They must start at the beginning and initiate the legal collections process.

The proposed bill seems eerily identical to one of these non-legal payment plans that we just reviewed. If the owner fails to make the required payments, which certainly seems likely based on past experiences, the board is simply left in a worse financial position with no additional methods available to secure the delinquent funds. Not a great deal if you are one of the owners paying on time or a board struggling to pay monthly expenses.

Bill Status

On March 26, 2014 this bill passed out of the House Executive Committee. On April 11, 2014 this bill
was re-referred to Rules Committee in the House. You can review the bill here:

http://www.ilga.gov/legislation/billstatus.asp?DocNum=4154&GAID=12&GA=98&DocTypeID=HB&LegID=
78068&SessionID=85

Understanding Palm v. 2800 Lake Shore Drive – A pr...
A condo managers review of Illinois Senate Bill 26...

HEAR WHAT YOUR NEIGHBORS ARE SAYING ABOUT CONNECTED MANAGEMENT!

The most valuable feedback about our service comes from active board members. Watch our video testimonials to learn about their experiences with Connected.


TOP