Avoid the “Wall of Shame”: Disclose Delinquencies with Dignity

Dainen N. Penta

Assessments are the lifeblood of an association. Delinquent owners are unfortunately a fact of life and are part of the landscape for community associations. Many boards become frustrated by non- paying owners and want to try what they think are new and creative ways of getting owners to pay. Boards and managers often ask us questions including:

• Can we publish a list of the delinquent owners’ names? • Can we publish a list of the delinquent owners’ unit numbers?

• Can we discuss delinquent owners’ accounts openly at the board meeting/annual meeting?

To paraphrase “South Park,” if your board is publishing delinquent owner lists and talking openly about delinquent accounts in the public session of board meetings, then “you’re gonna have a bad time.” Understandably, boards and managers answer to all owners and residents, many of whom may be upset. Owners who are paying their assessments are sometimes impatient with their neighbors who are not.

There is a fine line between boards and managers providing information about delinquent accounts to the entire community, and potentially being sued by an owner if the board or manager goes too far. A delinquent owner whose business is published and posted on a list around the neighborhood or whose delinquency is identified and discussed in a board meeting may be inclined to sue the association – and depending on the circumstances, that owner may have a strong case against the association.

Publishing or posting a list of delinquent owners’ names or unit numbers is probably a bad idea. Owners in financial trouble may already feel ashamed due to their circumstances, and an association that posts a list of delinquencies puts those owners’ affairs on display for everyone to see. Many owners may just need some time to catch up, or are going through a job loss, medical issues, or divorce. Delinquencies may be the result of accounting errors as a result of management transition, or the delinquency may be the result of “trailing” late fees or other charges. Owners whose financial troubles are put out there for everyone to see may respond by threatening to sue the association – or even filing a lawsuit. There is a tort claim called “public disclosure of private facts” and most owners feel their delinquency is something that should be kept private. Claims of defamation or slander might also arise. A delinquent owner might also assert breach of fiduciary duty claims, as the board generally must act in good faith on behalf of the community. Particularly in small communities, publishing a list of delinquent units without names may not keep the association out of hot water, if another resident can look at the list and check public records to find out the names of the delinquent units.

Many non-board owners are upset about delinquent accounts because they are worried about the community’s health, and so one approach may be to give out only, “name, rank, and serial number” so that board members and the manager can communicate effectively that delinquencies are being addressed appropriately. In other words, an effective strategy may be to disclose to non-board owners the total

number of units, the total dollar amount of unpaid assessments, and the total number out of the delinquent units that are being handled by the association’s attorney. Providing general information like this may help reassure owners that their neighbors aren’t just getting off “scot free” by not paying assessments. Being transparent without giving the specifics can also help dispel rumors or theories that the board “isn’t doing anything” about delinquent accounts.

An owner who has questions about delinquent accounts can also invoke their right to review and inspect association records. The association should refrain from offering up its records, but upon request, the association can point a curious owner to association records as a source of information about delinquencies.

The board should also consider using executive session to protect the identity of delinquent owners. While neither the “Old Act” nor “New Act” reference executive session, some association governing documents provide that meetings are governed by Robert’s Rules of Order. It is a best practice to review recommendations from the attorney in executive session (i.e., without non-board owners or residents present), and then to be sure the main meeting minutes reference any action taken. The executive session minutes should be kept confidential, but the main minutes should summarize what was reviewed. If a board member is delinquent, many association attorneys recommend that the delinquent board member not participate in decision making about delinquencies, or at the very least that the delinquent board member not participate in any decisions regarding their account.

Delinquent accounts are a sensitive topic that must be handled with care by boards and managers to avoid exposing the association to risks that may result from disclosing specific information about delinquencies to non-board owners. The board and manager that handle delinquent accounts with care and tact will go a long way towards enhancing community harmony.

In conclusion:

1. Have compassion for neighbors! Many delinquent owners are going through a truly rough time financially, and a little support from their neighbors can go a long way. Having “dirty laundry” aired in public can result in neighbors feeling like their neighbors don’t care, or worse, are vindictive.

2. A good SOP (standard operating procedure) is to provide information about the dollar amount of unpaid assessments, the number of units delinquent, and the number of units whose delinquencies are being handled by the attorney. Encourage an owner who persists to make a formal records inspection request.

3. Publishing a list of names or unit numbers of delinquent owners is probably a bad idea, carries a lot of risk, and should generally be avoided.

4. Discussing delinquent accounts openly in a board meeting or owner meeting is probably also a bad idea. 25

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