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Condo Association or HOA Collection Policies for Fees and Assessments

Posted on Wed, Aug 11, 2010 @ 07:28 PM
  
  
  
  

Assessments are the life-blood of condo associations and HOAs.  Yet only in a very fortunate few condo associations can collection of assessments be left to a laissez faire process.  Most condo associations need to have a cohesive and consistent collection process to thrive and not merely survive.

This article deals not only with the process of collection of assessments, but also the philosophy of assessment collection adopted by an association. 

COLLECTION PHILOSOPHIES

Whether they realize it or not, all associations adopt a collection philosophy.  Some do it unwittingly and without realizing what they have adopted; others deliberate and consciously adopt a philosophy which tailor-fits their members and the community in which they all live.  Collection philosophies run gamut from "associations are businesses and must be like businesses" to "collections are a messy matter perhaps if left alone, the goodhearted volunteers will pay enough to cover expenses."  Most associations probably fall somewhere in the middle of the spectrum, but every association should periodically reexamine its collection philosophy.

One way of doing this is by preparing a TQM style mission statement.  A sample mission statement of collection of assessments for one condominium association might look like this:

1.                   We want to collect as close to 100% of assessments as humanely possible.

2.                   We believe in constant communication with co-owners as the cornerstone of an effective collection policy.

3.                   The collection process should provide for graduated sanctions for untimely payments.

4.                   The collection procedure must be clearly and often communicated to all co-owners before there are delinquencies.

5.                   The collection procedure must be written and made a part of the governing documents of the condominium.

6.                   The collection procedure must be enforced in a consistent and uniform basis.

7.                   Co-owners must be treated with respect throughout the collection process.

 

This "mission statement" is for illustration only and not to promote any particular philosophy.  But it is important for the association to look at itself and its members and put some thought into a mission statement or philosophy that both suits its members and will result in effective collection of assessments.

The centerpiece of an effective assessment process is an administrative resolution setting forth the association's policy on collection of delinquent assessments.  Enacted by the Board of Directors and promulgated to all co-owners, the administrative resolution in sometimes incorporated into the Condo Association's Rules and Regulations.  In either form, it is the association's written statement of assessment enforcement practice.  Its purpose is simple: to communicate to all owners exactly what actions the association will take to pursue delinquent assessments.

Since assessment resolutions will differ as associations' policies on assessment differ, there is no one universal resolution.  A generic assessment resolution might provide the following:

1.                   Assessments are due on the first of the month.

2.                   After a 10 day grace period, late charges apply.

3.                   A notice of Intent to Lien is sent to owners more than 30 days delinquent.

4.                   A condominium lien is recorded against any unit owner more than 45 days late.

5.                   Acceleration of all assessments to end of fiscal year (if allowed in condo documents) for delinquencies of more than 3 months.

6.                   Lien foreclosure is directed for delinquencies of more than 4 months.

7.                   After institution of lien foreclosure action, all payment plans or settlements require board approval.

What is critical is that the resolution be memorialized, enacted by the Board, disseminated to all owners, and most important, that it be timely and consistently enforced.

ENFORECMENT MECHANICS

Notice of Intent to Lien.

The Notice of Intent to Lien is normally sent to the delinquent owner by the management company or, if the Association is self-managed, by the Association Treasurer.  It serves as both a warning regarding the imminence of liening the unit and the final non-legal request for the co-owner to become current in payment of his assessments.

Lien recording.

The recording of a lien against the condominium unit is the most important action the association can take.  It secures payment of the delinquent assessments and acts as a "wake-up call" for the delinquent owner.  Because the Condominium Act sets forth strict and explicit requirements for a valid condominium lien, the preparation, recording and service of the lien is best handled by the association's legal counsel. 

The condo association and/or its management company can facilitate the lien preparation process by ensuring that each owner's unit file contain certain essential information, including: (1) Unit number; (2) Copy of the owner's deed; (3) Mailing address for owner of record (particularly if a non occupant owner); (4) tax identification number for the unit; and preferably (5) a clear unit ledger reflecting assessments, late charges and legal cost separately and identifying any payments maid by the owner as well as the current balance.  Once prepared by the lawyer for the association, the lien must be timely recorded with the county register of deeds and served on the o-owner.

Acceleration of assessments.

Some, but not all, condominium documents provide the association the right to accelerate the balance of the fiscal year's assessments in the case of default.  Where the documents do so provide, the association must consider the best way to exercise this significant power.  If the collection process is designed to provide increasing sanctions for delinquencies, the seriousness of assessment acceleration must be weighed in deciding its timing.  It is particularly essential that associations exercise acceleration of assessments on a constant basis (i.e., when a four-month delinquency exists).

Foreclosure of the condominium lien.

The most difficult decision made by an association board is directing legal counsel to begin foreclosure action on the condominium lien.  Some associations prefer to wait until a certain minimum dollar amount of delinquency has been exceeded.  This approach can create problems particularly where particular payments have been accepted.  This writer recommends foreclosure action be keyed to a specific number of months of delinquency rather than a dollar amount.

The association must also decide whether to foreclose on the condo lien or to sue for damages only in district court.  Foreclosure can be effected either by advertisement or by judicial foreclosure.  Choosing the correct enforcement mechanism requires close analysis of the factual circumstances and is best left to the discretion of the association's counsel.

Each process has advantages and disadvantages.  Foreclosure by advertisement is relatively inexpensive but does not allow the association to pursue the co-owner for damages if there is insufficient equity in the condo unit to recover all monies from the foreclosure sale.  A district court unit for damages is faster than circuit court action, but such a judgment is only as good as the collectibility of the delinquent co-owner, and such a judgment can be nullified by a bankruptcy.  Judicial foreclosure provides the most flexibility and protection to the association, but requires a lawsuit in circuit court, is expensive and time consuming.

Both judicial foreclosure and foreclosure by advertisement culminate with an advertised foreclosure sale, at which time the association normally bids in the total delinquency including legal fees, costs and interest.  If substantial equity exists, the association must instruct its counsel whether to respond to an "overbid" (i.e., a third party bid higher than the association's bid).  Throughout its process, the association and its counsel must keep diligent tabs on possible foreclosure action by the first mortgagee, bearing in mind that a first mortgagee foreclosure will "wipe out" the association's position (unless the association redeems from the mortgagee foreclosure sale).

Redemption Period.

Assuming to overbids, a foreclosure sale will produce a Clerk's Foreclosure Deed, which must be recorded at the register of deeds office, reflecting Association's ownership of the foreclosed unit, subject to the first mortgage and subject to the owner's right of redemption, which normally is six months.  During the redemption period, the Association and its counsel must frequently monitor for any foreclosure proceedings brought by the first mortgagee.  Typically if financial circumstances cause a co-owner to be unable to pay assessments, the co-owner will ultimately default on his first mortgage, and the mortgagee will pursue foreclosure by advertisement.  Often, there will be only a relatively short "window of time" within which the Association will have unit, ownership before the first mortgage sale, and the Association needs to take aggressive action to market the nit to recover its investment.

Collection of Deficiency Judgments.

In many circumstances, there is insufficient equity in a unit and foreclosure may not make financial sense.   The alternative is pursuing the co-owner for a deficiency judgment.  However associations must understand that a judgment does not automatically translate into payment.  The co-owner must be collectible and the association must affirmatively pursue collection action, by garnishment either of wages or bank accounts, or by attachment of non-exempt personal assets.  Associations are advised to take preparatory action by maintaining copies of co-owner's checks in their unit files and learning, if legally possible, employment information regarding co-owners.

CONCLUSION

Enacting a comprehensive administrative resolution on assessment collection procedure and adhering to it ion a consistent basis is the best hope for a condominium association to minimize uncollected assessments.

  

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COMMENTS

My quarterly maintenance was due April 1. I had paid by depositing the check in the mail box of the president. I received a letter on Apr 14 that the maintenance had not been received. I called immediately and advised that check had been hand delivered. Then I received another letter on the 11th May. Nobody advised that the check had not been received. Two days later I got a letter from an attorney charging $250 and demanding payment of fees and the next quarter. I have been having harassment problems with the president for several months, i.e set me a letter to advise if i ever went on his door step again, he would call the sheriff. He also filed a complaint against my neighbor and we lost. Then without owners agreeing, filed an appeal which cost the association $1,500 for the appeal and another $14,000 to pay the owner he sued because we lost.

posted @ Sunday, May 17, 2009 8:05 AM by nameless


Nameless, your association has a real problem. 
 
 
 
Anyway: In Illinois, the board can have the unit owner evicted, take over the unit, fix it up if needed at the owners expense, and rent it out to collect the unpaid assessments of the owner. As soon as the debt is caught up, the owner can go back into thier unit. Of course there are notices that need to be given, and court appearances involved. We were within 2 weeks of eviction when the owner did finally pay. It took about 6 months to go from placing a lien to eviction.

posted @ Sunday, August 09, 2009 11:46 PM by Wayne


Will putting a lien on a owners property for Delinquent HOA jeopardize me if I go to try to sell my unit next Spring? It's just me and him in the condo association. We live in a 2 unit house. What if he refuses to ignore the 6D Certificate that is required for my sale? Who would want to buy my unit, if the other homeowner refuses to contribute to house expenses.

posted @ Tuesday, August 18, 2009 2:48 PM by Martha


Our condo assn Is considering eviction of a non-paying member. Our concern is that once the member is evicted that they will default on their mortgage payments (if they haven’t already) and get foreclosed upon by their mortgage company. With 12 months of past due assessments, late fees and attorney fees due to us, we would need to collect rent for about a year to break even. Would that buy us enough time if mortgage foreclosure notice commences shortly after the member is evicted by the condo assn?

posted @ Friday, September 11, 2009 4:30 PM by Tim


I received a non judgment demand by my HOA for an acceleration of my HOA fees. I read through my homeowners association book and there is no acceleration clause, can they do that?

posted @ Friday, August 12, 2011 1:27 PM by Anonymous


I have a court date they want to evict me I have tried to make good on this and they won't reply. I have no job just unemployment. I just want to make arrangement to make what payments I can make. It is almost winter and I have no family here and the only other place I can go is a shelter. When I own my home since 1998

posted @ Thursday, November 03, 2011 2:14 PM by AdriAnne


My HHA had charged some fines but I was always current with my association fees. Then they retunrned my fees and filed the case for non payment . Now the case is for 23 thousand dollars including attorneys fees.I have 190 thosand dollars morgage but the vaue ot condo is only 150 thousand dollars only.Please advise me.

posted @ Wednesday, November 16, 2011 2:42 PM by niru sood


i recieve a letter from site manager that has complaining for making noise and have smoke coming from my property how do i write an appeal this complain is not true.

posted @ Friday, November 18, 2011 9:39 PM by venus


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posted @ Tuesday, August 14, 2012 3:23 AM by christian louboutin australia


The Association is charging me Attorneys fees for US$ 300.00. According with them for a Violation Letter that was sent to me for no reason. I dispute the charges and dor Legal Services Rendered. 
 
 
 
Is this is legal? 
 
Thanks,

posted @ Monday, August 20, 2012 12:00 PM by Rosalinda Bego


I've got the best example of idiocy by a condo board. In this case, the association filed a lien against a unit owner, initiated foreclosure proceedings less than a month later, and then filed a motion with the court to appoint a rent receiver about a month after that. After all these documents had been filed, the attorney for the unit owner in "delinquency" filed a response to the original foreclosure action. The court papers that were filed included an exhibit that contained a copy of the unit owner's check that had been written before all of this started, a copy of a certified mail receipt proving that the check had been mailed to the condo association, and a copy of the envelope that had been returned to the unit owner, marked "Returned / Unclaimed Mail" after the condo association refused to accept it BEFORE they began filing the liens, foreclosure, etc. 
 
The association's attorney tried to have his own client's case dismissed, but the judge wouldn't allow it because the DEFENDANT objected. This can only mean that there will now be counter-claims filed for breach of fiduciary duty and fraud against the association and its board members.

posted @ Monday, January 06, 2014 7:10 AM by Marc Farrow


Where in the condo documents should it state the assessment fees and late charges?

posted @ Monday, February 03, 2014 9:09 PM by Barbara


I bought a condominium in the Tampa Bay area of Florida and the Association collected two months maintenance fees at closing. 
I was told that it can take six weeks or so for all the paperwork to be processed and that the pre-payment prevented delinquency expense and smoothed the Association's cash flow. 
 
is this legal? 
 
Thanks for any help you can give me.

posted @ Tuesday, February 11, 2014 1:10 PM by JImH


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