Part 2 : Collections and Remedies for Assessments
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COLLECTION PROCEDURES AND REMEDIES
Enforcement of collection procedures and remedies should be prompt, systematic, and aggressive. When a payment is late, your community association collection policy should tell you:
- When late notices are to be sent and how frequently
- What language late notices should contain
- What late or collection fee to assess the delinquent owner
- When collection should be turned over to legal counsel
- When to accelerate assessment payments
What is meant by Acceleration of Assessments? Acceleration is the collection of assessments due through the end of the fiscal year. For example, if an owners’ payments for the annual assessment are due monthly, and the owner becomes delinquent at the end of March, all monthly payments through December of that year are due immediately. Usually, if acceleration is not authorized in state statutes or the association’s governing documents, it cannot be implemented by board resolution. Because statutes and case law vary from state to state, your board and attorney should determine what is allowed by law before implementing any policy or procedure.
Basic Legal Remedies Available to Community Associations: Some of the procedures and remedies available to a community association for collecting delinquent payments from its owners are detailed below.
Extra-Judicial Remedies: There are remedies outside the courts that a community association can use to encourage a delinquent owner to pay what is owed. If your board wishes to use any of the following procedures, make sure they are provided for in a state statute, the governing documents, or a formal board resolution to verify your community association’s authority to use any of them. Extra-judicial procedures to compel an owner to pay a delinquent amount include:
- Impose a late charge or interest penalty on delinquent accounts
- Require a security deposit of a certain number of months of estimated assessments from an owner with a history of delinquency
- Suspend the owner’s use privileges, such as pool access
- Suspend the owner’s voting and other participation rights
Judicial Remedies: Other, more drastic legal judicial remedies an association may employ to collect delinquent payments from owners include the following:
Place a Lien on the Unit: A lien is a legal claim by one party (community association) on the property of another (delinquent owner) to obtain the payment of a debt, or the satisfaction of an obligation. The automatic lien in a community association protects the association’s interests and encourages payment of the debt. Among other consequences of a lien, the owner cannot sell or transfer the unit without settling the debt.
A lien against an owners unit must be authorized by your community association’s applicable statutes or governing documents. Most statutes enabling the establishment of a community association or governing documents require that assessment liens be subordinate to any mortgages or government claims (such as taxes or child support) against an owner’s property. Subordinate means that these other claims must be satisfied before that of the assessment lien.
In most states, the recording of the declaration constitutes a prior recorded assessment lien against the unit owner’s interests. Your attorney can handle the recording of any liens against the title to a unit in the land records. The form used varies by state. While the lien is automatic and exists without recording it in most states, perfecting the lien by recording it provides public notice of the debt.
Foreclose on the Unit: Foreclosure is a legal proceeding filed in court whereby a party with a claim against an owner can claim ownership of the unit involved in order to recover the money it is owed. The unit is usually auctioned by the court’s representative or the association’s legal counsel and sold to the highest bidder. If a community association purchases a vacant unit that is foreclosed, it may rent it or use it to house an on-site employee.
A community association may foreclose on an owner if it thinks it can recover what it is owed. Sometimes the act of posting a home for foreclosure will prompt an owner to pay what is owed - especially if the owner’s mortgage payments are current. If an owner has little equity in the unit - that is, still owes most of the mortgage - the association stands little chance of getting the money it is owed.
Sue the Owner for a Personal Money Judgment: A personal money judgment or summary judgment is a decision by a judge to allow the community association to claim the owner’s personal property to settle a delinquent account. The association must file court papers, appear before a judge, and convince the judge that the owner owes the association money. If the judge recognizes the community association’s claim, he or she may authorize the association to attach the owner’s bank account, claim any rent being paid by a tenant in the unit, garnish the owner’s paycheck, or take possession of the owner’s car or other personal property. This is a viable alternative to consider when the amount of money owed is small. However, it can be difficult to gain satisfaction of the debt from the delinquent owner without incurring additional court costs and attorney fees.