Assessment collection - How to be the bad guy
Q. Our association is fairly new and we have just taken over control from the developer. I have been elected Treasurer and want to make sure we are doing all of the steps necessary to manage the Association’s finances. One of my major concerns is collection of delinquent assessments. We are not a large Association and almost everyone knows everyone else. We have just a few who are always behind and a couple who are way behind. I don’t want to be the bad guy, but I also know that everyone must pay their dues. Can you make some suggestions that will get us on the right track?
A. Your community association should design its assessment‑collection policy so that it can be enforced uniformly. Such a policy has four key parts.
1. Establish the annual assessments’ due date and schedule of payments. These may be monthly, quarterly, semiannual or annual, depending on the size of the assessment. This section also should state where to make payments, and list a late fee if the assessment is not paid on time. The community's legal documents may dictate the late fee. In some cases, this might be a percentage of the assessment. In others, the documents will also require the offending owner to pay for the reasonable costs of collection. When calculating such a fee, the Board of Directors should determine the time and material costs necessary to mail a delinquent letter. These costs may cover any attorney's expenses the association incurs while trying to collect the delinquent assessments.
2. Establish the procedures to follow when an owner becomes delinquent. Assuming a monthly payment schedule, the Board might take these steps:
· Assessment is due on the 1st of each month and is late on the 10th.
· The late charge permitted by your association documents or established by board resolution is added on the 10th of the month.
· A letter is mailed on the 15th reminding the owner of the delinquency.
· A second letter is mailed on the 30th reminding the owner again. This letter will state that the association intends to accelerate all remaining payments for the year if the account is not brought current (your documents must contain an acceleration clause in order to do so).
· A third letter is mailed on the 15th of the next month notifying the owner that the Board has accelerated the payments (to the extent permitted by your documents). This means that you are going to collect all of the assessments that are due for the remainder of the fiscal year. The Board of Directors should send this letter certified return receipt. Payment should be required within 10 days.
· On the 30th of the second month if the delinquency is significant, the Board should ask its attorney to file a Memorandum of Assessment Lien" in the Clerk's Office of the appropriate Circuit Court. There is some legal work required in order to file an assessment lien. This document will state the amount of the delinquency and will cause it to affect the title to the property. An assessment lien must be filed within 90 days from the date on which the assessment became due in a condominium (One year if a Homeowners Association). If you miss the deadline, alternative legal proceedings would be necessary as to that part of the delinquency.One would be to ask the Association’s attorney to sue the owner(s) for collection. Legal action may also involve a personal judgment or a foreclosure of the lien for assessments. At this point, the Board should notify the mortgage holder, if any, of the delinquency. Sometimes the lender will pay the delinquency and add it to the mortgage, especially if it is a large amount which could justify the association utilizing lien foreclosure procedures.
3. Enforcement. With these steps in place you will be prepared to uniformly enforce the assessments. Make sure all of the owners are given a copy of the policy before the Board adopts it, so there will be no misunderstandings.
These steps are not carved in stone, but they are typical. Some associations, for instance, want the first contact to be a phone call. Though telephoning is feasible for small associations, or those with an on‑site manager, it is almost impossible for large associations. Board members should tailor a policy that works for their own association, and they must make sure they follow its steps.
4. Other methods a Board might use to encourage payment.
· Withhold services, such as the use of recreational facilities and parking, if the association documents provide for it and set forth a due process procedure.
· Payment plans and deferred payments. If a Board allows a payment plan it must be uniformly applied and should contain these guidelines:
(i) The owner must request the payment plan in writing and present a legitimate hardship.
(ii) Normally the plan should not last longer than 12 months.
(iii) The payments must equal the current assessment plus a percentage of the delinquency.
(iv) Any default on the payment plan will result in immediate legal action.
With such options, the Board will be able to work with owners facing financial problems because of illness or job loss.
If your association’s documents do not contain provisions which would allow the association the use of all the “legal tools” available to enforce the collection of past due assessments, you may want to consider amending them especially if you don't have the right of acceleration or recovery of legal fees. Even though document amendments require the consent of a super majority of the membership votes, since most majority of your owners are paying their assessments on time, the required consents would probably not be difficult to obtain.
Remember, for proper assessment collection, the Board of Directors should put its policy in writing, make sure every owner is notified of the policy, and enforce the policy persistently and uniformly.