Community associations face many challenges, none more so than funding the upkeep and welfare of their communities.
An owner who refuses to pay their share can put a heavy strain on a community association’s finances. Community associations must be proactive and aggressive in protecting their interests.
Below are five best practices for community associations and management companies to improve the collection of assessments.
1. Do Some Sleuthing
Community associations should collect as much information as possible about owners and their tenants, while not running afoul of privacy provisions, even prior to a delinquency. Key information to gather includes:
- Mailing Addresses: Many owners rent their property to tenants or spend a significant amount of time outside the community. An owner may not even be aware they’re delinquent. These are important for sending notices and serving a delinquent owner if a collection lawsuit is filed.
- Banking Information: A judgment is just a piece of paper stating the outcome of a lawsuit. After judgment is obtained, the association must collect on the judgment. The association can freeze and garnish the owner’s bank account and having this information beforehand can speed up the process.
- Employment Information: Similar to a bank account, the association can collect on a judgment by garnishing a portion of the owner’s wages.
- Copy of Lease: If the unit is rented, the association may be able to garnish rent, but only if it has a copy of the lease.
Mailing addresses and employment information can be obtained from applications for pool passes or recreational passes. Banking information can be retained by making copies of checks and other payments and keeping them in the owner’s file. If payments are made electronically, the association can make a note of the owner’s account and routing numbers.
2. Adopt a Collection Policy
The collection process can be long and complicated. Adopting an outline of each step to be taken can streamline the process for the board and inform the delinquent owner of what to expect if they do not pay their assessments. Amongst other items, the association can establish:
- When assessments are due and when payment will be considered late,
- Whether late fees and/or interest will be assessed and for how much,
- When the account will be turned over for collections,
- The point at which a lien and lawsuit will be filed, and
- How to apply payments.
3. Be More Lenient in Accepting Payment Plans
Although associations should be aggressive in collecting assessments, more often than not it is in the association’s best interest to enter into a payment plan with a delinquent owner. Factors to consider when reviewing a proposed payment plan include the owner’s good faith efforts and ability to pay.
Community associations should do their best to work with a delinquent owner to reduce costs for both parties. Legal fees can accumulate quickly and not all legal fees may be recoverable. Entering into a multi-year payment plan may be preferable rather than going through the lawsuit, judgment and post-judgment collections process.
All settlement agreements must be in writing and signed by both parties. It is also in the association’s best interest to work with an attorney to ensure that it has legally protected and secured itself.
4. Suspend Owners’ Privileges
Many owners, their children or their tenants love to use their association’s swimming pool. To the extent the association is permitted (consult an attorney and the association’s governing documents), suspending an owner’s right to use the pool can motivate an owner to pay their debt. The association may also suspend an owner’s right to use a parking space, clubhouse, or other amenity.
5. Do Not Wait to Consult an Attorney
The association’s best protection is to secure the owner’s obligation by filing a lien and lawsuit, both of which are enforceable for 12 years. However, time is of the essence and each of these processes are complex and highly regulated. If not done properly, the association can miss its opportunity to secure a portion of the debt or open itself to liability. Consult an attorney early to ensure your association has a strategy in place to handle a delinquent owner.
Casey College is a community associations attorney at Lerch, Early & Brewer in Bethesda, Maryland. His is experienced in the area of collections and general matters faced by condominiums, cooperatives and homeowners associations. For more information about collecting delinquent assessments, contact Casey at (301) 841-3844 or [email protected].