Happy New Year! We’re starting off the new year with a bang here at Condominium Law Group, where our collections practice has tripled in the last two years. Increased volume has meant more opportunities to learn strategies for collecting unpaid assessments and, even more importantly, preventing delinquencies before they begin.
Today, I want to give Board members (for self-managed associations), bookkeepers, and managers some tips for things you can do before delinquencies start to increase the odds of collection once an owner falls behind.
Tip #1: Become an Information Hoarder
Keep every scrap of information you receive about every owner. Receive an e-mail from an owner’s work address? Put it in the file. Have a conversation with an owner and they mention their employer? Write it down. Get a payment from an owner from a personal bank account? Keep a copy of that check.
Many people do not think to do this, especially if the owner in question is not behind on their dues. Maybe they’ve never missed a payment and are a model citizen in your community. The fact is that while we certainly see a lot of “repeat offenders” in our collections practice, the vast majority of files in our office are for owners who had never been behind before, or at least not by much. So while this information might seem unnecessary as you gather it, someday it may become invaluable.
Why? Let’s say your association obtains a judgment against an owner…now what? You need to be able to collect on that judgment for it to be worth more than the paper it’s printed on. Garnishment – of bank accounts and wages – is one tool for collecting on a judgment, but if you don’t know where the owner works or banks, you’ve got to spend money on an investigation to dig up that information. If you’ve got notes about where the owner works and/or copies of personal checks, you are giving your association a head start in its collection efforts.
Tip #2: Adopt a Collection Policy. Publish it to Owners. Enforce it.
What good is a collection policy when all it does is regurgitate the information that’s already in your Declaration? To answer a question with a question, let me ask you this: how many owners do you think actually read the Declaration? Of those who read it (or try), how many of them actually understand it? Declarations are long, boring, and written in lawyer-speak (which is almost never Plain English). Collection policies, on the other hand, can be short, concise, and written in Plain English so everyone can understand.
Understand what? The responsibility to pay. What happens if you don’t pay. The fact that you could lose your home in an association foreclosure if you don’t pay your dues. And so on. Most owners don’t know this stuff, and a collection policy that spells it out for them is a good deterrent to delinquencies. It’s also a good defense to owner accusations that a Board is acting “aggressively” or isn’t being “fair” by referring the delinquent owner to the association’s attorney. The Board is simply enforcing (uniformly) the time line that is set forth in the collection policy, which is published to the owners so they know the consequences of non-payment.
Tip #3: Magic Language for Delinquency Letters
It’s not magic, but it is important for your association to start including the following language in its delinquency letters: “Nonpayment of your dues may lead to a lawsuit to foreclose on the association’s lien against your property. The homestead exemption under Chapter 6.13 of the Revised Code of Washington will not apply in an action to foreclose on an Association lien.”
I’m going to get a little lawyer-y and technical on you for a second. State law provides homeowners with something called a homestead exemption. It basically protects an owner’s equity in their primary residence up to $140K, and prevents creditors other than mortgage lenders from foreclosing on their liens and “taking away” $140K worth of the owner’s equity in their home. So if you only have $100K of equity in your home and you assert the homestead exemption to protect that equity in your home, you can stop a foreclosure from happening.
Condominium association liens are not subject to the homestead exemption, but in order for your association to overcome the assertion of the homestead exemption, you have to have notified the owner in writing via First Class Mail that a lien for condo association dues is not subject to the homestead exemption. If the language above is in every delinquency notice you send (or, better yet, in your welcome letter to all new owners), you’ve fulfilled this requirement almost effortlessly.
There are a lot more tips and tricks to make collection of delinquent assessments easier on association. We’ll cover more here in the future. In the meantime, if you have any questions we can answer, please feel free to leave a comment or contact us directly. We look forward to continuing this conversation with you in our future posts!
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I am the bookkeeper for a Homeowners Association. We have a court judgment (as of last November) against a homeowner who is very far behind in their dues. Now we have been notified that the home is going on the auction block in April. Does the judgment go against the person or against the property? Can the bank sell the property without paying the judgment amount?
Thank you.
Hi, Janet,
The association’s judgment is against the owners personally; any order of lien foreclosure is as against the property. The bank’s lien, however, has priority over the association’s lien. So they can foreclose, they do not have to pay the judgment, and their foreclosure sale will extinguish the association’s lien against the property.
The foreclosure does not affect the association’s ability to collect on the judgment against the owners, however. Your association should consult with an attorney experienced in these matters to review the options available to you to collect on the judgment, which is good for 10 years from the date it was issued.
Hope that helps!
Hello – I am on the board of a small Homeowner’s Association and we recently received a judgment and Notice of Sale for a unit in our complex for delinquent dues and assessments. The sale is set for August 26. However, we just found out that the bank is foreclosing on the unit and has set a sale for September (obviously after our sale). Since the bank has priority, as you noted above, does that sale trump ours? Or can our sale move forward?
Thanks!
Hi John,
The answer to your question depends on a number of factors. Are you a homeowners association or a condominium association? If the latter, are you an “old act” condo (created before July 1, 1990) or a “new act condo (created after that date)? And if you are a new act condo with limited priority over the bank, did the lawsuit drafted by your attorneys result in extinguishing the lender’s interest in the property?
Not to get all complicated, but the answers to these questions would tell me whether your association’s Sheriff’s Sale could “trump” the bank’s Trustee’s Sale. If you are a new act condo (or an old act condo with a priority lien amendment) and your lawsuit properly named the lender and the lender did not respond, there is a chance that your Sheriff’s Sale could wipe out their interest in the property. In that case, you’d want to go ahead with your sale in August.
If, however, you are a homeowners association or an old act condo without any lien priority, your sale can’t wipe out the lender’s interest in the property. In that case, although you COULD go forward with your sale, you might not want to because the September foreclosure by the lender will end up “undoing” your sale in August.
That’s not the end of it though (don’t you wish it were?!). Although the bank has a foreclosure sale scheduled for September, that is no guarantee that the sale will actually take place. The vast majority of Trustee’s Sales are postponed over and over again, and many are cancelled, rescheduled, etc. So the lender’s sale could take place in September, or it could take place…never.
Long story short, this is a situation where you should be consulting with your association attorney, who is hopefully very experienced in dealing with these matters, and who can answer all of the questions I identified above.
Good luck!