For many community associations, collection of past-due assessments plays a major role in the annual legal budget (although in successful collections, the attorney's fees and costs incurred are collected from the delinquent owners). These past-due accounts create a myriad of challenges, such as  lenders' foreclosure actions or owners' bankruptcies, in addition to the association's collection efforts themselves, which are often addressed simultaneously with these challenging issues. We strongly recommend associations to be proactive by automatically submitting accounts to counsel for collection once the past-due balance reaches a defined threshold (i.e., 2-3 months) past-due balance, pursuant to the association's collection policy. Such policies impress upon owners that ignoring their payment obligations will not be tolerated. At the same time, a willingness to waive interest and/or late fees, or accepting payment over time (based upon the account's history, lender's status, and other factors affecting such business decisions) can assist the community in avoiding many of these challenges and impressing upon owners that they have elected a strong and capable, but human, board of directors and/or manager.

When owners fail or refuse to resolve past-due assessments and related charges, the only option in many circumstances is to obtain a money judgment and/or foreclose. The purpose of foreclosure (and specifically, foreclosure sales) is to satisfy the debt and the association's money judgment, if any. Accordingly, when the sale occurs, if the plaintiff is the highest bidder, it need not pay the amount of its bid to complete the sale; the plaintiff's sale bid is merely "offset" by the judgment amount, and the judgment is satisfied to the extent of the plaintiff's final bid. In contrast, all other bidders must place a deposit before bidding, and a third party winning bidder must also pay the balance of its bid before noon the day after the sale. If no third party bids, the plaintiff (whether the association or a foreclosing lender) purchases the property for the minimum $100.00 sale bid. Accordingly, the results of a completed foreclosure sale are that: (1) the plaintiff is paid in full because a third party paid more than the judgment amount for the property, or (2) the plaintiff takes title, and the judgment is "satisfied" to the extent of the plaintiff's highest bid. In the latter situation, a "deficiency" (damages against the former owner(s) in the amount of the judgment minus the winning bid) may also arise, thus affording the association an additional potential collection remedy. Indeed, the foreclosure sale only completes one part of the collections process.

 

The end of the association's fiscal year often coincides with the annual meeting, during which a review of the annual budget and the installation of one or more new directors and/or officers is common. Another recommended practice in connection with such year-end reviews is to evaluate the percentage of accounts which are past-due, and the anticipated cost of collection, as compared to the potential pitfalls of choosing whether or not to foreclose. It is also suggested that the association re-evaluate its collections policy during that time.  For more information please visit our Clayton & McCulloh