Dealing with Unpaid Dues/Assessments

Curious to know how everyone addresses units that are behind on their dues and/or assessments. We have a unit that is (willfully) behind on their annual dues and also has an unpaid assessment for a repeat violation.

What seems to be the consensus and what are the realistic options? Lien or...??
Are liens even effective in any sense if you don't then pursue foreclosure?

Thanks,
Dave

Dave,

An owner who willfully refuses to pay his assessments is a sitting duck. I am assuming he has the means to pay but for whatever reason feels he should not have to.

Foreclosure is too often a dead-end for an HOA. In most states a mortgage lien takes precedence over the HOA lien, so unless there is no mortgage or a substantial equity in the home, the HOA will take nothing in a foreclosure.

If your state law permits it, if you know where to find the owner, and if you have reason to believe that the owner has the means to pay, then your best course of action may be to file a civil suit to recover the unpaid assessments.

Owners just assume that liens and foreclosure are the only options for the association, but your HOA can sue in civil court just like any other debt. In my state, the HOA is required to obtain a money judgment before it can pursue a foreclosure. Some barstool lawyer may have convinced this owner that he is untouchable because he has no equity in his home.

Note that to obtain a money judgment, the owner will have to served personally, otherwise the lawsuit goes nowhere. If the owner is not the occupant of the home, track him down before hiring the lawyer. Likewise, if the owner is unlikely to have the means to pay it is a waste of your money to sue.

Sometimes the Association just needs to show that it means business.

We had two lots that were way behind when I became Treasurer last year.

They had already received several notices.

I started by sending a letter with details of the ledger informing them payment was needed by x date

Next letter informed them the issue to escalate the collection process was on the agenda and invited them to attend the meeting and gave them the option to:
a) pay what they owe + late charges in full
b) pay what they owed and the rest of the current year - in return the Association would waive unpaid late charges.

Next letter was a courtesy letter sent a week before the Board meeting reminding them that the issue was on the agenda and what their options were to stop the process from escalating.

We never had to go further than that last letter as both agreed to pay what was owed plus the remainder of the current year. In return we waived approx $500 in charges on both lots.

Had they chosen to ignore, we would have sent the issue to the attorney and they would have incurred legal costs along with the late charges.

JH

It was all kept confidential. The specific information of who the owner is or the Lot number is not listed on the agenda. Additionally, it is also not mentioned in the discussion. Had the member attended the meeting we would have entered executive session. However, in both cases, everything between the member and the Treasurer was done in writing. The following shows what we did.

The agenda simply states: Escalation of collection process for delinquent account.

The minutes simply said: Treasurer explained that there was one account sufficiently delinquent to be forwarded to attorney. The member desired to exercise the option offered by the Board of paying all past due and the remainder of the current year in full and the board would waive all unpaid charges related to the collection process, but requested additional time. [name] motioned that the board approve the additional time until July 31, 2012. If paid in full, the Association will waive unpaid charges. If not paid in full at that date, all charges will remain intact. [name] seconded and the motion passed unanimously. The Treasurer will inform the member.

That's not the way it works here. By law, only certain matters may be discussed in executive session and owner delinquencies are not on the short list, although if litigation is on the horizon the board may choose to discuss it in executive sessions.

I take the position that other owners and I entered into an agreement. I have the right to know if one of them is not living up to the terms of the agreement and he has no right to withhold his nonperformance from me or any other owner. If he does not want his delinquency discussed at an open board meeting then he knows what to do.

Now that I commented on Larry's statement, I'll address the question that prompted this conversation!

Once you know what your options are (lien/foreclosure or lawsuit), you really have to look at each case individually and see what you can do. I'm treasurer of my association (townhouse and we pay monthly assessments), and we usually start by considering if the homeowner has contacted our property manager's collections department and explained what's going on. If they're paying extra every month to catch up or negotiate a payment plan, we will work with them. We tell them they can't drag things out forever (we aren't a bank, after all), but as long as they keep us in the loop and make an effort to pay something, we'll keep working with them.

After 60 days, we send the account to our attorney (after accellerating unpaid assessments that become immediately due at that point). The attorney can work out a payment plan (the board has to approve it), but we updated our policy two years ago to insist on automatic deductions via a bank account or credit card. If they make a promise to pay, but renege, the plan is cancelled and off to court we go. It's the homeowner's responsibility to let us know if their circumstances have changed.

There are pros and cons to each step, but generally, you want to save foreclosure for last. It's expensive, time-consuming and most of the time, you won't get any money because, as others have pointed out, the mortgage company's lien is superior to the HOA, unless you're in a state with a superlien statute. The best thing about a foreclosure is that it gets rid of the deadbeat (if they're not paying anyway, why should they stay there and continue to receive services?) The sooner they're gone, the sooner the house can be sold to someone who will pay.

Ditto for liens - they have to be satisfied before the house changes hands, but if the mortgage company swoops in and does a foreclosure, your lien will usually be washed away when they do sell, because the mortgage company is only interested in getting as much as they can, and the selling price usually isn't enough to make them and the HOA happy (and they don't care if the HOA gets anything).

A personal judgement can follow a homeowner for the next 10 years and damage his/her credit, but unless he/she/they have assets you can grab to pay off the debt (or do a wage garnishment), the judgement becomes little more than a piece of paper.

Bottom line - talk with your attorney about your options and have him/her make a recommendation. You may also want to do a title search (your attorney can do this, but it may cost less if your management company does it)to get some idea on how much equity is in the house - that can help determine if foreclosure is viable. In some cases, filing a lien might be all you can do (e.g. if the owner dies and the house is in limbo because he/she didn't leave a will and no one's pursuing anything in probate court)

Regarding fines for CCR violations - I wouldn't foreclose for unpaid fines and in most states, you can't. Elsewhere on this site, I thought someone (TimB4?) suggest that CCR violations be disclosed in a resale package. I would think that would put a potential buyer on notice that he/she will be responsible for the violation if it isn't fixed and that could be used as a tool to persuade the homeowner to finally bring the item into compliance.

I just wish we could levy fines in this state - Indiana case law states HOAs can assess fines because they aren't considered government agencies (don't remember the case, but it's somewhere in the Internet universe if you Google it). Some HOAs do it anyway and get away with it, but if someone ever sues over it, there could be a problem

What HOA/people overlook when they want to sue for unpaid assessments are a few realities. The first and foremost that a lawsuit judgement is NOT money in the pocket. It is a judgement issued by the court much like a IOU. This also means unless your HOA goes on to lien anyways, the person can sell their home and never pay. Who is going to remember after 7 years that a court judgement is out there against a former owner? Those type judgements have to be renewed to keep active. Regular liens the owner can't sell the home until they pay it off.

A lawsuit has limitations. It isn't continous. Meaning the time period between filing the lawsuit and going to court the owner may not pay their dues. That period of time may NOT be included in the lawsuit your suing for. A regular lien the amount owed continues to collect and adds on the cost for the legal filing/costs.

Finally I would like to include the fact that a HOA does NOT have any member's social security number. Meaning that the lawsuit won't hurt their credit score as it's probably not going to get reported to the credit agencies. It also effects the ability to collect by garnishing wages. The court paperwork does NOT require anyone putting down their social security number. How would one then go about collecting it legally? A lien just needs the owners name and their HOA address. No need to collect additional data.

These are just my concerns when one files a lawsuit to collect fees. Why go through the whole lawsuit just to get a lien? I'd skip that step and just go for the lien. It is time consuming method but it has the most bite and ability to collect versus other options.

Typically it gets that bad because, in general, no one wants to be the bad guy.
It's tough to tell your neighbor to pay up or else (I know, I literately had to do this to my neighbor).

The best I can suggest is be as flexable as you can.
Waive late charges if possible (after all the goal is to collect the assessments) and if there are shows of good faith from the account holder.

One thing I did discover that was helpful was to be consistent and give details of the account.


Yes and no.

As Treasurer, you are responsible for tracking payments and paying the bills and bring appropriate matters to the boards attention.

The Board as a whole is responsible for the financial health by making the decisions as a group on how to address delinquencies.