Use of Mortgage Company to Collect Unpaid Dues

In the past, there have been some posts in this forum about the board contacting the mortgage company of homeowners who refuse to pay their dues. I understood the thought to be that the mortgage company would collect the dues from the homeowner and send the dues to the HOA. If I understand this thought correctly, is it legal in Arizona?

Is anyone in the Phoenix area using this method to collect dues from homeowners in order to save on legal fees involved in filing liens, as well as the long wait to collect.

Does anyone in AZ use collection agencies?

Thanks!

AnneH

AnneH, it is my belief that unless it is written into the mortgage contract a HOA can not contact the Mortgage company without written approval from the Homeowner. The reason is there is a Federal Fair Debt Collection act which says that you can't contact a third party about a debt. You can't contact the mortgage company and let them know that there is a debt owed by the homeowner. It is a gray area to forward a copy of the lien to the mortgage company; one our Association is not going to test.

It is unfortunate but the laws have been written by attorneys to keep themselves in business.

I agree, and this maybe rather simplistic, but would you expect a local utility company to contact you if the owner had not paid the water, electric or gas bills - to request you to withold funds, or take corrective actions? Unless it is in the loan contract do think that you have the right (or purpose) to contact a third party. The HOA's relationship is with the owner, and the owner's relationship is with the bank/motgage company, no third leg there unless specified.

The reason a mortgage company is even considered is that you are adding some risk to the bank's collateral. That is the only reason they would care if probably only in the first few years of the mortgage when the note's value is near the property value. But most homeowners have PMI to protect the bank anyways. Contacting the bank would not be something I would suggest.

Before we turn an account over to a collections attorney we give the owner a friendly warning indicating if they haven't brought their account current or approached the board within X days we will turn it over to the collections attorney and that will increase the amount owed (typically $250).

We use a collections attorney to send them a 30 warning by registered mail and at the end of the 30 days we apply a lien and send them notice. A few months later we contact the collections attorney again and they pursue other avenues until we collection. While there is a continuing lien on the property per the Association documents title companies don't seem to find it. Title companies are supposed to get an estoppel letter from us but some don't. The only guarantee that we have found that works is a new lien.

While it would be great to not add the legal fees to the owner, at the point where we do that they are already 6 months behind and have flat out ignored several letters and invoices. You can't shame the homeowner by posting the details of his debt or notifying a third party. The only means of collection is through legal means and to safeguard the Association a lawyer is used. If you expose your Association to liability in order to save a homeowner some money it will come back to bite you; deadbeats know the laws so you must to do everything legally.

I was contacted just yesterday by a homeowner that has ignored letters since 2005 and now that the lawyer is involved and has sent her threatening letters she is contacting us. We have sent her probably 5 or 6 letters over the years and never heard from her but suddenly she wants to work out a deal and have some of her dues forgiven. I am sorry to say but in our experience aggressive collections is the only way that works.

Brad - I am curious: you said, "deadbeats know the laws so you must to do everything legally." So if you already have an automatic lien, and file another one with expenses, which lien will be honored by the title company and/or enforced upon by you? I would think a knowledgeable deadbeat would insist the automatic lien be used to save them the expenses attached to the second lien, so where does that leave you with your expenses for filing the second lien? And can't you hold the title company responsible if they clear a title without collecting on your automatic lien? I'm just confused why the expense of a second lien is necessary when one is already in place. Harold

Mike, we haven't met to discuss it yet; that is Thursday. They were notified of the conversation and I doubt they waive much. If anything it will just be the interest and late fees; everything else is either the dues themselves which everyone must pay or real legal fees that we encure.

She was full of excuses saying she never saw the warning letters and she had a death in the family a few years back. If she shows up may offer her a payment plan; just about everytime this has happened it has just been a delaying tactic. She ignored many letters over the years and suddenly realizes she has a problem now that a collections lawyer is involved and she can't keep ignoring it.

Anne - you have only a very small MAJORITY who are angry with reviving your rules? Is that like being a little bit pregnant? You know it only takes a small majority to replace the board. How did your board get "elected" anyway with such opposition?
Here is the site with Arizona statues covering HOAs. If you are a condominium go to chapter 9; if a planned community, go to chapter 16. Be aware, new laws are being passed as we speak and will not be included there now. It is important to keep on top of Arizona statues because they do over ride your documents, especially if it starts out, "notwithstanding...."

http://www.azleg.state.az.us/ArizonaRevisedStatutes.asp?Title=33

Here you go Linda - from my unabridged (heavy!) Random House Dictionary:
Notwithstanding: a preposition. 1. without being opposed or prevented by: in spite of. 2. In spite of the fact that; although. 3. Nevertheless, anyway, yet. Syn - 1. despite, in spite of. Further down it says notwithstanding suggests, however, a hindrance of some kind. Whew! Now I gotta go and get some energy after lugging that book back. Harold

I've done a foreclosure. They are NOT the money generating monsters they pretend to be. It does work well for a good threat of action if your trying to make a point.
Honestly, I've just heard of the mortgage company approach to foreclosure. It's sounds a little too good to be true. Even if it is true, I don't believe it is an approach I would risk taking. The process is already complicated on it's own.
Either way a foreclosure goes down, the bank/mortgage company ALWAYS gets paid first. If the owner owes money to the bank/mortgage, that gets paid off with whatever money comes from the foreclosure. Basically, the HOA risks paying for the bank's foreclosure if money is owed. Ironically, if the bank forecloses BEFORE the HOA, the HOA gets NOTHING. It's a tricky thing, and timing can be everything.
The first step is to put a lien on the property that owes money. Make sure the amount owed is equal or above the costs of placing a lien. In my state, it costs about $300 to file a lien. Some states it's free or little cost. You may or may not need a lawyer. It will depend on what your comfortable with. The legal costs can be part of what is added onto the lien. Keep in mind that the HOA could be out the cost of the lien PLUS the continued unpaid dues until the lien is paid off. That's when the HOA gets BACK the money owed. No profit there. You can NOT lien for fines in most states. It can ONLY be backdues (plus late fees/interest) or the rare circumstance of the HOA paying for work to be done and the owner not pay back. (Example: Owner paints house wrong color...refuses to repaint... HOA pays to repaint...HOA bills owner...Owner refuses to pay... HOA can lien for amount owed). A lien prevents an owner from selling their property until they pay off lien. A lawsuit will only give a HOA JUDGEMENT and does NOT prevent the owner from selling the property and moving. Hence why liens are a better option than small claims court.
A foreclosure can be STOPPED at any time until the bid is accepted. In my state, a foreclosed owner can STILL buy the property back within a year of the foreclosure PLUS cost of improvements/money owed. Not all states are like that. Foreclosures can be permanent.
If the HOA ends up with the property in the foreclosure sale, that isn't good. That's because the HOA has to pay again the money owed (starting bid price), whatever the sale is above the bid price, whatever is owed on the property, and any repair work to fix it up. Unless your HOA can afford a mortgage payment each month plus repair costs until the property sales, it's not worth it. Granite, the HOA could stand to gain a profit if they are able to sell the house at a profit. However, figuring in all the costs of the foreclosure, bank on having to sell the property atleast above $10K of purchase price to stand a chance of a profit. The house we foreclosed on had a loan of $72K. It cost us $800 legal costs. The amount owed was $2500. The house needed atleast $5K - 10K of repairs to be sellable. (Water damage due to a broken pipe in winter). Unfornately, the house sales were around $85K for a house in excellent condition. So NOT a money making proposition. It was just a matter of getting the owner's to pay up in the end. Something they refused to do even till the point the house was auctioned off! We were lucky to break even in the end.

If you can't contact a third party about a debt then how does the mortgage company get notified during foreclosure about the debt? Aren't we splitting hairs here? One way or another the mortgage company will know about the debt?