COLLECTING delinquent HOA assessments

What is best for your Association may not be best for another Association. Each Board will have to make that determination based on applicable State laws, individual circumstances of the member and how the courts in your State have been ruling in similar cases (case law).

In general:

Lien:

Most, if not all, governing documents (CC&Rs) specify that their is a continuing lien already on the property. It simply isn't recorded with the courts. Therefore, many associations simply need to walk to the courthouse and record the continuing lien. However, laws vary and you need to check prior to doing this.

In my opinion, the following are the pros and cons of liens:

- The lien is only attached to the property (what is basically collateral for the assessment).

- Mortgages, taxes and earlier liens have precedence. Therefore, if foreclosed on, you may never see the money.

- Liens only really affect the member if they are looking for additional credit, want to refinance or are selling the property. If none of these are planned, they can ignore the lien until/unless someone starts the foreclosure process to collect the lien.

- Liens are cheap to file and take minimal documentation.

- Liens may have to be renewed every x years.

- Liens may have to be updated with new amounts as the debt grows.

- Foreclosing on a lien stops the bleeding.

- You can't get blood from a turnip. If the house is underwater, then the Association will likely never see a penny.

- Some States require court approval before foreclosing on the lien.

Court Judgements:

- A judgement from the court takes additional time, energy and, if attorneys are used, money.

- you can still file a lien with the court judgement

- Judgements follow the person (if they can be found) and not the property

- With a judgement, the association (with additional approval from the courts) may garnish wages, bank accounts, tax refunds, other property (cars, boats, other homes, etc.)

- If the individual goes out of the State (sometimes out of the County) additional court approval may be needed.

- With a judgement, if you file a lien and don't collect all the money from foreclosure, you can seek additional avenues to collect.

- Judgements can be bought and sold. Hence, the Association could collect some of the money (typically pennies on the dollar) by selling the judgement to someone else.

Again: LAWS VARY BY STATE FOR LIENS, JUDGEMENTS and FORECLOSURE

Here are some links:

Subject: Judgments/Liens 2011 thread on this forum

Judgment Liens on Property in Alabama from nolo.com

Enforcing Money Judgments Against Personal Property in Virginia 1980 - From the School of William and Mary law review

Is Judgment Recovery Legal? Yes! And here’s why…

After a Judgment: Collecting Money from findlaw

HOA Liens & Foreclosures: An Overview from nolo.com

HOA Put a Judgment Against Me for Not Paying HOA: What Can I Do?

Regarding Tim's post above

"- Liens are cheap to file and take minimal documentation."

Not so in Texas. A lien which encumbers real property in Texas must be filed by an attorney. An association we manage recently requested the association attorney to file a lien. The charge for preparing the demand letter, preparing and filing the notice of lien, postage and costs, and the filing fee was $375.78. This is in addition to collection costs previously charged by the MC and the attorney of nearly $400.00 for the preparation of certified letters, postage, preparation of documents by the MC and the charge for referring the account to the attorney.

These charges have been added to the homeowner's account, taking a past due assessment balance of $387.00 to a balance in excess of $1,400.00 when interest and collection costs are added.

What is so silly about this is the property owner went down this same road three years ago, and paid about $700 to clear a two assessment past due balance of $242.00. It is especially silly on the part of the property owner as Texas law requires a delinquent property owner be offered a payment plan, which can spread a past due balance up to 18 months depending on the amount. The assessments for this association are $266.00 annually, which is nothing compared to the assessment costs for those of you with significant amenities and association provided exterior maintenance.

Another risk in spending money on a lawsuit.

When someone owes you money, that is money you have never had in your possession. You need to weigh all the risks involved before spending hard cold cash from your treasury on chasing after funds you never had and may never have. When you spend money on one thing, such as a lawsuit, it means that money will not be available for other expenses, like fixing the roof. A lawsuit has the chance of making you whole but often has a bigger chance of putting you in a worse situation.

Several years ago my association had unpaid assessments totaling about $25,000. They spent $175,000 on an attorney to sue 60 delinquent owners. For all that effort they collected less than $1,000, for a net loss of $174,000.

BTW, I am not suggesting that you should never file a lawsuit. I am suggesting that it should not be a knee-jerk response. Each situation needs to be evaluated against the risks involved.

We just went through this and I'm still unsure exactly what is the best procedure. Sometimes you win, sometimes the assoication (and rest of the homneowners) end up eating it. We had a property in our community that had not paid assessments for two years. Management company charges, interest, and attorneys fees resulted in a charge of around $4000 to the owners account (assessments would have only been just over $1000 for the two years).

There was to be a short sale but that fell through and the bank foreclosed, so now the association is out around $2400 for the attorneys fees. The interest, delinquent assessments, and management charges are a wash.

I think that in the majority of cases, turning it over to the association attorney gets a result, but sometimes it does not as in this case.

Alabama is one of the few states that do have "Super liens". Which means that liens can be put at the same level of the bank. Which means that when money is being paid back the HOA is on equal footing of the bank giving it more of an advantage of being paid back. Otherwise it has to wait in line with all other creditors.

Foreclosures are a bit tricky. Basically, your doing the work of the bank if the HOA forecloses. The bank is always to get paid first and foremost. So when deciding to foreclose on the lien, take careful consideration of the situation. There is nothing wrong on leaving a lien on a home for a long time if the situation calls for it.

One can't foreclose for someone on active military duty. If the house is already in bank foreclosure, then leave the lien on. It's most likely going to be a wash but not having a lien is good business practice. The HOA will be next in line if there is money left over which is rare.

I avoid lawsuits in pursuit for many reasons. Liens collect interest, accumulate over time, includes legal costs of filing, and the person can not sell without paying. A lawsuit it doesn't accumulate, have to ask for legal costs to be reimbursed, and person can sell and not pay.

My recommendation: Always have a lien/foreclosure policy. Ours is 6 months behind we liened. 1 year behind we CONSIDERED foreclosing. Foreclosing had to make sense and be in the best interest. Otherwise we just kept the lien on until time to re-evaluate the situation.

AnnS11,

In other words: We don't know.

Advice: Ask the corporate attorney.

Exactly... You have to consider ALL the factors before deciding to proceed. Not all situations are equal. That is why we had the policy of: 6 months lien and 1 year CONSIDER foreclosure. Having such a policy in place allowed for us to weed out those situations. 6 months lien was basically at the "break even point" for collections costs. Plus it let us get an idea of why they were not paying. We could make payment arrangements for those with money struggles. We could educate those not aware they were in a HOA. Those who were doing it out of "Protest" got the hint we weren't playing. You have other ways of "fighting" your HOA by NOT paying dues.

Foreclosures are more serious. If the person is Active military, then could not foreclose. If the property is in bank foreclosure, we did not foreclose but left the lien in place. If the owner is "trouble" uncooperative, then foreclosure is brought into play. No one says you have to pursue foreclosure. Plus a foreclosure STOPS when the amount owed is paid.

I avoid lawsuits in this situation because the ability of owners to move without ever paying the judgement. It takes more effort and money to pursue a court judgement than a lien. I'd rather not have to pay a lawyer for every consultation, pursuit, and interactions in court if I can do that all in one sitting with a lien.