Assessments in arrears - payment plan, write-off/down, foreclose or just lien?

Hi All,

Very specific circumstance many of you have probably been through. 314 SFH with mandatory CCRs, solid governing documents, etc. under property management.

This Board (I'm pres) inherited an owner who has, since 2008, not paid, then paid some, then paid some more, been on failed payment plans, etc. Total owed exceeds $3000. Property is liened and we are considering foreclosure. A decade long problem. Owner has gone 3 years at a time without payment of any kind, then just show up and pay a couple hundred dollars on a $3000 account.

Given the history, I would like to foreclose, but I know this is fraught with lenient judges, high legal fees, etc.

So, our basic options are:

1. Write off more and set up payment plan at $200/mo - but, owner has historically proven failure to pay
2. Don’t write off and set up payment plan at $200/mo - but, owner has historically proven failure to pay
3. Write off more and set up six month payment plan - but, owner has historically proven failure to pay
4. Don’t write off more and set up six month payment plan - but, owner has historically proven failure to pay
5. Simply continue to lien until the house is sold - low cost option to eventual payment (must keep up with liens)
6. Foreclose - could go well or not - more certain to be paid if simply lien?

The last offer from the owner was to pay $1800 of the $3000 on a $200 a month plan (assessments are $675/yr), but with this in the letter ... "Also, if I am for some reason am unable to make a payment, I will correspond as soon as this is known”

If we just keep billing, keep assessing interest and fees, lien and keep it up to date, is this a reasonable, low cost solution?

What would you do?

Oh, forgot to add the owner in question had offered to sign an NDA ...

I feel like we are being had.

Like AugustineD, I HATE deadbeats – dealt with them over and over again when I was treasurer of our board for five years, and yours is a mash-up of several from my community.

You’re correct that foreclosure is a pain in the butt and most of the time the association winds up writing off the account anyway (I’ve been there more times than I care to remember), but this owner’s history leaves you no choice, in my opinion – and you should tell him that. If he wants to keep his house, he needs to come up with ALL the money, including whatever collection expenses the association has spent in pursuing the debt. It’s not your problem where the money comes from, so if he has to crack open his IRA or 401(k) or both, so be it.

The ONLY way I’d accept a payment plan is through automatic deduction of his bank account and the monthly amount has to cover the debt and current fees. Give him six-eight months, but no more than that because right now, he’s digging himself deeper and deeper because what he is paying is only going towards the current debt, but not this year’s assessments. In fact, once he’s current, I’d insist on automatic payments from now on. After a year or two of that, the board can revisit the account to see if it wants to lift the restriction. Or insist on certified checks only.

The reason I required automatic deductions on our more difficult deadbeats was to ensure the association got its money – and if an electronic payment is rejected, that’s technically a form of wire fraud and you might be able to have a chat with your local prosecutor to file charges. Gangster, I know, but it would appear the man has been taking advantage of the association for years and it’s time to stop.
Go ahead and file that lien if you haven’t already (and the homeowner has to pay the costs of that as well). I believe we’ve had discussions on foreclosures in other conversations in recent months where Richard from California (a property manager) spoke of how you can find information on the homeowner’s mortgage company – use the search and you should find it, as I think it was within the last three months or so.

If you find that information, have your association attorney use it to locate this guy’s mortgage company and then contact them. They’ll find out about a foreclosure sooner or later, but maybe if you give them a heads up now, they will pay what’s owed and then add that to the owner’s mortgage. Again, if this makes his mortgage period lasts longer, oh well – that’s what you get for not paying assessments in full and on time.

Finally, if this drives him to bankruptcy (I’m surprised he hasn’t already tried this), be sure your attorney files a proof of claim immediately. I’d also make a point of attending the hearing so I could testify before the judge about this man’s behavior so it’ll be on record and perhaps it’ll persuade the judge to drop the hammer to ensure you get paid in a chapter 13 or perhaps refuse to write off the debt if he goes chapter 7.

It takes forever to get your money through chapter 13, but if the judge stays on top of it, you do get everything sooner or later with interest (took us nearly 3 years to grab the money this way on one deadbeat, who eventually sold the house – only to fall behind on assessments at the next home and got foreclosed on it as well).

One more thing - you've asked a number of really good questions on this website. You can always vent and lern from our victories and mistakes, but I also think it would be good for you to check out the Community Association Institute website (CAI). I often recommend them because they sponsore education seminars and webinars on best practices for new and experienced HOA board members. Some of the services are free for members, but their not overly expensive if you decide not to join. Some people don't like CXAI because they think they represent the property managers and assornesys more tha the HOA members, and while that may be true in some states, I always found the folks in my state to be reputable. Take a look and see for yourself - the educational materials would also be great for your colleagues.

John,

We have an attorney and they are handling this, but looking for direction. They recommend forgiving more because the county courts sometimes side with owners. I think they are advising against spending the money to foreclose ... they have liened this property, already.

Another cousin is in our community. Similar situation, has not paid dues in several years and balance is now over $3000. We have had a lien on the property for several years but we are way down on the list of lien holders. Mortgage company, business vendors, and IRS to name a few. House was up for auction a couple years ago and owner filed bankruptcy the day of the auction. I'm told the bankruptcy could drag this out a few more years. I seriously doubt we ever see a dime towards the debt. I'd be interested to know what other HOAs would do.

I have done a foreclosure. Similar situation. They had renters and tried to put it on them...etc....

Think you are overlooking the obvious. A foreclosure STOPS as soon as it is paid. Once that person pays the 3K plus legal costs, they get to keep the house. There is also a right of redemption period. Which varies in every state. Some states there are none to up to a year. Meaning the owner can get the house back if they pay what is owed plus other expenses incurred by new owner etc...

The expense isn't that much. It was only $800 for us. There are expenses like running the notification in a local newspaper for a 3 month period prior. Plus notification fees like certified letters. With liens the legal expenses may be added onto the amount owed.

A lien may need to check up on to see if needs renewed. Never ever sue for back dues. The HOA never wants the house even though the get the first bid at foreclosure. Make sure if it does go to foreclosure there are potential buyers to show up. You don't want it to go into a tax foreclosure. Also ALWAYS check with the bank if they are foreclosing. Otherwise the HOA is doing the work of the bank. Which gets paid first and foremost even when it does the foreclosing.

I believe this particular situation a bit different in that the owner is not behind on mortgage (may own house outright). Further, the property is generally well cared for ... there is no renter.

Some input received from other Board members is to allow the attorney to continue to offer their six month payment plan, and, whether or not accepted, continue to maintain the lien up to date. The only negative in this case is that if there is a foreclosure from a bank, then our POA is at least second in line. The positive is that we receive interest, and that we avoid the legal costs of a foreclosure.

I'm going approach this as a Florida CAM. If I were managing the community, I would have recommended foreclosing the lien before the end of the first year. The problem is that a lot of the homes in Florida (and elsewhere) are subject to a mortgage (it is unknown if the property you're discussing is or not) and due to that, the mortgage companies have the execrable advantage of the "safe harbor" provisions. The longer these properties are allowed to be late, the higher the outstanding balances, and "safe harbor" limits what mortgage companies have to pay to: 1) a maximum of 1 year's assessments; or 2) 1% of the mortgage, which ever is lesser. Also, you mentioned "writing off" the balance -- in case you're not aware, that can only be done if your association is using the accrual method (don't know if you are or not).

Was trying to avoid spending the $150 on that report - they would normally do that prior to filing foreclosure.

In most of Florida you can look that up online for free. Just go to your county's clerk of court site; it'll take a bit of searching but it'll save the $$.

That's what I was going to say. In my county - and I guess in most of Florida - mortgages have to be filed with the county's official records.