What actions can we take against a delinquent owner?

Started by NathanL2 • 11 replies • 377 views

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NathanL2 (California)
Posts: 47

Posted:

I am on the HOA Board of my condo, we are a very small community with only 13 units. We have very old and outdated CCRs and a Rules and Regulations document. We work with an HOA management company. We have a delinquent owner that we don't know how to handle

Background: There's an owner that has been around a lot longer than I have that rents out their property to tenants. This owner is apparently a lot of problems. Always delinquent on HOA payments. Every previous management company has had to deal with this person and hit them with many fines. They've had to go to collections many times over the years. This delinquent owner also rents out their place to tenants that never follow rules as far as barking dogs, external AC units, quiet hours, etc. We follow all the rules and just use our system of fines. However, the owner is delinquent on payments to begin with. We do not contact this person directly, our management company just deals with I think their lawyer. I don't believe the owner even gives the tenants a copy of the rules.

During our big roofing project they wouldn't pay the special assessment and at this point had a more than $10K bill. We sent the bill to collections and there was talk that we would start foreclosure procedures. I'm not a lawyer so I don't know the specifics of all of this. I believe there was also a moratorium on foreclosures so we were limited in taking these actions. The delinquent owner's lawyer sent us a payment plan that they wanted us to accept that would pay their bill off in like 2.5 years. We came back with an offer of 11 months but they just ignored it and started making payments on their 2.5 year suggested plan. We agreed to nothing.

Now it's become very unbearable for the neighbors of the tenants of the delinquent owner. Endless dog barking exasperated by the particle board wall coverings for their wall AC units, birds being kept in their patio, etc

Our management company suggested two options 1) tell the collections agency to stop accepting payments and push for foreclosure 2)hire a lawyer and sue for collection and removal of the violations.

I'm thinking we need to consult a lawyer about all the legal issues like are we legally able to push for foreclosure? Are we opening ourselves up to litigation by the delinquent owner in any way? Is there still a moratorium? How long could this last? How much money will this cost us? Is there some other method of solving this that we haven't tried throughout the many years dealing with this owner?

PS I hope this topic doesn't make me sound terrible like I want to foreclose on someone. I'd prefer not to of course, but this person has ignored every attempt to contact them and to resolve any of this in a reasonable manner throughout the years.

NathanL2 (California)
Posts: 47

Posted:

Sorry forgot to ask a question. Does anyone have any advice on how we are to proceed? Is one option better than another? Do we have some way to compel this delinquent owner to pay the money they owe? Or to actually make their tenants follow HOA rules? Should we meet with our lawyer first to find out what they recommend? any advice would help

PatJ1 (North Carolina)
Posts: 568

Posted:

Good place to start researching https://www.davis-stirling.com/HOME/H/HOA-Collection-Menu

Have you been providing owners with the required Collection Policy yearly?

SheliaH (Indiana)
Posts: 6,964

Posted:

Why feel bad? HOAs work when EVERYONE pays his/her fair share of assessments and complies with the rules. Go back to your documents and read them - there's probably language in there that give the board the authority to pursue debts with it and makes all homeowners legally responsible for assessments and complying with the rules.

You're on the board, so I don't know why you don't seem to know more about the history of this guy - what have your colleagues said, assuming some have been on there longer than you? Most importantly, why has this continued year after year? I suspect it's because delinquencies are a pain in the ass to deal with, along with small claims court action against tenants. The action against the tenants may be easier - you would sue the OWNER in most cases because he's legally obligated to the association, not them. Maybe if he has to spend all those rent checks running back and forth to court, he might straighten up.

Anyway, if this owner is as bad as you say, I hope someone has been documenting the violations, late notices, etc. because you'll need it to take legal action against him. Let him explain to the court why he doesn't seem to care that his tenants are making life miserable for everyone else. Yes, you need to take your management company's suggestion and go to your association attorney to discuss options and then pursue it.

Now, it's one thing to go to court, another to win one's lawsuit and still another to collect, so you need to face reality. The association will have to put up the money to pay the court costs and attorneys fees, which quickly add up - that can put a strain on a small association like yours. You can ask that the owner reimburse the association for those expenses as part of your lawsuit, but he may appeal, file bankruptcy and do all sorts of stuff to skip payment. None of this will be overnight - the owner probably knows all this, which is why he's taking advantage of the rest of you.

This is yet another reason why I roll my eyes when I hear assorted folks come to this site and whine about their inability to rent their units. I dealt with this crap for five of my 10 years on my HOA board (I was treasurer) and for every investor-owner who did things right, there were another 10 who'd rent to the trolls from the Lord of the Rings as long as the rent check cleared. As for you, I wish you and your neighbors good luck - they'll need it. Along with a formal collection policy - doesn't sound like you have one, and from this moment on, you need to establish it, send copies to the homeowners and tell them this is how the association will address delinquencies and it applies to everyone.

PS - doublecheck with your attorney, but usually a HOA's CCRs can be enforced by one homeowner against another, so perhaps they should consider small claims court action against the tenants AND the homeowner/landlord. Between them filing legal action and the association coming for the money, that could result in real change.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I would avoid a lawsuit. A lien is much better and has better teeth. It has to be for unpaid dues and/or work the HOA did to correct a violation. (It is NOT for fines etc...). Give it a year and then consider foreclosure procedures. Which take another few months to process. A foreclosure ONLY stops the bleeding. It doesn't get a HOA a profit.

Also time to get a collection policy in place. Ours was 6 months behind we liened. 1 year behind we CONSIDERED foreclosure.

The difference between a lien and a lawsuit is that a lien continues. A lawsuit has a set point. Plus a lien one can not sell till the debt is paid off. A lawsuit judgement the person can move and never pay it in theory. The HOA has no right to one's social security #. Which makes some collection options harder to do.

Former HOA President

NathanL2 (California)
Posts: 47

Posted:

Thank you for the response, I'll address some of the things you said that confuse me a bit. Forgive me if my questions seem overly simplistic. All of us on the board don't spend a lot of time thinking about the running of the place. So there's a lot of basic stuff I might not know.

"Why don't you know more about the history of this guy?" I'm not sure what this means. I know that the person has been trouble but I wasn't around for most of the issues. I've been an owner for 4 years and on the board for maybe 3 years. This person has been around for decades. I only know what some of the other residents have told me. I also need to be clear that this is a really small community and a really small board and everyone works full time. Not a lot of time is put into running the board and most of what everyone does is rely on the HOA management company. The record keeping is also pretty informal it seems.

"Why has this continued year after year?" I think in the past the person just ignores when the collections agencies go after them and previously the threat was to put a lien on their property and i think eventually they did pay up. As far as in more current times, it seems like a person just choosing to ignore everything actually has a lot of protection, at least in CA. We currently have a lien on their property because of violations in the last two years and our HOA lawyer had said right now we can't really do much to foreclose on them during the covid moratorium on foreclosures.

"The actions against the tenants may be easier" So are you saying we could actually take the tenants to court for violating the HOA rules and regulations? I hadn't thought of that.

"Doesn't sound like you have a formal collections policy" I mean, maybe not, but I'm not sure what this would mean. At no point has anyone said there wasn't a policy. The person didn't pay and we went to a collections agency who pursued them unsuccessfully and now there's a lien on their property. We're now discussing whether to get the collections agency to start foreclosure. So is that not enough as far as a policy? And how would the policy make a difference here when the owner has just ignored whenever they want to?

"Homeowners can enforce CCR against another homeowner" oh interesting! Ok didn't think about that. Yes I think consulting the lawyer is a good idea

I notice that you haven't mentioned anything about foreclosure, which is something the HOA management company and collections agency have both mentioned. Do you feel like this is too drastic?

Thanks a lot, you have given me several things to think about and bring up when we discuss this with our HOA lawyer.

CathyA3 (Ohio)
Posts: 6,299

Posted:

What L learned when dealing with foreclosures:

* The association has a much better chance of success when the owner stops paying altogether. Paying in dribs and drabs will probably be viewed by the court as the owner trying to pay his debts. This is why the management company said to stop accepting partial payments.

* I agree with the recommendation of working with a lawyer who's experienced with HOAs and foreclosures. You want the association to have evidence demonstrating that you bent over backwards to work with the delinquent owner. You don't want to give the court any reason to side with the owner (they may do it anyway, but you don't need to make it easy).

* As Sheila mentioned, the owner is in this to make money, and you want to change the economics. If his expenses exceed his rental income, then he has an expensive hobby, not an investment - this should get the attention of any landlord, since they often operate with slim margins. That's why my standard advice is for the association to get their ducks in a row as far as violations go: enforce consistently, publish the fining scheduled, and put every notice in writing. It's a pain in the keister to keep after this, but it pays off when you have a paper trail that supports any actions the association takes.

* Some states allow foreclosure for non-payment of fines, others don't. Even if yours doesn't, the association can still go through something like small claims court. This may be enough to get the landlord's attention and make the economics work against him.

* Some delinquent owners play the game very well. Yours may be one of them, which is another reason I suggested working with a lawyer. You don't want to make any missteps that prevent you from collecting.

* As far as feeling bad about foreclosing: don't. This person has no problem allowing his neighbors to pay his share of the costs while pocketing the rent checks. He is choosing to do this. Meanwhile the board has an obligation to the rest of the members (our bylaws state explicitly that the board must foreclose when appropriate - yours may have something similar). I also was bothered by this as a new board member, but a couple years of being played by someone who knew how to maneuver through their way through the delinquency minefields gave me a real attitude adjustment. Fortunately in my case our few delinquencies were all deliberate choices, so no sympathy - it would have been much harder to work with an owner who wasn't paying because they were being bankrupted by medical debt, for example.

LetA (Nevada)
Posts: 2,679

Posted:

You need to consult with an HOA lawyer that deals with HOA's and foreclosures. I know here in Nevada we are allowed to foreclose on unpaid assessments as well as unpaid fines that deal with threatening
the safety and welfare of the community. It may sound like a stretch, but the AC problem you mention could be interpreted as a heath code violation, a breeding ground for mold.
On the other hand, other owners can enforce the covenants against the offending owner. that could be in the form of a lawsuit. If enough ticked off owners got together and pooled their money, they could
very possibly get the owner to cut their losses and sell or may wise them up into compliance.

SheliaH (Indiana)
Posts: 6,964

Posted:

I can't remember if the foreclosure moratorium ended or not - I think it did, so you could foreclose, but it's something you really should discuss with the association attorney. When I was on the board, we had an owner who was just as lackadaisical about paying assessments as your owner.

Unfortunately, she had a pretty good sense of how the courts worked and so this was the process: she wouldn't pay, we'd sue and win. She's promise tonpay, but wouldnt, so we would pursue a foreclosure (we can do non judicial foreclosure in this state). Just as the sheriff would schedule the sale, she'd file bankruptcy and all collections have to stop until the judge sorts it out. See file a proof of claim, the judge would set up a payment plan, she wouldn't comply, the bankruptcy would be thrown out and we'd start over.

The lady had a mortgage, but the bank was totally useless (all they care about is getting what they can for the loan). Remember, the bank has a secured interest in the house, so Some might pay the back assessments pay the back assessments and add it to the mortgage balance, but the real estate crash of 2008 changed that. If

Generally, the bank has to be paid before anyone else gets money and if the house is sold and There isn't enough left over, the association could be SOL. that happened a lot. I stepped down from the board a few years ago, so I don't know what happened to that account.

Oh,and I won't bother talking about tax liens, which may gum up the works even more. Ask your attorney.

So, foreclose may or may not fix your problem,and once again, it'll take time and lots of money. This is why we always considered a nuclear option after everything else we tried didn't work.

As for the other stuff, the collection policy is simply a list of procedures the association follow when it comes to assessment. Due date, when late fees are applied, how much, when the account is sent to the collection agency - stuff you see on any contract or credit agreement.

Some have an acceleration clause where all unpaid assessments become their the assessments aren't paid. My community pays assessments monthly, so if you haven't bought the account current within 45 days all remaining assessments for the rest of the year become payable. Every year, we send a copy of the policy to homeowners so they know what to expect. So what is your community doing?

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

PatJ1 (North Carolina)
Posts: 568

Posted:

Even if the bank holds a mortgage on the property an HOA foreclosure can remove the resident from the property.

We secured a property on an HOA foreclosure. The resident moved but continued to pay the mortgage. The HOA could have rented the unit, but that's not usually recommended if a bank foreclosure is anticipated. We held onto that HOA foreclosure for over 4 years. Then the bank foreclosed and the bank sold it. We didn't see a penny. This was during the housing slump.

We had another one. No mortgage. HOA foreclosed. Tenant moved. Things moved fairly quickly. Sold at foreclosure and we collected all the past due dues.

Also, once a property (condo unit) goes into foreclosure, the HOA does not accept any payment plans. Pay or move.

As always, check your state's laws.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Nathan

It seems your delinquent person pays no attention to the BOD or MC. You need to turn the heat up. Have your HOA lawyer go after the person. At the least a lien and wording that this is the first step in a foreclosure. Also have the lawyer mention Credit Reporting in the letter.

LetA (Nevada)
Posts: 2,679

Posted:

Quote:

Posted By PatJ1 on 12/03/2021 11:49 AM
Even if the bank holds a mortgage on the property an HOA foreclosure can remove the resident from the property.

We secured a property on an HOA foreclosure. The resident moved but continued to pay the mortgage. The HOA could have rented the unit, but that's not usually recommended if a bank foreclosure is anticipated. We held onto that HOA foreclosure for over 4 years. Then the bank foreclosed and the bank sold it. We didn't see a penny. This was during the housing slump.

We had another one. No mortgage. HOA foreclosed. Tenant moved. Things moved fairly quickly. Sold at foreclosure and we collected all the past due dues.

Also, once a property (condo unit) goes into foreclosure, the HOA does not accept any payment plans. Pay or move.

As always, check your state's laws.

HOA foreclosures seem moot now here in Nevada. The laws changed for HOA foreclosures. Lets say you have that one owner that keeps missing HOA assessments. The HOA must first notify the bank
that the HOA intends to foreclose. The bank now sends the HOA up to nine months of back assessments. That's just for deadbeats. It is utterly impossible to get rid of trouble making owners and or renters.
in SFH HOA's

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