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COLLECTIONS FOR ASSOC.DURING THE MORTGAGE CRISIS
April 1, 2008
Increasingly, Board of Directors are having to deal with
the Mortgage Crisis in terms of how this is adversely
affecting the association’s operations. When an owner does
not pay their assessments, the non payment of assessments
and the costs of collecting are impacting all owners and
the services of the association. Boards are finding
themselves caught in the middle of having to be
compassionate towards their neighbors but also, in need of
funds to operate and manage the association. Boards have
to take action quickly in order to assert their rights in a
delinquent action against an owner.
Today, many of these delinquent owners also owe their
mortgage holders past due amounts and the Board needs to
handle collections consistently and on a basis that is fair
to all concerned. Maintenance assessments are required to
operate and maintain the association’s assets. The need for
these assessments is established every year in the
association’s budget. The assessments then fund the expense
accounts established in the budget. We believe that all
planned assessments and special assessments should have a
provision for non-collectable assessments. This means that
instead of having an assessment and only 95% of the owners
pay and causing a cash shortfall, the Board is calculating
into the assessment that there is a probability that 5% of
the owners will not be paying and that there will be a
shortfall. Yes, this means that 95% of the owners are
paying for the rest! Unfair? Yes, but it is reality and
that is why the Board of Directors needs to deal with the
problem and collect these past due funds as quickly as
possible. Unfortunately, in a majority of the cases there
will also be a mortgage foreclosure that will ultimately be
superior to any action that the association takes.
If the mortgage holder has more rights than the
association, why bother? The association should assert
their rights in this action in that this is a fiduciary
responsibility of a Board to try and collect these past due
amounts. If in the future there was foreclosure and there
were excess funds (any amount over and above the mortgage
balance + costs) the association should be in line to
collect these funds, rather than other creditors.
Recently, Chapter 720 was amended to allow associations to
collect any past due amounts at time of transfer of deed.
No doubt, the banking lobby will try to have this changed
as they are now liable for these costs after they foreclose
and there is a transfer. Chapter 718 allows for the
Association to collect the equivalent of 6 months
maintenance or 5% of the mortgage amount, whichever is
less.
Prior to the association collecting owner’s
assessments, the Board of Directors needs to establish the
rules governing the payments of assessments and the
procedures for collecting same. In most cases, the
association’s bylaws will provide the Board of Directors
with the collection process procedure. It will spell out
when the assessments should be billed (monthly, quarterly
or annually), when the assessments are due and when
the assessments are late. In some instances, the documents
will even indicate when the owner should be sent to the
attorney for collections and when they should begin
foreclosure proceedings on the owner. If these procedures
are not spelled out in the association’s documents, then
the Board of Directors, through the unit owners should
consider amending the documents to reflect a reasonable
collection If, your association is fortunate to have
collection procedures spelled out, then at every instance
the owners should be told about these procedures at the
time of billing and also with reminder notices and in
newsletters. This is necessary due to new owners coming
into the association. Never assume that everyone reads
their documents or every piece of mail that comes to their
home!
If your association is experiencing collection problems
or would like to avoid those potential problems before
they arise, then do the following:
Consult your documents and review the procedures. If
they seem reasonable, then make sure you begin following
them. If they seem inadequate or are out of date, consult
with your association attorney for further review.
Whatever the procedure is or if the Board has passed a
Resolution concerning collections, then supply the
unit owners with a copy of the procedure prior
to implementation. Continue to let the owners know what
the procedure is at every instance.
Let your management company or attorney do their job,
as stated in the documents or in your Collection Resolution.
Copyright 2007© Associated Property Management of the Palm Beaches, Inc.
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