Three Steps to Promptly Collecting Payments and Assessments: A Primer
Feb. 24, 2012 —
1. Standardize your collection process
One of the easiest problems to avoid in collecting payments is the issue of selective enforcement. Condo and co-op boards sometimes give greater deference to owners they like or for whom they feel sympathy, and eagerly pursue owners they see as troublemakers.
Unfortunately, this approach creates two problems. First, it sets up a legal defense that the co-op / condo rules are not being applied uniformly. Second, it promotes the idea that if you have a good enough excuse and stay out of trouble, the board will let you slide on paying.
Instead, every co-op / condo board should act dispassionately and automatically with regard to collecting payments. As soon as an owner becomes delinquent, action should be taken. No owner's account should be treated differently from another's just because an owner lives next door to the president or is a really nice guy.
Moreover, the board should not slow in its march towards resolution. If the owner misses deadlines to repay, the next step in the collection process should be taken without delay. This avoids the defense of selective enforcement and gives shareholders / unit-owners the message that they must carry their part of the burden.
2. Create policies.
Part of being automatic with your collection process is knowing when to take the next step and what that step should be. Some of the collections process will be in your co-op's proprietary lease or condo governing documents, such as if and when you can charge late fees and interest and how much those amounts can be. An attorney can help guide you through deciphering those provisions and alert you to any conflicts between your documents and state statutes.
But what about all of the other stuff that is not contained in the documents or the statutes? How long should an association wait before referring a matter to the attorneys? Should the association send reminders before taking legal action? If so, how many and spaced out over how much time?
Too many boards stop after
sending a demand and filing
a lien against the property.
These questions will usually be left up to the board to decide on your own, so why not create a formal policy? Generally, a board has the power to adopt house rules (as opposed to amendments to the proprietary lease or covenants) by a simple vote of the directors. Formal rules make it easier for a board to stick to a collections policy because it is written as a requirement and available for everyone to see, so nobody can legitimately claim surprise. And this passes your intent forward to future board members so that these policies will continue to be enforced long after you step down from the board.
3. Follow through.
Finally, another spot where many boards fail in their collection efforts is on the follow-through. If you threaten to take legal action against an owner, you need to see that action through to the end, be that foreclosure or payment by the owner.
Too many boards stop after sending a demand and filing a lien against the property. Placing a lien is almost useless on its own without some sort of legal action to foreclose that lien. Otherwise, the lien can sit in the public record until it expires or becomes so remote in time that a judge refuses to enforce it. A board should always follow through on its foreclosure powers if an owner continues to remain delinquent, even after a lien is placed against their property. Doing anything less merely creates an inconvenience to the owner and a wasted expense on legal fees for your co-op or condo.
If you're hesitant on moving forward with a case because you fear large legal fees, there are several services, such as Assessment Recovery Partners (ARP), that can assist by purchasing collections accounts, usually by paying off some or all of the delinquent assessments for a particular property and agreeing to pay all legal expenses associated with collection. In exchange, the board gives the collection company the right to collect any interest or late fees on the account and the right to bid on the property at foreclosure auction.
These services are usually best for co-op / condo buildings with large amounts of delinquent accounts and that are in dire need of improved cash flow, but it may be useful for buildings in less dire straits as well.
Christopher Eri is a founding members of the Community Association Law Group who frequently speaks on condominium issues and related topics. This is adapted from his article at his firm's website.
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