A community association’s Board of Directors is responsible for maintaining, repairing and replacing common areas, common elements and to otherwise tend to the business of the association. To that end, assessments must be collected. Collecting assessments has become increasingly difficult. When members fail to pay assessments timely, an association must have and consistently adhere to an effective collections policy and procedure. An effective collections policy and rocedure provides for the exercising of your association’s right to collect assessments, is easy to understand and easier to follow.
Authority and Applicable Law
The Florida Statutes and governing documents (Declaration, Bylaws and Articles of Incorporation) of an association authorize directors to collect assessments and the associated legal fees and costs on behalf of the association. In particular, the assessment collection process for condominium associations and omeowners associations is controlled by Chapters 718 and 720 of the Florida Statutes respectively.
Uniform Collection Procedure
An association must establish and adhere to a uniform collection procedure based on the above cited authority. All delinquencies should be treated the same. If a board allows an owner(s) special treatment, other owner(s) will use selective enforcement as an affirmative defense against the association’s collection efforts and will have a good chance of succeeding on the merits. Moreover, any exception to the association’s implementation of its collection policy and/or procedure will result in other members paying assessments pursuant to their own plan. The result: financial turmoil for the association and voluminous amounts of otherwise unnecessary administrative bookkeeping to track member accounts and legal proceedings. Therefore, directors should not make exceptions in the policy/procedure for collecting assessments.
If an assessment is not paid within ten days of the due date, the association should mail a “reminder” notice to delinquent owners advising the assessment must be received by a certain date. The first letter should also provide another date no later than the end of the month, and convey the association’s intention to retain legal counsel to collect all sums due, including attorney’s fees and costs if full payment is not received timely. The association will be entitled to interest on the unpaid assessments and a late fee(s) too.
The association should not wait longer than 30 days from the initial due date of the assessment before turning the collection matter over to the association’s legal counsel. Keep in mind that if an owner is not paying his assessments, he is likely delinquent in other financial obligations, such as making mortgage payments.
Therefore, the association must act quickly, or risk losing its right to collect the unpaid assessments and other portions of the debt. If a member is delinquent in paying a number of obligations, the fastest creditor, such as the association, usually gets paid while others do not. And, while first mortgagees generally have superior lien rights, historically they do not aggressively pursue collection efforts until a substantial amount of time has passed. The association can and should act to collect assessments that may otherwise be uncollectable.
Once legal counsel has been referred the matter, a Notice of Intent to File a Claim of Lien (“Step 1”) is prepared and mailed to the delinquent owner. If full payment is not made timely, pursuant to the terms stated in Step 1, a Claim of Lien is sent to be recorded in the public records of the County in which the
property is located and a copy of the Claim of Lien (unrecorded) is sent to the delinquent owner along with a Notice of Intent to Foreclose Claim of Lien (“Step 2”).
The Step 2 informs the delinquent owner the Claim of Lien will be foreclosed, usually within thirty (30) days for a condominium or forty-five (45)
days for a homeowners’ association, from the date of the Step 2 unless full payment, including all attorney’s fees and costs, is received. If the delinquent owner complies with the Step 2, a Satisfaction of Lien is filed and the funds are paid to the association. If after thirty (30) or forty-five (45) days the delinquent owner has failed to pay all amounts due, the association’s legal counsel should direct the association to proceed with the filing a foreclosure lawsuit.
The general rule when recording liens against real property is: first in time, first in right. This means whomever records his lien first is superior to everyone who records later. However, the Condominium Act grants condominium associations a type of “super lien” which is superior to all other liens except tax liens and first mortgages.
A condominium lien relates back to the recording date of the original declaration of condominium or April 1, 1992, whichever is later in time. As such, condominium assessment liens can be superior to second mortgages, construction liens and judgment liens thereby giving the condominium association greater payment priority.
Homeowner association liens also enjoy super lien status by Statute. A Homeowner association lien relates back to the recording date of the original declaration of condominium or July 1, 2008, whichever is later in time. Their priority is controlled by the language in the governing documents of the association.
In a foreclosure lawsuit, the association seeks entry of a court order mandating the property be sold at auction if all amounts, including attorney’s fees and costs, are not paid by a certain date. In addition, the association should seek a money judgment against the owner of the property for all amounts due and owing. Once a foreclosure lawsuit is filed, the association can expect the lawsuit will be generally be completed within eight to twelve months depending on the defenses to foreclosure asserted by the unit owner or homeowner and the volume of cases in the relevant jurisdiction.
Should the matter not be resolved through settlement, a judgment in favor of the association may be obtained unless the unit owner or homeowner has a legitimate legal defense. Most defenses other than proving the assessments have been paid or are not owed fail. Once a judgment is entered against the owner, a foreclosure sale is scheduled by the Court.
If the homeowner pays all amounts due prior to the sale date, the sale will be canceled. At the foreclosure sale, the unit or Lot is sold to the highest bidder.
The association must make the initial bid ($100.00) and is allowed to bid more at the foreclosure sale. The association is also given a credit in an amount equal to all assessments, costs, interest and fees owed as reflected in the judgment.
Therefore, if the association chooses to bid an amount beyond the amount listed in its judgment it must pay the difference in cash. Generally, the association does not choose to do so because the goal is to recover all amounts due, not the property. If there is any equity in the property, there very likely will be third party competitive bidders at the foreclosure sale seeking to purchase the property.
If a third party bidder becomes the new owner, the association will be paid in full by the new owner. Otherwise, the association must begin the foreclose process as detailed above against the new owner’s property. It should be noted that very often there is a first mortgage on the property that will remain in place following the foreclosure sale along with any delinquent taxes owed.
Should a third party bidder not buy the property, the association will likely take title to the property instead of receiving cash. Thereafter, the association may choose to sell the property and recover the money owed to it, which is unlikely given there is a mortgage on the property. Bear in mind, that if the mortgage and any (delinquent) taxes are not paid on the property, the first mortgage holder or purchaser of the tax certificate will likely institute their own foreclosure lawsuit resulting in the property being sold once again at auction.
It is important to note Chapter 718 and 720 cap the amount of past due assessments owed by a foreclosing first mortgagee, with one exception. If a first mortgagee fails to name the association a defendant in its mortgage foreclosure lawsuit, the cap does not apply. This rarely occurs. Often, the result is those associations that delay collections efforts never recover all sums due.
In addition, Florida law provides that in the event a first mortgagee is foreclosing its mortgage, another court will not have jurisdiction to hear an association’s lien foreclosure case. The key is to determine whether the first mortgagee has recorded or filed what is known as a lis pendens. In the event the first mortgagee has recorded a lis pendens, the association may and should intervene in the mortgage foreclosure lawsuit and pursue a claim for damages (the unpaid assessments, interest thereon and attorney’s fees and costs) given the association was not named a party-defendant in the mortgage foreclosure lawsuit.
The association will not have the leverage of being able to sell the home to collect same unless and until the first mortgagee releases the lis pendens.
Assessments are vital to the association’s survival. Without them, the association will not be able to function. As such, the Board of Directors must aggressively pursue the collection of delinquent assessments. Moreover, by implementing and adhering to a uniform collection policy, an association will send a clear message to the owners that nonpayment of assessments is not an option.
Should you have any questions regarding the foregoing, do not hesitate to contact me, click here or call (813) 221-9500.