Many Associations are extremely critical of their expenses (which they should be) but fail, until it is too late, to address one of the key reasons why their Association is having financial difficulties.

That reason is allowing delinquent assessments to accrue for far too long before formal collections begin.  This issue often gets overlooked because Board members don’t want to confront their neighbors on this sensitive issue.  Such a mindset must be changed.

This blog entry will provide tips to collect unpaid HOA “fees” or “dues.”  Please read the following seven (7) key points.

First, every Association needs to have a collections policy in place.  This policy sets forth the point in time the Board takes certain action and when a file will be turned over to your Attorney. It further states what the Board will d0 (warning letters, demands, etc.) and what the attorney will do so that everyone is treated the same.

Second, make sure that your Association has all of the collection remedies allowed by law.  Some key remedies are available to you but only if contained in your CCRs, Bylaws or Rules.  Rules can be easily adopted to give you a wide range of collection “tools.”

Examples of collection remedies (collection “tools”) include:

a.  Lien rights;

b.  The power to foreclose your lien;

c.  Late fees and interest on the unpaid balance;

d.  The ability to demand rent from a tenant if the absentee owner is not paying their HOA assessments (That is, the “landlord” is most likely getting paid rent by their tenant living in your HOA.  Upon following certain formalities, the law allows the HOA to receive this rent until the account is current and the “tenant” cannot be held in default under the lease from not paying their landlord.).

e.  The power to deny use of the common area amenities;

f.  The authority to terminate utilities paid for from assessments – water, electricity, cable and internet can all be “turned off” in many situations.  For obvious reasons, we should be consulted before using this remedy;

g.  Denying voting privileges if contained in your governing documents;

h.  Hold the delinquent owner responsible for attorney fees and collection costs;

i.  Make sure you use an HOA Attorney who specializes in HOA collections.

There is no reason why the Association should pay anything for collection services (except for perhaps hard costs) as those legal fees may be recovered from the debtor homeowner.  Please contact me to learn more about Common Sense Collections which basically provides that in most instances the HOA pays no legal fees for specialized collection services.  TIP:  Do not use a collection agency.  No company should take a percentage of what they collect as their fee leaving the HOA short of a full payment.

j.  Make sure that your CCRs make your owners both personally liable for the debt as well vesting your HOA with lien rights mentioned above.  You then have options if needed:  (1) seek a money judgment against the debtor; (2) foreclose your lien against the property.

These are just a few of the important collection remedies.  I would love to discuss all options with your Board.

Third, do not let delinquencies accrue and add up – this greatly diminishes your cash flow and the longer you wait, the harder it becomes to collect against someone.  I suggest that a collection matter be turned over to the HOA’s attorney no later than at 60 days’ delinquency.

Fourth, understand the difference between homes that have been foreclosed on (meaning the lien is wiped away but the owner remains personally obligated – if you can find them) and those owners that have filed for bankruptcy (which means the personal debt is wiped away, but in most cases the lien remains in tact and can be collected against).

Again, we can help you understand this process in more detail.  Don’t give up on these types of cases but realize that collections does become more difficult as you can understand when a bankruptcy or foreclosure occurs.

Fifth, demand that your manager keep detailed accounting ledgers for each owner (most management companies do this in the regular course of business).  However, make sure that if you change management companies, that you have access to past account information so that if a new manager starts a new ledger with a balance forward, you can explain the “balance forward” charges if ever questioned.

Sixth, have your HOA attorney file the lien as soon as possible once an account becomes delinquent.  PLEASE NOTE THAT HOA LIENS MUST CONTAIN SPECIFIC INFORMATION PER STATUTE.  IF YOU FAIL TO INCLUDE THE CORRECT LANGAUGE YOUR LIEN MAY BE VOID.

Seventh, make sure that your HOA is signed up on Utah’s HOA Registry and that it is updated within 90 days of a change in the Board member(s).  If the Registry is out of date, your lien is invalid until it becomes current.

That’s it for now!  I’d love to hear any suggested topics you’d like me to write about.  Call me at 801-274-6800 or email me at:  jrichards@balljanik.com

Until next time – YOUR ONE STOP, FULL SERVICE HOA ATTORNEY – John Richards, Esq.

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