I believe the following topic is one of the most important entries that I have made to date.
(By the way – my next entry will be “Defining Board Members’ Fiduciary Duties” – another extremely important topic. If a Board is sued, a claim of Breach of Fiduciary Duty is almost always made. STAY TUNED)
If we receive a new collections account from an association which, on the delinquent owner’s ledger, it contains fines mixed in with unpaid assessments, I become extremely concerned.
My concern, and the issue our Collections Team is prepared to review, is whether or not the association followed the statutory requirements for properly levying and collecting fines. See Utah Code Ann. 57-8-37 (condominium fines); and 57-8a-208 (non-condominium fines).
Rest assured that our office contacts the association promptly and runs through the following checklist BEFORE we take legal action regarding a fine. Here is our preferred order for determining whether a fine was properly levied:
- Determine that a legitimate ALLEGATION regarding a CCR, Bylaw or rule has been made based on receiving (1) a written complaint from an owner/member; (2) information from your management company; or (3) from personal observation of any interested party.
- Require that the complaining party, even if it is a Board/Committee member to certify in writing that they were a witness to the violation or have reliable information of a violation. This has 2 practical effects: (a) it will keep those neighbors who just want to complain from filing a compliant unless they are serious about backing it up in writing; and (b) you now have a witness in case the matter proceeds further.
- Make sure that in advance of threatening an actual dollar amount for a fine, that you have both (a) fining authority in your CCRs, Bylaws or rules; and (2) that you have previously adopted a SCHEDULE OF FINES that articulates which type of behavior is subject to what fine. Remember that a schedule of fines is required before you can levy a fine in the first place. Contact our office promptly if you have questions about your schedule of fines – if the violation is not listed, then it not one that can be the subject of a fine. There are ways to create a “catch all” violation and fining structure, however, so it is critical that you get this document drafted properly.
- Send notice to the alleged offender of the nature of the violation, the time and date it took place, evidence you have in your possession (compliant, pictures, etc.). In this FIRST notice, you must state that the owner/tenant has 48 hours to cure the violation or fines will be levied. You must also state that fines may be levied for continuing or repeat violations continue without any further notice. NOTE – if the violation is a repeat violation of the same or substantially similar type, you do not need to send another notice and opportunity to cure for the next 12 months from the first notice, you simply levy a fine the next occurrence. If the behavior is repeated again, you fine again, without the need for notice and opportunity to cure. If the violation is a continuing violation (for example, someone covers their window in tinfoil and does not remove it after notice and a chance to cure (48 hours), then a fine may be levied every 10 days that the violation continues. These are very new Utah laws regarding fines and notice requirements. Feel free to contact us if you have any questions. The procedure of noticing and levying fines, must be done strictly according to statute.
- In the “notice and opportunity to cure letter” you are not required to invite the owner/tenant to a hearing on the matter but you would be wise to do so. The owner/tenant, however, may request a hearing within 30 days of receiving notice of a violation. I suggest that you remind them of this right from the outset because, the more due process you offer someone, the greater the chance of your fine being proper.
- The hearing is to be conducted in accordance with the standards provided in the CCRS, Bylaws or HOA rules. If you have no current rules for a hearing procedure, please contact us as soon as you can. If certain procedures are not followed, you give the violator a basis to challenge the fine. The following is a sample of what should be adopted: (a) as mentioned above, I advise that when you send the letter informing the owner/tenant of the fine, you also invite them to a Board meeting for the hearing we’ve discussed. That way, you can feel comfortable moving forward with the collection or enforcement of the fine knowing you offered due process. If the violator does not show up; they have waived their hearing; (b) with respect to the meeting itself, you should welcome those who have attended, especially the offending owner (please note that this hearing can be held in executive session – with no other members present if the situation warrants it). The minutes should reflect all those present and you must have at least a quorum of your Board in attendance (remember there are various ways to be “in attendance”).
- If the meeting is only to conduct a hearing (that is, it is not part of a scheduled Board meeting), simply explain that the purpose of the meeting is to determine whether or not there has been a violation of the CCRs, Bylaws or rules.
- The Board should have the following present at the outset of the hearing: (a) any witnesses or witness statements of the violation; (b) a copy of any letters of complaint or any formal complaints filed (at this juncture, you may want to redact the names of those who have filed the complaint but you may not be able to shelter names forever);’ (c) a copy of the relevant section of the governing documents that were violated. You should point to “chapter and verse” of the provision that was violated.
- Once the above is met, the following question should be asked of the offending owner: “As you know, we are conducting this hearing in order to determine whether or not there has been a violation and whether the fines should stand. You have been notified of the allegation(s) and you now have an opportunity to explain why the association’s policies and requirements do not apply to you.” (that is the way I ask the question – but you can obviously state it your own way – but I do encourage the idea of requiring the offending owner to explain why the fine is improper.)
- You then hear his or her version of the facts. If any witnesses are present, you should ask them what they experienced. Show pictures, letters, recordings, etc., if you have them. BOTTOM LINE: your decision needs to be made on EVIDENCE presented not just on feelings or allegations or assumptions.
- I advise that you DO NOT make a decision regarding the fine at this meeting unless it is plainly obvious. Avoid confrontation if you can; hear everyone out; and render a written decision later. But you should commit to provide a decision by a date certain.
- Do not be afraid to admit that there may be mitigating circumstances or other reasons that may justify NO ENFORCEMENT of a particular violation – but be careful as you do not want to waive your ability to enforce the same type of violation in the future.
- Excuse the offending owner and thank him or her for their attendance. Reiterate that you are fiduciaries for the community and you are simply trying to keep your community a desirable place to live and to help solve community problems.
- The Board can then deliberate then and there or set up a future meeting to discuss the issue (I advise that this be in executive session). If the behavior is deemed, in fact, to be a violation then follow your procedures and the statue to implement the fine.
- You should also be prepared to discuss what to do if the fine is not paid – at some point will you file a lawsuit? Will you just let the fine sit? Will you record a lien? These are all issues to be discussed with your attorney. BE VERY CAREFUL – AND THIS IS WHERE WE SEE PROBLEMS – A FINE DOES NOT BECOME A LIEN UNTIL 180 DAYS HAVE PASSED FROM A FINAL DECISON BEING MADE THAT THE FINE WAS PROPER.
- AS YOU CAN SEE, THE PROBLEM WE FACE WHEN A COLLECTIONS ACCOUNT IS TURNED OVER TO OUR OFFICE AND THE LEDGER CONTAINS BOTH FINES AND UNPAID ASSESSMENTS, WE HAVE TO BE VERY CAREFUL TO ONLY LIEN FOR THE AMOUNT OF THE ASSESSMENT (WHICH CAN BE FILED IMMEDIATELY FOR AN UNPAID ASSESSMNET) UNLESS 180 DAYS HAVE PASSED SINCE THE HEARING/DECISION HAVE PASSED REGARDING THE FINE.
- In short, remember that fines can become liens but not as easily as unpaid assessments. Fines are only proper after due process is given to the offending owner. Certain procedures must be followed in the hearing and we strongly advise that you have a “Hearing Procedures Resolution” in place. Also, do not forget the absolutely critical schedule of fines.
- Simply understand that when we lien the property it may not contain the amount of the fine because the above-described 180 days has not expired. But, do not worry, you are in good hands with a firm that knows how to properly discern the amount that can be part of the lien and how to prepare the proper demand letter when a ledger contains both unpaid fines and assessments.
- (This is a side issue – but you need express authority to charge late fees or interest. If you do not have that in your governing documents (for either assessments or fines) such penalties may be adopted by rule.
I know this was lengthy but we want your ledgers to be accurate and your fines to be upheld because you followed the correct procedures as required by law.
We are here to help.
Best regards, John Richards