By: Jay Steven Levine, Esquire – Published in South Florida Opulence Magazine (2011)
Boards of Directors often times take a neighborly and casual attitude toward the collection of assessments, forgetting that the association is a business which depends upon owners’ timely payment of assessments. First mortgage foreclosures and bankruptcy filings compete with associations and sometimes preempt the association from recovering all or any of its past due assessments. To maximize successful collection, associations should adopt a strict policy of collecting assessments.
The Collection Process:
Associations should provide at least one reminder letter, and perhaps a second demand letter, but should be prepared to turn over the collection of an account to its attorneys within thirty (30) to forty-five (45) days after the due date of the oldest assessment installment. Also, associations might consider accelerating assessments for the balance of the year.
Interest is due and owing at the rate set forth in the governing documents. If there is none, then interest accrues at the statutory rate of 18% per annum. In order for late fees to accrue, they must be so authorized in the governing documents. Late fees cannot exceed the greater of $25.00 or 5% of the late installment.
Once the pre-litigation demand letters and claim of lien have been provided to the owner, and payment has not been forthcoming, the association is now in a position of filing a lien foreclosure action. Associations should avoid a policy of not instituting legal action, as these “lien and leave” communities are known to have higher delinquencies. Condominium associations should realize that liens are only valid for twelve (12) months after the date of recording.
Once a legal action is filed and all parties are served, a Motion for Summary Judgment could be sought. A Motion for Summary Judgment informs the court that there are no disputed material facts and that as a matter of law, we are entitled to a final judgment.
Measures Available to Assist Associations:
The fact that there are mortgages on the property is not reason for the association to refrain from pursuing a matter to a foreclosure judgment and sale. Should the association obtain title to the unit, the association could rent the unit. The association is not obligated to pay the existing mortgage and could choose not to pay the real estate taxes, and simply carry insurance on the unit’s contents and for liability. The association would continue to receive rent until the mortgagee forecloses.
Where the association is not willing to own and rent the property or the property is in disrepair and the cost of making the property rentable is too substantial, then an option is a money judgment.
If an association has the authority to reject a lease application, then the association does have the right to deny the application if there is a delinquency in the payment of assessments and the owner does not make arrangements suitable to the association to bring the delinquency current. A landlord who is delinquent in the payment of assessments and is seeking approval of a lease application will have to reckon with the delinquency in order for the application to be approved by the association.
Associations are permitted, without any governing documents provisions, to collect rent directly from a tenant where the owner is delinquent in the payment of any monetary obligation due and owing to the association. There is a statutory form which must be used to notice the capture of rent. If the tenant does not pay rent, the association is entitled to evict the tenant for and on behalf of the owner.
Associations are also permitted to suspend the use rights of an owner, occupant, licensee or invitee where an owner is more than ninety (90) days delinquent in the payment of any monetary obligation due to the association. The suspension decision rests with the board of directors to be decided at a board meeting, and does not require that the person to be suspended be given the right to a hearing to contest the potential suspension.
Associations permit the denial of voting rights of an owner where there is a delinquency in the payment of any monetary obligation which is more than ninety (90) days old. Similar with the denial of use rights, this suspension is determined by the Board without the need for a prior hearing for the owner
The Condominium Statute now provides that a director or officer who is delinquent in the payment of any monetary obligation due to the association for more than ninety (90) days is deemed to have automatically abandoned office, creating a vacancy. The Condominium Statute also provides that an owner who is delinquent to this extent at the time that the ninety (90) day notice of intention to run for the board of directors has expired, is not eligible to be placed on the election ballot.
The Homeowners Association Statute provides that where an owner is more than ninety (90) days delinquent in the payment of any monetary obligation due to the association, then that person is not eligible for board membership. This means that such a person cannot be elected at the annual meeting, nor may that person fill a board vacancy.
There are many times when the association is pursuing the collection of its past due assessments when the bank commences a mortgage foreclosure action. Banks typically take approximately two years, and sometimes longer, to complete a bank foreclosure to a foreclosure sale. Because of this timeframe, we recommend that the association continue pursuing its own assessment collection action.