Delinquent Payments! Collecting from Co-op Shareholders & Condo Owners
Feb. 25, 2011 — It is a rare co-op board or condo association that has yet to face the challenge of collecting arrears and other delinquent payments. When co-op shareholders or condominium unit-owners cannot pay their monthly maintenance, carrying charges or special assessments, those who can pay might find themselves shouldering an unfair extra burden just to keep taxes and utilities paid and services at an accustomed level. In harder-hit co-ops and condos, reserves are compromised to fund basic monthly operating costs.
Fortunately, there are steps you can take and standard tactics you can employ to head off or to mitigate the damage.
Prior to the economic downturn that began in 2008, there were many portfolio managers, myself included, who managed buildings and homeowner associations that had never experienced the financially crippling effects of numerous delinquencies. Because they were so rare and infrequent, there was a tendency toward leniency and inconsistency, and legal action was rare.
That has changed, though one truism has remained and in fact grown stronger: Boards must be proactive — must be the smart little piggy who built his house of brick before the troubles with the big bad wolf began.
Develop a sound delinquency policy
that is enforced systematically
and without prejudice
To manage delinquencies, the first proactive step is to develop a sound delinquency policy that is enforced systematically and without prejudice. After a thorough review of the co-op's proprietary lease or condo governing documents, as well as your state statute and the federal Fair Debt Collection Practices Act, your board should draft and adopt a policy resolution.
A clear statement of the association's collection policy would include:
- Due date.
- Grace period.
- Late fee amount and/or payment penalty amount.
- Timing of collection letters, which can range from polite reminders to outright demands. They are often sent by the managing agent on a 30-60-90 day schedule, or, in difficult times, on a 15-30-45 day schedule.
- When the matter will be turned over to the association attorney.
- When a lien will be filed of record.
- When foreclosure will begin and/or alternatives to foreclosure, such as collecting rent from a tenant or termination of common utilities and privileges/services.
- Priority of payment, indicating how payments are applied since courts have indicated support only for unpaid assessments.
Your association's legal counsel should be able to assist in the drafting and refinement of the policy resolution regarding collection of delinquent assessments. The board has a duty to consistently track all delinquencies, to make a copy of the policy available to all owners, and to enforce that policy fairly.
Being prepared and acting quickly will help reduce and manage certain delinquencies. The squeaky wheel does get oiled — many individuals who are deciding which bills to pay this month will pay those that present the biggest risk of loss for nonpayment. Your association's dues will be put near the top of list if the owner realizes he may lose his home if he doesn't pay.
Of course, there are those who are in dire financial straits and will not be able to pay regardless of your efforts, so your board will need to engage other means. However, with a collection policy in place, you now have established a plan of action that will help mitigate delinquencies by every legal means available.
Patrice Asuncion, CMCA, AMS, PCAM, is vice president of Kauai Operations at Certified Management in Kauai, HI. This was adapted from her article at AssociaLiving.
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