06/06/2017 by Attorney Deborah M. Casey
Assessments are the lifeblood of every community association. For most associations, it is the sole source of income to pay for common expenses. Therefore, having tools and good practices to maximize collection of assessments is vital not just to survive and thrive, but to avoid unwanted special assessments and/or debt.
It is the obligation of owners to pay assessments. It is one of the characteristics that define an association. Owners have no right to opt out of paying or offset assessment and there are few defenses available to not paying. Not having the proper tools to collect assessments or good collection practices can hinder an Association’s ability to get results.
The governing documents will set forth the basis for assessment and, in many cases, the time frame and other rights in the event of default. It is important to act swiftly when an owner defaults for practical and legal reasons. When an owner does not pay, the remaining owners may ultimately have to pay the defaulting owner’s share. A budget is based upon collection of all assessments with no profit.
The Association should develop a protocol for monitoring payments, notifying owners when a payment is missed, and referring delinquent accounts to an attorney for collection action. A notice may help identify mistakes (such as with an automatic payment) or problems (such as a job loss or illness) at an early stage before a debt become larger and more difficult to surmount. Under the governing documents, Boards generally have an obligation to act quickly in the event of default. Failure to do so could be a breach of fiduciary duty. Certain rights of the association are also time sensitive and have statutes of limitation, so acting promptly is important to preserving those rights.
When assessments are delinquent, an association has two legal avenues to pursue. The first is the filing of a statutory lien in the land records that encumbers title to the unit, and is ultimately enforceable by foreclosure (judicial or non-judicial). It has priority over all other liens except a first deed of trust and real estate taxes, and affects only that unit or lot. The second is the filing of a suit to obtain a judgment against the owner that is enforceable by garnishment, levy on personal property or debtor’s interrogatories. It affects an owner’s credit and, once recorded in a jurisdiction, creates a lien on all real property currently owned or after acquired by that owner for a period of time.
A lien can be filed more quickly than a judgment can be obtained. It is an unauthorized practice of law in Virginia for a lien to be prepared by a non-lawyer. The time frame to file a valid lien is relatively tight, making swift action essential to preserving maximum lien rights. For a condominium, a lien must be filed within 90 days of the date the assessment became due, whereas for a property owners association, a lien must be filed within one year of the date the assessment became due.
If your association does not have a collection policy setting forth when assessments are due, it would be worthwhile to discuss this with association counsel. It would also be worthwhile for association counsel to review the governing documents to determine whether as association’s collections toolbox has the various tools that can maximize return and remedies. Such “tools” include provisions for acceleration of installments, late fees, interest, attorney’s fees, and cost recovery, whether or not suit is filed or the matter settles short of entry of judgment.
If the recorded documents or rules and regulations adopted pursuant thereto expressly so permit, Virginia law condominium and property owners associations may suspend services and facilities provided directly through the Association for non-payment of assessments that exceeds 60 days, so long as such suspension does not endanger life, health or safety or deny access to the unit or lot and only after due notice, a hearing and hearing result notice. Revoking parking, turning off water, denying pool access, etc. can be very effective tools to collect delinquent assessments, particularly when owners have exempt income. This kind of remedy is only available, however, if the requisite authority exists in the documents.
A financially stable community is one with good collections practices based upon the authority contained in the governing documents and sound collection practices. It is important that collection issues are addressed early and diligently to protect the Association’s interests and before the problem becomes more difficult for the delinquent owner to resolve. Sound practices include policies and procedures to ensure delinquencies are being addressed regularly and consistently. Board members have a fiduciary duty to the Association and its members to do so. If you have questions about whether your association’s collections tools and practices are sharp and useful, consult your association attorney.