Real Estate & Property Law

Assessment Collection in Today's Economy

"Question posed recently - we seem to have a lot of trouble collecting assessments these days. What can we do to protect ourselves as an HOA?"

Tighten Up ...... Tighten Your Belt

Tighten Up on Collections Processes - Make sure you have good policies in place - legal and tight (meaning timelines) so that you can get a lien on a delinquent property at the earliest possible moment. The recording of a lien protects the membership if an owner claims bankruptcy (gives a secured position in the BR) or tries to sell on a short sale (gives notice to parties of the outstanding debt) or is foreclosed by the bank (gives a position in front of other debtors with later recorded debts.

Tighten Up on Information Gathering - If an owner goes into default, or even if not, you might start gathering information, such as car license numbers, phone numbers, bank account information off of checks tendered for assessments (I would stick to delinquent accounts with this one). It is my understanding that even if you use a lock box payment situation, you can get a copy of a check sent in - check with your bank. Naturally, its easier if you receive the payments directly. If an owner is in delinquency and still lives on site, it's not that hard usually to get the auto descriptions and license plates, or (maybe) even find out where they work, etc. If you are trying to locate someone, the more you can give the PI or whomever is doing the skip trace, the more likely they are to find out where the person is so you can pursue them for payment.

Tighten Up on Knowledge Base and Education of Owners - learn about small claims as a means of seeking a judgment. These days, most properties that go into foreclosure are upside down on the loan side and therefore not likely to provide a return on assessments if a sale goes through. And owners in general do not seem to understand that the assessments are a personal debt, payable even if their bank forecloses. Let them know this, and pursue the debt in small claims before it reaches the limit - to get the owner's attention early on. (Limit for HOAs is $5000 for first 2 claims in a year, $2500 after that.) Sometimes owners pay the mortgage but stop paying assessments, thinking the HOA is not going to do anything drastic.

Tighten up on spending - Take greater care in budgetting, cut out the extra spending whereever possible, plan for losses each year due to delinquencies when preparing the budget so the "hit" does not come as an unexpected surprise.

The tide has turned from depending on the threat of foreclosure to collect assessments. This calls for some new approaches to the problem. Others have asked if the HOA can gather from every owner personal information such as SS #s, credit card and banking information, etc. My feeling on that: (1) Owners concerned with identity theft would resist giving it and then the Board/management would be left to try and get it, expending time and energy and (2) Some Boards and management careless with records might let the information be discovered by others, which might lead to identity theft and claims against the Association.

Frankly, I would not want to give this information out to any Board. If I was in delinquency, I could understand a demand for it, and if an HOA had a judgment against me, they would have a legal right to ask. Otherwise, I would want to keep my personal information "close to the vest." So naturally, I would resist. Given what I do, some might criticize that position; however, I do not believe I stand alone in my concerns about strangers having personal information about me. And we have to be real about the "remedies" and solutions that are likely to be available.

Full post as published by California Condo & HOA Law on October 28, 2008 (boomark / email).