By Brianna L. Schaefer, Esq.

In today's economy of liberal bankruptcy filings and rampant foreclosures it is becoming all too common for homeowners to forego their obligation to pay assessments. Struggling to make ends meet without this cash flow, it is also becoming increasingly common for well meaning boards of directors to decide to hold off on turning over these delinquent accounts to legal counsel because they can't afford it. This decision sets the tone for the collection process and puts legal counsel, as well as the association, at a disadvantage when the account is finally turned over. Historically, the earlier an account is turned over, the more successful the process will be, resulting in higher collections for the association. We recommend that associations turn over delinquent accounts to legal counsel as quickly as possible, generally within 90 days, for the following reasons:

1. If a property is subject to a public trustee foreclosure, it is only a matter of time before the owner no longer resides in the property. If the board waits too long before turning this type of account over to counsel, it can be very difficult to locate the owner once they have vacated the property. This may create problems in attempting to have them served with a lawsuit. On top of being more costly to the association, this will likely result in a substantial delay in the recovery of money due. If the account is turned over in a timely manner, legal counsel can work to get the homeowner served with a lawsuit and obtain a judgment before they move out of the property. The judgment remains good against the owner even after they move out of the property.
   
2. In the typical scenario, a letter sent from an attorney's office with a smaller balance is more likely to elicit correspondence and payment from the delinquent homeowner. Homeowners feel hopeless if they receive a letter with a very large balance and go into hiding. Short monthly payment plans or payment in full is much easier to manage with a smaller balance. This also shows the homeowners that the board is willing to work with them to get the balance resolved. Long payment plans are more likely to end up in default.
   
3. Boards have a fiduciary duty to take swift action to collect from ALL delinquent owners.
   
4. Set the tone in the community. Homeowners talk to each other and are aware if the board is not aggressive in taking steps to collect delinquent balances. A board that is aggressive with collections will demonstrate that there is a penalty for non-payment.

If you are a community facing these or similar issues and have the desire to turn over delinquent accounts to your attorney, but feel you lack the financial resources to do so, please contact HindmanSanchez to discuss our new risk sharing fee structure. This fee structure was designed specifically to help associations who have met with financial difficulty  but still want to be aggressive in collecting delinquent assessments.

Community E-ssentials, August 2008