Essential Documents in a Collection Trial

Resource Topic: 
Litigation
Collections
Foreclosure
Covenant/Rule Enforcement
Construction Defect
Complex Litigation
Discrimination
By: Ashley M. Nichols

Has your association been involved in a collection matter that went to trial?  Very few of our collection cases make it to trial, but when they do, it can be unnerving for board members and managers because it may be unfamiliar territory.  This article will address the documents that are essential in a collection trial.  These are documents that are likely familiar to you and help us achieve success at trial for your association.

First, and perhaps most important, is a recorded copy of your Declaration, also referred to commonly as "covenants" or "CCRs".  This document is important because it spells out the essential elements of ownership, most importantly, the association's right to set assessments, the owner's obligation to pay assessments, and in most cases, what happens if the owner fails to pay assessments.  This document should be recorded in the real property records of the county in which the community is located and should bear the recording stamp on its first page.  Having this information, in addition to testimony from the board member or manager regarding reliance upon same in day-to-day business, allows the document to be entered into evidence at trial, which helps the attorney to prove a case for non-payment of assessments.

The second document that is essential in a collection trial is the association's collection policy.  Associations are required by law to have a collection policy in place.  The collection policy provides more detail regarding what actions the association must take when an owner fails to pay assessments.  Your collection policy must, by law, include the due date of the assessment, when the assessment is considered late, what the late fee and interest charges are, the amount of any NSF charges, how payments are applied, the legal remedies available to the association to collect the unpaid assessments, and the fact that the owner must receive notice before the account is turned over for collections, as well as the circumstances under which the owner may enter into a payment plan and the minimum length of any such payment plan.  At trial, the collection policy is a prerequisite of taking any action and will be entered into evidence, which may be a necessary argument in Court. 


It is also important to note that in addition to having the above documents, your association should also take care to follow the governing documents.  Failure to follow the policies laid out in the documents could lead to a credibility issue in court, which would weaken the association’s case, and therefore, likelihood of success. 

The third document, or set of documents, generally are the delinquency notices that were sent to the owner prior to being turned over for legal action.  The Court is looking for the following information with these documents: (1) the notice required by statute was given at least 30 days before turnover to counsel; (2) that the notice had all the mandated provisions; (3) that it is a document sent in the ordinary course of business for the association (this is clear since the association has the duty to collect from delinquent owners and letters are one way to attempt to do so); (4) that it was properly addressed (was it sent to the owner’s property address or another address of record; and (5) that it was properly stamped and mailed (this will come in through testimony).  The Court is also looking to ensure that the notice provides information which would allow the owner to understand what is owed and what action may be taken if payment is not received.

Again, it is important to document your actions.  Any letter sent to the owner, and any correspondence received by the owner, should be saved in the association’s file for that owner.  The delinquency letters are important because they demonstrate that the association followed its policies by notifying the owner of the delinquency and gave the owner an opportunity to avoid legal action.

The final essential document in a collection trial, and perhaps second in importance only to the Declaration, is the association’s accounting of the owner’s delinquent balance, often referred to as the “ledger.”  The ledger should reflect the owner’s entire history of credits, debits, fines, etc. from the last zero (or credit) balance.  Having a ledger which reflects a starting zero balance provides the Court with the last time the owner was current and every transaction since the zero balance so that charges can be validated and verified as being appropriately applied pursuant to the association’s documents.  One of the most common defenses our office sees in a collection trial is that the balance is incorrect (for example, “I don’t agree with the amount owed.”).  This is a substantive defense, meaning it is valid and goes to the truth of the allegations in the association’s lawsuit.  The association must be prepared to prove to the court all payments received, and how they were applied.  All charges, including assessments, late fees, interest, processing fees, fines, and costs must be of the correct amount and must have a legal basis provided for in the association’s governing documents.  Having a ledger that accurately reflects the owner’s balance is very important in getting the Court to award a judgment for the full balance owed to your association.

With these documents, and your board member's or manager's testimony, your association has a higher likelihood of being successful in a collection trial.  If you have questions regarding any of these documents, or testifying at trial regarding same, please contact our office at 303-432-9999.