Collections: Are you following the rules?
It’s important that associations follow their governing documents and understand the procedures they should follow when dealing with collection of assessments, fines and other fees. The easiest way to do this is to review the association’s governing documents and the relevant provisions having to do with collections of delinquent accounts. This is especially important should the file proceed to court as a judge will review the case to determine whether the association followed its own rules before finding against a homeowner who did not.
For example, before turning a file over to the association’s attorney, the association or management company should review the collection policy (if one is in place) to verify that it has sent out collection notices to the delinquent homeowner according to the policy’s timeframe. Although some collection policies may allow associations leeway with strictly following the policy, a court will still look to see if the association followed the policy. If an association fails to follow its own policy, the court could determine that the association is not entitled to all attorneys’ fees sought, or even all damages sought.
The association should also verify that the interest and late fees charged are authorized by the governing documents. Courts can scrutinize the account ledger and look at fees charged to determine whether they are appropriate. Boards often want the late charge to act as a penalty to owners. However, this not what late fees are intended for and a court can find the fees to be usurious, unreasonable or even illegal. If the late charge and interest exceed 45% of the principal amount due, a court may eliminate all late fees and interest due to the usurious nature of the fees – regardless if the fees are authorized by the association’s governing policies! An association may, however, be able to show that the fee relates to an administrative expense (such as sending a collection notice or filing a lien), making the late charge less likely to be classified as interest.
Courts will also hone in on fines. The court will look to see if the association has rules and regulations in place that authorize and outline the procedure for assessing fines, and whether the association followed this procedure. Associations must be able to show that it properly sent notice of the violation and provided opportunity for a hearing. As Molly Foley-Healy pointed out in her post regarding imposing fines, “Before Imposing Fines, Make Sure Your Ducks Are in a Row”, it is imperative that an association follow the parameters outlined in its governing documents and CCIOA and before imposing fines.
These are just some of the ways an association can make or break its case in court. Review your association’s governing documents and consider the following: Are late fees and interest reasonable and permitted by the association’s documents and statutes? Are the fees charged by management companies permissible? Are late charges and interest potentially usurious? Does the Association follow its collection policy?
Please contact us if you have questions about your association and how you can make sure to collect your assessments, comply with the law, and stay on the court’s good side!