Accelerate your Way through Collections
What can an association do to prevent or minimize future delinquencies by homeowners who are habitually late or delinquent in the payment of their assessments? This is a question that managers and board members ask me all the time. If I can figure out a magical solution to preventing delinquencies entirely, I’ll be glad to share but not until after I retire in a remote fishing village in Alaska! One way, though, that an association may be able to reduce future delinquencies is by accelerating assessment fees.
The acceleration of assessments can provide a cushion to protect against future delinquencies by requiring that assessments, through a certain period of time, be paid in advance by a delinquent homeowner. Most associations are able to accelerate assessments by amending their collection policy but, in some cases, an amendment to the Declaration may be necessary. Since an acceleration clause can be perceived as a penalty rather than a useful collection tool, a detailed clause addressing the following can be helpful and beneficial for associations choosing to accelerate:
- Provide a ‘trigger’ point for accelerating assessments. This can be as broad as permitting the acceleration of assessments at any time against a delinquent owner (as deemed reasonable and necessary by the board) or be more specific such as providing for a monetary threshold when an acceleration is permissible.
- Specify the time period for which assessments can be accelerated. Assessments are typically accelerated for the balance of a fiscal year or for a fixed number of months. The association should be reasonable when determining the acceleration period and avoid the temptation of accelerating for extensive periods of time.
- State the notification requirements upon acceleration. A written notice advising of an acceleration of assessments should be sent to a delinquent homeowner. A reasonable amount of time to pay the accelerated amount should also be provided before late charges, interest or enforcement action is taken.
- Retain the ability to subsequently waive (partially or entirely) a decision to accelerate. This permits an association to negotiate an accelerated balance with a delinquent owner without waiving its right to collect future assessments and also avoid some of the problems mentioned below.
Before an association accelerates, it should be aware of some of the potential pitfalls in doing so. For example, an association can lose its ability to collect some of the accelerated assessments, which it would otherwise have the ability to collect in the absence of an acceleration, if a homeowner files for bankruptcy prior to collection of the accelerated amount. A subsequently filed public trustee foreclosure can also be problematic if an accelerated amount contains assessments which would have come due, in the absence of acceleration, after the bank takes ownership of unit. Fortunately, most of these problems can be avoided by having your attorney draft a well written acceleration clause and by reasonably limiting the time period for which assessments are accelerated.