MESSAGE ABOUT CORONAVIRUS  More Link

Coping with Arrears Finding Ways to Cure Delinquencies

 The foundation of any properly run co-op or condo building rests on residents  paying their monthly maintenance fees on time and in full, with no delays or  delinquencies. Unfortunately, because of the lingering effects of the Recession  causing job losses and financial uncertainty - especially here in South Florida  - many buildings and associations are feeling the pinch of late and/or missing  maintenance payments. Many owners are also unable to pay special assessments to  fund much-needed capital repair and improvement projects.  

 Still Struggling

 “For anybody new to delinquencies, these are probably people who are struggling  with a very tight economy,” says Melissa Nash, president of ARI, a full service receivables management  company and a licensed collection agency based in West Palm Beach. “They are finding that the cost of living is greatly increasing, whether it’s your gas going up or your groceries going up, your light bill, and I’m not talking discretionary income, I’m talking hardcore cost of living. In a lot of these cases, people are seeing  their income come down. A lot of people are struggling with the day-to-day cost  of living.”  

 Rachel E, Frydman, a managing member of The Frydman Law Group in Plantation,  says that most people aren’t looking to get away with anything, but just don’t have adequate cash flow to pay their bills. “The most common reasons I have heard for non-payment of monthly dues are loss of  job or illness,” she says. “My office does listen to all reasons, whether common or not, and try to work  with the owners within the parameters given to us by the client to try and get  them on a plan that will work for them.”  

 Time to Take Action

 While no one is looking to throw people out of their homes, boards and managers  can only let people slide by for just so long without taking action. According  to Frydman, too many boards react too slowly to arrears, and that causes even  more problems.  

 “I recommend that a board or association typically wait two months before  initiating collection procedures. This gives someone that chance to make up the  one missed payment with the next payment just in case they forgot or some other  reason,” says Frydman. “But after the 60-day mark, if not current the association should proceed with  collections. There should be a standard collection policy in place so that  everyone is treated equally, and at the same time allow the law firm to work  with the owners to get them on a reasonable payment plan.”  

 “Grace periods vary from association to association. What we recommend and most  boards follow is that delinquencies should be no more than 30 days and in some  cases, 45,” says Nash. “Most boards have a written delinquency plan within their procedures, and their  property management company or their accounting company will follow a late  letter series. An example would be, let’s assume that an association has quarterly dues, and the last payment was due on  April 1. So on April 15 they were late and they have a $25 dollar late fee that  was charged when the letter was sent out. It will say you have until this  amount of time to pay your bill and if you don’t, it will go to a third party for collection activity. In that period of time,  the association has done two points of contact to try to collect before any  additional late fees are incurred.”  

 The typical grace period written into most leases is 30 days. Under most, you  can’t initiate a rent demand—the first step—until the unit owner or the shareholder is late 30 days. The typical grace  period before incurring late charges is 15 days.  

 What happens in many cases is that boards lose sight of the fact that it’s a business as well as a community and allow non-business decisions, such as  trying to be good neighbors, to overshadow what’s best for the rest of the residents.  

 Once an arrears payment is missed, not everything happens immediately. In some  cases, this can be detrimental as it causes things to fall behind. Still,  everyone wants what’s best for the building and residents.  

 The time a board or association will wait before initiating collection  procedures will vary depending on what is written into the co-op or condo  bylaws. There are also restrictions as to what can be charged with respect to  state and federal laws.  

 For condos, initiating a lien on the unit, then either trying to go to small  claims court for judgment, or forcing a lender to start a foreclosure action is  normally the course of action.  

 “In the state of Florida all costs of collections and attorney fees are the  responsibility of the delinquent homeowner, so all of these things become a  ledger line item added to the balance of the homeowner,” says Nash. “Associations will sometimes front fees to attorneys but not to a collection  agency because we work on a contingency basis.”  

 If the unit is rented to a third party, the association can try appointing a  receiver to get rent paid directly to the association. If not, forcing the bank  to start a foreclosure may be their only option.  

 “Each community tends to establish its own guidelines regarding time of  collections,” says Robert Kaye, Esq., managing member of the law firm of Kaye, Bender Rembaum  in Pompano Beach. “The governing documents for the community often indicate a grace period, such as  interest beginning to accumulate 15 days after the due date. The general  recommendation to associations to maximize the ability to collect is to start  the process sooner rather than later, while the sums due the association are  relatively small and, as such, more affordable. Boards do not have the option  of waiving payment for one homeowner, regardless of the personal financial  situation,” he says.  

 I’m Indebted to You

 While managing properties are their forte, most management companies these days  have had to become experts in the field of debt collection. Many boards and  residents don’t recognize that debt collection is a whole separate business entity requiring  expertise that few outside of that field have.  

 Other than budget review, the accountant plays a very small role in the process.  The attorney, on the other hand, is crucial in pursuing proper collection  and/or foreclosure proceedings. If a resident is open in communicating  temporary financial hardship, many times creating an installment plan can be  productive for short-term arrears (typically less than 90 days).  

 “Some boards will try to work out a payment plan with an owner before the account  is turned over,” says Frydman, “But if not then the law firm can work out a reasonable plan that both the owner  and the association can live with.”  

 Frydman warns that this isn’t the norm, but for it to work, a resident has to be upfront and communicating  from the beginning so things don’t get too far out of hand. As a reward, she proposes waiving late fees and  interest, as long as the account is brought up to date.  

 Although not common, our industry experts have seen members of the board or  other residents stepping up and prepaying future charges to make up for the  missed payments of others. This is done with the understanding that the money  will eventually come in via foreclosure. However, it’s not always easy to get people to fork over more money than they need.  

 “When boards work with residents who are delinquent without involving a third  party they can find themselves in an unusual position,” says Nash. “They need to be very careful that they are not discriminating against other  homeowners. You don’t want anyone to say ‘why do they get a monthly payment and I have to pay mine in full every quarter?’  

 “It is important that the property owner be proactive in reaching out to the  association as early in the delinquency as possible to work out a payment plan  over time,” adds Kaye. “Because assessments from associations in almost all instances can be a lien  against the property and foreclosed upon by the association, the property owner  should not ignore or put association notices on the bottom of the pile of bills  for later reference. When owners make an effort and make reasonable payment  proposals that will resolve their account over the course of several months, in  our experience most boards are willing to work with them rather than pursue  formal collections.”  

 Cause and Effect

 When delinquencies accumulate, sometimes the other homeowners are forced to pay  extra to cover for their neighbors. In small units, it can quickly cause the  association to have trouble meeting operating expenses, while even larger  associations will eventually feel the effects of the shortfall if multiple  units fall into arrears.  

 Experts warn that unpaid charges, and resulting legal fees impact budgets, which  determine the level required for maintenance or common charges. Any shortfall  could affect planned services such as landscaping, painting and repairs.  

 The FDCPA

 The Fair Debt Collection Practices Act applies at the beginning of a proceeding  and requires advanced notice of 30 days. According to experts, collecting a  past-due amount requires sensitivity, and it’s important that the association does not violate the owner’s rights.  

 “This can be an extremely delicate situation,” says Nash. “The idea is to be proactive, persistent and extremely nice.”  

 The FDCPA requires that when the association writes to an owner to collect late  assessments, it must state that the letter is an attempt to collect a debt, any  information the debtor gives will be used to collect the debt, the amount of  the debt that has accrued and the name of the association, and that the owner  has 30 days to dispute the debt’s validity in writing.  

 If a debt collector violates the act, the FDCPA says he or she may be liable for  damages to the debtor, such as emotional distress or slander.  

 Final Thoughts

 Most boards that attempt to collect delinquent common charges are faced with  essentially three choices: Enter into a payment plan with the defaulting owner,  sue for money damages or foreclose. Whichever method is chosen, it’s important to do it in a timely manner and make sure that the rest of the  building community doesn’t feel the financial backlash.   

 Keith Loria is a freelance writer and a frequent contributor to The South  Florida Cooperator. Staff writer Christy Smith-Sloman contributed to this  article.  

Related Articles

What to Do About HOA Finances & Arrears During Coronavirus

How Associations Should Respond

Q&A: Maintenance Fee Fiasco

Maintenance Fee Fiasco

Legislative and Legal Update

Omnibus Housing Bill Rolls