SUPERLIEN MAKES COLLECTING DELINQUENT CONDOMINIUM PAYMENTS A MATTER OF TIME
If there is a single phrase that summarizes our advice on collecting delinquent condominium fees, it is this: “Time is of the essence.”
As most Condominium board members and managers are aware, Massachusetts law allows Condominium associations to foreclose on owners who do not pay their Condominium fees and to collect up to six months of delinquent payments plus attorneys’ fees, ahead of the claims of the mortgage lender. The law gives owners a powerful incentive to make the required payments (to avoid foreclosure) and it gives mortgage lenders an equally powerful incentive to make those payments if the owners do not, to ensure that the lender does not lose money if the association or the lender forecloses. But the law also creates a strict timeline associations must follow to ensure that they collect all the money they are owed.
Ideally, the process works something like this:
The board (or manager) should send the owner a friendly reminder when a delinquency reaches the 15-day mark.
After 45 days, a less friendly reminder should follow, informing the owner that the fee is overdue and if it isn’t paid, the association will begin a formal collection action. These two notices will provide documentation for the association should the owner complain that he/she was never informed of the delinquency.
If the owner doesn’t respond to the second notice, the board should turn the collection over to the association’s attorney. Our firm typically sends a formal legal notice at the 75 day mark, informing the owner that: The association will take legal action, if necessary, to protect its interests; the association has the right to foreclose; and the owner will be responsible for paying attorneys’ fees and legal costs related to the collection effort.
We like to send this notice to the owner and a second one, if necessary, before we send the mortgage lender the two notices required before the association initiates a foreclosure action. This schedule gives the owner time to respond and resolve the problem before the lender has been notified and before the association has incurred further legal costs the owner will be required to pay. In addition to protecting the association’s superlien (the primary goal), an aggressive collection schedule also helps the owner, by reducing the risk that a relatively small delinquency problem will become a larger and potentially insurmountable one.
The collection process is, or should be, straightforward.
But it can be complicated by the fact that the delinquents in a condominium community are the neighbors and possibly the friends of board members who are seeking payment from them. While the instinct to help neighbors in trouble is understandable, the board’s obligation, is clear: That obligation is to protect the interests of the association and association members, who would be harmed if some owners don’t pay their share of the association’s expenses.
Owners have a legal obligation to pay their fees and boards have an obligation to collect them. That doesn’t leave any wiggle room for owners, and it doesn’t leave much for board members, but it does leave room for some discretion in the collection process. Boards can’t forgive delinquent payments, but they can consider special circumstances and offer options that may facilitate repayment, as long as those options don’t weaken the board’s position or undermine its ability to enforce the priority lien.
Payment Plans
For example, if the property has sufficient equity and no mortgage (or a small one), the board might defer payment to give a widowed owner time to sell the unit. A payment plan may also be a viable option for a struggling owner who has fallen behind - because of a medical emergency or a temporary job loss - but has the ability to catch up. Associations that offer payment plans should:
Offer them to owners who need temporary relief.
Require owners to remain current going forward and to repay the delinquent amount quickly – six months should usually be the maximum time allowed.
Enforce the repayment terms strictly. Boards can waive late fees on the delinquent amount during the repayment period (although they are not required to do so), but if owners miss a payment, late fees and the collection process should resume immediately.
Prohibit payment plans for “serial delinquents” who cure one delinquency and then fall behind again. Boards should be strict about this, but they don’t have to be inflexible. “Stuff happens” and new “stuff” may justify more than one payment plan. But at some point, owners have to run out of second chances. You don’t want them to treat payment plans like lines of credit they can tap whenever they need extra cash.
Some Supplemental Advice
For boards dealing with the Superlien, timing is essential. Words also matter – a lot. With that caution in mind: Never use the term “special assessment.” Erase it from the board’s vocabulary, avoid references to it in collection notices, in meeting minutes and in owner votes. Association fees and expenses are protected by the superlien; special assessments are not. Call the additional payments required from owners to finance a capital repair a “Condominium fee” or a “supplemental fee” or an “additional fee “ -- but don’t call them an assessment or a special assessment. If you do, you won’t be assured of collecting what the association is owed.
Getting Tough
Boards sometimes ask if they can (or should) bar access to association amenities for delinquent owners, or even go further and cut power or water service to their homes. The answer is no for several reasons.
The courts frown on such draconian measures.
The association might incur legal liability for illness, injury or damage to the unit resulting from the denial of essential services.
The public relations damage will be enormous. “Condominium association cuts off power to elderly widow on Christmas Eve” is not a headline you want to see associated with your community.
Privacy concerns and legal liability risks also argue strongly against trying to embarrass delinquent owners by identifying them – in meeting minutes, in the newsletter, on the Web site, or in other public venues.
Aggressive collection measures such as these aren’t just fraught with legal liability and other risks for associations – they are also unnecessary. The Superlien has been in place since 1993 and it has proven to be a highly effective and efficient collection mechanism. Although there are extremely rare exceptions, associations that approach delinquencies proactively, operating within the six-month priority lien window, are always repaid.
Contact Richard Brooks for assistance with line enforcement and the process in perfecting same.