SENSIBLE AGGRESSION: AN APPROACH TO COLLECTIONS

Published on: January 16, 2018

Remember when George W. Bush described his politics as “compassionate conservatism”? At first it is a phrase that seems self-contradictory but then at a second glance it starts making some sense. Well when it comes to the collection of unpaid condominium assessments, my ethos is “sensible aggression”.

In Massachusetts, the priority lien is the ultimate hammer and provides all the leverage an association needs to collect up to six months of regular monthly fees.  At times, however, you don’t need a hammer you just need to apply some pressure (so perhaps a pair of vise grips would suffice).  There are instances where it makes sense for the board and counsel to get their foot off the gas and work out a deal with the delinquent owner.

For example, where there is no mortgage on the unit, a board should make additional efforts to work out a repayment arrangement with the owner since the association is fully protected in the event of default on a plan. Even if the owner filed for bankruptcy, the statutory lien means repayment in full in the long run.  Additionally if the owner is not yet six months behind, the board should try to work out a plan if the plan is reasonable. Reasonable is the key, I am by no means suggesting Boards accept excessively long plans under almost any circumstance.

If suit has already been filed against the owner, it’s still okay to work out a plan with the owner but I suggest doing so in the form of an Agreement for Judgment that gets filed with the court. Filing an Agreement for Judgment ends the litigation as the owner must agree that he owes a certain amount of money and agree to repay that money in a set schedule.  The failure to pay pursuant to the agreement ensures that there are immediate consequences in the event of default. My agreements always state that in the event of a missed or late payment, the agreement is void and the Trust can pursue an Order of Sale in court to be able to foreclose on the lien.

Often clients want to file suit after only a few months of delinquency because they feel that’s what should be done, because there is a desire to recoup what’s owed immediately or because of the security offered by a recorded lien. But almost always, suit should come at the six-month mark unless there is a compelling reason to file early such as a forthcoming foreclosure sale by the first mortgagee.  Sensible aggression means clients get paid but that owners are treated fairly and given the chance to save themselves.

In New Hampshire, this concept of sensible aggression is even more important. In fact, blind aggression will often get you nowhere in New Hampshire because you end up saddling the owner with an insurmountable debt.  While there is a limited priority lien under New Hampshire law, it is a law without teeth. A condo association cannot foreclose on its priority lien therefore associations do not have the leverage to force owners and banks to pay what is owed as they do in Massachusetts or Rhode Island.

 

In many cases the delinquent owner has a mortgage given before January 1, 2011, the start date for the priority lien law, making a priority lien impossible to obtain. Where there is no priority lien and the owner is in a nursing home, to use an example that pops up all too often, there is simply no feasible way to collect in the short run, if ever.  An association would be foolish to file suit to incur a large legal bill trying to get money from an owner who has no ability to pay.  But, where a priority lien is attainable or there is no mortgage at all, aggressively pursuing collections makes much more sense.

The point I am trying to make with this term sensible aggression is that you want to pick your spot with turning up the (legal) heat on a delinquent owner. Every case is different and all cases should not be handled the same way.  Unleashing aggressive collection tactics on an uncollectible debt will only make matters worse for your client, so as an attorney, you want to formulate your collection strategy based upon a number of factors:  Can a priority lien be obtained?  Is there equity in the unit?  Are the owners both employed?  Is the debt monthly fees or a special assessment?  Once you have answers to these questions, a sensible approach can be crafted for that particular case.

For any questions regarding this article, please contact Dean Lennon at dlennon@meeb.com.