As a director, you have a fiduciary duty to your fellow owners. The law imposes the highest standard of care upon you to prudently protect and preserve the money and property of the association. Even small communities have multi-million dollar assets that must be maintained, insured and protected by the board of directors. The board has a duty to collect assessments. If delinquent owners discover there is no financial penalty for not paying their assessments when due, then collection problems will develop and worsen. The board needs to take prompt and effective action to collect unpaid assessments and protect the association members. The Tankel Law Group recommends that our clients take an aggressive approach to collect delinquent assessments. Past performance is no guarantee of future results, but prompt fulfillment of your duties increases your odds of collection in full. Inaction almost always ensures failure.
Make it clear that assessments are due on a certain date. When assessments are delinquent send a “friendly reminder” within a certain relatively short time period (10 or 15 days) after the due date.
Start the formal collection process as soon as permitted under your Governing Documents:
If the delinquent assessments are not paid after the “friendly reminder,” the next step is to send an initial demand which informs the owner that a lien may be filed if a delinquent assessment is not paid. If the Condominium Act applies to your community, (Chapter 718, Florida Statutes) a “30-day letter” is required. If your community is an HOA, then the Homeowner Association Act (Chapter 720, Florida Statutes) requires a “45-day letter.” The demand includes the assessment, late fees, costs and legal fees. Historically, about one-third of delinquent owners pay, in full, upon receipt of this initial demand letter.
If the delinquency is not paid within the applicable time period, a claim of lien, along with another 30 or 45-day demand letter must be prepared. It includes additional principal, interest, costs, late fees, and attorney fees. That letter must be sent by certified mail, return receipt requested, as well as by regular mail. A claim of lien is recorded in the Official Records and may be foreclosed, resulting in a judicial sale of the property if unpaid. Our statistics show that about two-thirds of delinquent owners pay after the claim of lien is filed and before foreclosure proceedings begin.
Judicial enforcement is through a lawsuit to foreclose the lien. This process begins with filing a complaint in the County Court. The complaint is served on all persons with an interest in the property, similar to a mortgage foreclosure.
When a tenant resides in a unit in foreclosure, the association has the ability to seek a receiver to be appointed by the court to collect the rent, and forward it to the association. The payments are used to pay off the delinquency, including all legal fees and costs until paid in full. In a condominium, where a unit is “abandoned” as defined by law, a receiver may be appointed by the court with authority to enter the unit, rehab it and rent it pending lien or mortgage foreclosure.
Based on our informal records ninety percent of owners pay when they are served. Owners who fail to pay face a judicial sale of their property at a foreclosure sale, even if it is Homestead. Associations who act in a prompt manner are generally able to recover all of the unpaid assessments, interest, costs and legal fees in a payoff by the owner, or at the judicially ordered sale.
As a general rule we do not file money damages suits against owners for unpaid assessments. Money damages are difficult to collect, and are discharged in bankruptcy. We may sue for money damages under limited circumstances, but we recommend the foreclosure the vast majority of the time.
Many directors believe that if a mortgage foreclosure occurs, and the plaintiff takes title, the association is entitled to “Safe Harbor” payment of 1 year of assessments or 1% of the mortgage, whichever is less, per statute. If your condominium was created before 1992, or HOA before 2008, it is highly likely that the association will recover nothing, unless your documents are amended to incorporate the law. Ask us for more detail about this issue.