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2008-11-27  BUSINESS POST | Community associations: Like businesses, cash flow is key
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| | by Amy Bray |
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November 30, 2008
You know the tune, it's like the Macarena and it will not stop playing in your head, "the economy is faltering and money is tight." Just like everywhere else, you can hear this tune when it comes time to try to collect homeowner, condominium, or commercial property association dues and assessments.
But just what is an association to do when that song results in tens of thousands of dollars in payments that go unpaid? There are a myriad of services that associations, both residential and commercial, provide to their member-owners and when the money falls short, how can they get the job done?
If this describes your association, hang in there and read on.
The rights that your association has to collect assessments are spelled out in the documents that are recorded in the land records for your county and affect your property. Depending upon how your development is formed, this document can be called a "Declaration of Condominium", "Declaration of Covenants, Conditions, and Restrictions" or some other variation on that theme. For the purposes of this column, we will just call the document a "Declaration".
The Declaration will identify any statutes that govern the development, if any. Statutes, like the Georgia Condominium Act or the Georgia Property Owners Association Act, can give additional collection rights or give more power to collection rights reserved in the Declaration.
Depending upon your Declaration, your association should have a variety of ways to enforce assessment collections, although some are more effective than others.
That leaves us with the question – what should the association do? How do we take positive steps in this situation? Below is a general plan of action to help you:
1. Keep your budget realistic and trim costs where possible. Depending upon your Declaration, new budgets can be adopted during the fiscal year.
2. Know your collection rights. Study your Declaration and know the statutes involved (or hire a community association attorney to help).
3. Be vigilant. Watch your collections and take steps to collect unpaid assessments quickly. Don't let late payments create a deficit that sneaks up on you! Make sure that your collection efforts include time periods for the next step happens (i.e., in x days the fine is imposed if the assessment remains unpaid.)
4. Charge late fees and reasonable collection costs for amounts (actually incurred) against the late-paying owners.
5. Suspend rights to use amenities or services (like water or cable), if permitted by your documents and if collection letters do not work.
6. Keep an eye on owners with delinquencies – does it look like they will be filing bankruptcy? Is the property heading for foreclosure of its mortgage?
7. Make sure the association's rights are secured by a lien as early as possible to protect the association in this instance. In the past, one of the most effective methods of enforcement was putting liens on property. Generally, at worst, units eventually sold and the lien would be paid off. These days, the slow real estate market and tightening credit make this a less effective fix and more aggressive methods may be necessary.
8. In the case of a lender's foreclosure, the owner of the property at the time the delinquent payments came due is still personally liable for the money owed. An association can sue to collect that money. Bear in mind, the owner is unlikely to have the money to pay the overdue assessments if they were unable to pay the mortgage. It is unwise to sue to collect the funds until you have an idea of what the probability of recovering is – otherwise the association will be out the unpaid assessments AND the related collection costs.
9. Foreclose on the association's liens. The association does have the right to go through the foreclosure process and try to sell the property on the courthouse steps. This option has its own quirks. The association should consider if there are buyers for the property or if the association will get stuck with it, with the obligation to pay any liens existing on the property that have greater priority than the association's. Ask if the amount of the debt is big enough to justify such radical and expensive action.
10. Consider charging paying owners a special assessment to fund shortfalls. Be sure to communicate the need for more money ahead of time and make sure the owners understand all the steps that were taken before you asked them to find more money for the association. Unfortunately, the people that are already paying may have to make up the shortfall.
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Amy Bray is an attorney whose specialties include community association and property law with Andersen, Tate & Carr, P.C.
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