When interviewing a Community Association Collections solution provider for an association, the first question by the board of directors is: “How long is your contract for?” For most vendors there is an beginning and an end to their job, but for a collector this is harder question. It is almost impossible to predict because it depends exclusively on when and how the delinquent unit “settles out.”
Before we discuss the various ways a delinquent unit “settles out” let’s define what the term means. Simply put, when a unit ledger has a zero balance a unit is considered is “settled out.” That is Community Association Collections success.
Now lets list how a delinquent unit settles out.
The delinquent owner pays what is due (The best resolution to Community Association Collections)
The most desirable outcome for Community Association Collections: A property or unit owner has fallen behind in their obligations, and pay what they owe the association. This is the best possible outcome. The association can cease its collection efforts and all is well. The owner has regained their status as a solid citizen. All is well…Community Association Collections is a success.
Tax deed sale (The worst outcome for Community Association Collections).
Arguably the worst outcome, in this scenario where everyone loses. In a tax deed sale where the certificate of title is purchased at auction the ledger starts at a zero balance. The only recourse is for the association is to claim a portion of the surplus remaining from the tax deed. Short of pursuing the previous owner for what was owed on this unit it is a total loss. There is no safe harbor amounts coming from the bank or recovery of funds from the new owner. If the association had this collection file with a law firm they will now most likely send this bill in for payment. Law firms are seldom wiped out. This is a big ouch and the worst outcome for Community Association Collections.
A subsequent purchaser obtains title to the unit (Potentially a good solution for Community Association Collections)
A very favorable phrase in HOA & Condo Statutes law is “when unit owner, regardless of how his or her title has been acquired, including by purchase at a foreclosure sale or by deed in lieu of foreclosure, is liable for all assessments which come due while he or she is the unit owner.” This is found in Florida statute 718.116. A very similar version of this significant concept can be found in 720.3085 for HOAs. It means that when a new buyer purchases a unit before a bank has foreclosed and taken title, money owed to the association from the previous owner becomes their debt. Be alert that the association’s governing documents do not contradict that concept. If the governing documents say that the debt is rolled over to the association there is NO joint and several liability. In Community Association Collections its important to read governing documents.
First mortgagee pays the association for delinquent fees (Great news for Community Association Collections)
A mortgage holder may pay the association what is due under the rider that is signed when the property was closed. This protects the financial institutions. An association can make this demand if they know the holder of the mortgage. In that case said financial institution will cut a check for the association, adding these paid fees to the mortgage amount. The banks do this to protect their interests in the unit. There is no harm in trying and every association sould make such a demand upon the holder mortgage. With Community Association Collections each and every and any way to recovery should be engaged. No harm in trying.
Rental revenue pays down the debt.
There are a few ways in which rental revenue can pay down a delinquent unit. The first and most common way is that the association forecloses their lien and takes intervening title. The association then gains the right to evict the previous delinquent owner (who by the way is still on the hook for what they owe until such time that the association may recover their debt by way of rental revenue). The association renovates the unit, and hands it over to a real estate broker, who will find a tenant. Welcome to the landlord business. Sometimes this works but can also be a complete disaster. It is definitely a gamble.
The second type of rental solution, is interception of the property’s rental income if the unit is rented out by a delinquent owner. If a unit is in arrears in its payments to the association and the unit has an occupant the association is well advised to send out a rental demand letter. If the renter fails to pay, the association has the right to evict.
The Bank Forecloses (Not what we can hope for in Community Association Collections)
The ultimate endgame is when a first mortgagee forecloses and takes title to a property/unit. This is where we separate the boys from the men when it comes to the association’s recovery of money. We have all been told that when a bank forecloses all an association can collect from the equitable holder of the mortgagee and note is the lesser of 12 months of past due assessments or 1% of the first mortgage amount. Mind you that the old owner has not been excused from the debt to the association and they should be pursued if any write off occurs. However, let us not be so quick to let the banks off the hook.
How Does A Bank Qualify For Safe Harbor?
In order for a bank to qualify for this “safe harbor” amount (aka statutory cap) they must have proceeded with their foreclosure in a proper and legal manner. It should come to no surprise that there is an abundance of incompetence in today’s banks. For associations this is good news for if the bank’s methodology and procedures are not within guidelines as prescribed by the law this qualifies the association to a complete and full recovery of the money that is owed. This, my good readers, is the subject of another article, but a topic managers and board members alike should research nonetheless.
The only question that remains is: how long does it take for a unit in arrears to be resolved? The best answer that can be given is…It depends.
To Learn More Please Contact:
Mitch Drimmer is Senior Vice President of Axela Collections powered by Axela-Technologies and is certified in FDCPA and FCRA collections. He is also a licensed community association manager and is available for no obligation consultations www.axela-tech.com Tel: 786-832-9849 [email protected] www.axela-tech.com