The Unit is in arrears and the owner has passed away. How would you recover all the money that is owed in past due assessments on this property?
Governing and managing an association is filled with challenges and that’s why community associations need professional guidance. We thought you might appreciate getting a glimpse into one of our HOA collection case files. Before you tell you how we helped the community collect what was owed to them, think about what you would do in the same scenario. Or, if you want to see how a manager or even a lawyer would solve this problem, then give them this as a pop quiz!
The Fact Pattern and the Assumptions
Axela was contacted by a community association with a unit that owes $17,000.00 in assessments, late fees, late interest, attorney fees, collection costs, and fines, unfortunately, the owner has died. The unit is also in arrears in its property tax payments, and a tax certificate/lien has been sold to an investor for $13,000.00. There is an order entered fixing the date, time, and place, for redemption of the delinquent taxes prior to the sale of the property. The property does not have any mortgage or other encumbrances, so we know that if the tax lien goes to a tax deed sale, the amount owed to the association will be completely wiped out, leading the association to have to write off the $17,0000 as bad debt. (Don’t worry about the lawyer, because they always get paid!)
we understood clearly that there was equity that could and should be converted for the benefit of the association’s cash flow.
The value of the property is $175,000.00. The probate court has ruled that the daughter of the deceased owner had inherited the unit, but she does not have the $13,000.00 to pay off the taxes. How do you solve this problem and what steps should you take to recover the association’s past due amounts?
Time is of the Essence
When we first saw this conundrum, we immediately felt that it was a shame that the association was going to take a hit on this property. As we are also the collection agency for this community, and we are merit-based (meaning we don’t get paid unless we collect), the tax deed sale was going to wipe out any efforts we had put into the case as well. We don’t like when our clients do not recover their money and we especially don’t like getting “wiped out.” A clever strategy for the collection of this association’s fees and costs needed to be crafted where the association would recover 100% of what was owed to them.
By the time the issue came across my desk, the Axela operations and collections teams had come up with a plan. Community Association collections are already a difficult task and sometimes recovering money for the community takes some thinking outside of the box. Ask your manager or attorney how they would handle this situation and let’s see if your board of directors can come up with the right solution. If they do, then somebody has been doing their job right.
Realizing that the unit had no first mortgage or any other encumbrances we understood clearly that there was equity that could and should be converted for the benefit of the association’s cash flow. However, blocking the way was the upcoming tax deed sale which had already been set. Time was of the essence.
A clever strategy for the collection of this association’s fees and costs needed to be crafted where the association would recover 100% of what was owed to them.
Implementing Axela’s Plan of Action
The first thing that needed to be cleared up was the issue with the delinquent taxes so that the association could have a shot at collecting what was owed on the property. The obvious solution was for the association to go ahead and buy the tax certificate. The main objection to that solution was that if the association paid for the taxes, now the association would be in the hole for $30,000.00 instead of $17,000.00. But we had a plan, whereby the association would recover all the money it was owed.
In a Zoom meeting, we explained to the board what was about to happen, that they were going to be out $17,000.00 if things continued on the current path. But, we advised, if they paid for the delinquent taxes, we could easily recover that money plus the tax payment for the benefit of the association and every party would get paid what was owed.
We advised the board that if the taxes were paid, that money ($13,000.00) would be added to the ledger as an additional advance of this association property, making the total that was owed $30,000.00. It was critical that the association allow our company to cause an attorney to file an amended lien for the revised amount of what was owed. The next step was to allow the deceased owner’s daughter (the “heir”) to inherit the property so that she could sell it. In the sale, the title company would be given an estoppel/pay-off letter for $30,000.00 so that the association would be paid in full. The daughter would collect the remaining balance of what the property was sold for, and this file could be resolved easily.
A Win for Everyone Involved
As the date for the redemption of the delinquent taxes was already set, this matter was time-sensitive, and the board could not afford to waver in its decision and needed to move quickly to secure the association’s lien position and recover the association’s money. Some members of the board objected because they believed that it was possible that the heir (the daughter who inherited the property) would not sell the house and stiff the association for the past due amounts owed and the taxes that were paid. Not a bad objection but still not a valid concern.
Since the association would have a lien on the property, the new owner could not refinance and remove equity from the property. On top of that, if the new owner did not immediately sell the property, then the association would move to foreclose on the property and force the sale of a property worth $175,000 for an unpaid debt of $30,000. If the association did not end up recovering the outstanding dues via association foreclosure sale, they would wind up owning a $175,000.00 property free and clear. Then the association could turn around and sell the property and recover its money, plus the remaining equity. It was a win-win-win-win for the association, the person who inherited this property, the tax investor, but most of all for the good-paying owners in this community association.
So, after a long board meeting it was agreed that the plan of action was to pay off the delinquent taxes, add that amount to the ledger as an additional advance, allow the heir to take possession, have her sell the property, and everybody goes to the bank with a check (most importantly the community association).
If the association did not end up recovering the outstanding dues via association foreclosure sale, they would wind up owning a $175,000.00 property free and clear.
Full Recovery instead of Total Loss
Had Axela Technologies not applied its knowledge and experience in this situation and had the board not listened to our advice this would have been a complete loss. Now, when you want to know the depth of knowledge a collections solution might present to you, ask them what they would do in a situation like this and see if they would come up with such an elegant solution. For a free no-obligation analysis of your community association’s collections issues please click here and let our experienced professionals review what can be done to avoid financial losses in your condo or HOA.
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