Condos and HOAs Still Paying Outrageous Legal Fees for Collections
If your condominium or homeowners’ association is facing a purely legal issue – a lawsuit, construction defect, governing documents updates, and such, having an experienced and qualified community association attorney is mandatory. But should you contact your lawyer for HOA collections?
Community associations are creatures of statute and attorneys are important to maintain proper governance. These experienced legal professionals deliver the expertise and legal finesse the community association will need to stay compliant with state statutes and their own bylaws. This avoids missteps and potential future lawsuits brought on by inappropriate actions.
Since attorney fees are generally significant, condominium associations and HOA boards should be judicious when engaging an attorney as it will cost the association a good bit of money. With that in mind, there are times when the cost and risk of using an attorney are wisely avoided.
Don’t Just Skip Ahead to Foreclosure
When home and unit owners in condominiums and HOAs fall behind in their common fees and assessments, it can feel like very few options are available to collect on those missed payments. Communities generally turn to the usual suspects — an endless string of reminders and warning letters requesting payment, or referring the delinquent owner to a lawyer for HOA collections. But those are actually steps 1 and 3 (the warning and the foreclosure) of the full collections process. Step 2 is your opportunity to recover those debts without expending any additional energy or paying outrageous fees to an attorney on retainer: a collections solution, rather than legal enforcement.
A community association foreclosure should always be a last resort. It’s like fishing with a shotgun–sometimes it’ll get the job done, but it’s more costly, less efficient, and you don’t gain as much as you could with other collection methods. Wise associations seek a non-attorney remedy.
When you retain an attorney for collections, the end game of the attorney is foreclosure on the property. This isn’t collections, but rather “a security interest enforcement” action. In the Supreme Court case, Obduskey v. McCarthy & Holthus LLP, 139 S. Ct. 1029 (2019), the court ruled that in states that use non-judicial foreclosures, law firms are subject only to the requirements and prohibitions of one narrow section (1692f(6)) of the FDCPA. In essence, the United States Supreme Court is advising community associations that attorneys foreclosing in non-judicial states are by no means a “collections entity.” More to the point, it’s expensive and can take years before the association sees a dime of what they’re owed, leaving communities in a lurch for funds.
So you Foreclosed… Now What?
Let’s say you followed the legal process to its desired conclusion of foreclosure. The previous owner (as in many cases) becomes overwhelmed with the costs of legal fees and they lose their property.
The best result for a community association lien foreclosure on a property is getting an encumbered title. That means that the association takes the title, but the title is encumbered by the mortgage, which is still attached. The first mortgage can still be foreclosed upon and it will be eventually, at which time the community will lose access to that title.
…But what happens after the community takes the title? How do you monetize an association lien/foreclosure? Perhaps an investor will pick it up and now your community becomes a plaything of real estate investors. Or perhaps the association will rehabilitate the property and rent it out to recover delinquent fees and costs. Does the community association really want to get into the business of managing rentals? That’s a lot of work and liability to take on!
It’s a shame on many levels.
The Burden of Legal Fees on Homeowners
Take a look at this example of fees charged to one delinquent homeowner:
This is a real-world example. A condominium unit owner had fallen behind in their common fees in the amount of $1,830.00. The Board of Directors referred the matter to their attorney. As you can see, the legal fees mounted quickly, and by the time of this invoice, the association has already laid out $17,193.68 in legal fees due to the attorney. Even worse, these fees were going to be assessed to the delinquent unit owner by the association.
The total owed by the homeowner was now nearly 10 times what was owed to the association! This is completely unfair and unnecessary.
The final insult to the community is that this case is yet to be concluded and the delinquent unit owner may never be able to afford to pay for this issue, leaving the owner homeless, and the community on the hook for the legal fees. It does not have to be this way.
The Argument for Ethical Collections
We wish we could say that is the only example of homeowner debt spiraling out of control, but it isn’t. In the community association management industry, it’s heartbreakingly common to hear of homeowners who ultimately lose their homes through foreclosure. Enormous legal fees amassed during long, drawn-out legal processes take away any chance of paying back what they owe. It can ruin lives and is why we at Axela always insist that foreclosure be viewed as a last resort.
A specialized collections process is a far simpler, cost-effective, and humane solution to attempt before considering going through a lawyer for HOA collections. From coast to coast, we hear similar stories where a collection process would have allowed the owner to remain in their home, and just as important, the association wouldn’t have had to pay an attorney only to have to “write off” the loss when no collection event occurred.
Some associations engage collection agencies that offer to buy the association’s debt, but those are also ripe for abuse of the homeowners. Collection agencies that perform at no cost or risk to the association like Axela Technologies are a preferred collection remedy because they are an effective solution that follows the collection regulations set forth in the community’s governing documents and costs the association nothing. Collection fees, which are quite modest compared to attorney fees, are passed through to the delinquent homeowner. This benefits the association as well as the delinquent homeowner because of the huge discrepancy between collection fees and legal fees charged by an attorney.
Choose a Merit-Based Collections Agency
Axela Technologies offers a far better solution. Instead of burying the homeowner in tremendous legal fees, we work with them to figure out how best to pay off their indebtedness to their association and return them to good-paying status. Instead of charging by the hour for our work, as attorneys do, our fees are set at the onset (hard set fees with no hidden or junk fees) and passed through to the delinquent homeowner. We work diligently to explain the benefit of keeping the equity in their home and provide a solution to their problem. There is no need to put the association or the homeowner at risk of losing additional money.
In fact, since the Axela Technologies collection solution is 100% merit-based, our interests are perfectly aligned with the association. If we don’t collect from the homeowner, we don’t get paid. We collect 100% of what is owed to the association 19 out of 20 times without the need for the association to move the matter to an attorney for foreclosure.
Even when the matter does go to foreclosure, we stand with the association until the conclusion, which often yields a successful collection event for the association. If a lender forecloses on a unit we will not advise the association to write off the loss. We will follow the ownership of that unit and if the bank sells it with a surplus we will petition the court for the benefit of the association to recover that surplus. We don’t like write-offs and neither should you.
If your association gets sued, or if you need to change the language in your bylaws, you should absolutely be consulting with or employing an attorney. But, if your association is experiencing delinquency at any level, don’t get a lawyer for HOA collections. Skip the high legal fees and partner with Axela Technologies. Get in touch today and learn how Axela Technologies can help. Axela Technologies handles all collections on a merit-based system. Get your free collections analysis today.