DELAWARE COMMUNITY ASSOCIATION COLLECTIONS GUIDE

Yes. Foreclosure should be the last desperate attempt to recover the association’s money. An HOA should consider a merit-based collection agency to recover its delinquent money before moving to put people out of their homes. Notices should be given to a delinquent before any action is taken.

If the file has not gone to the attorney it is advisable to contact the manager or treasurer of the association to get a copy of the delinquent ledger. Then review the ledger and if you can prove that you made payments that were not applied properly, advise the management company. If the file has been sent to a collection agency the law requires that the collection agency give the debtor 30 days to dispute the debt.

Yes. Late fees can be charged depending on the governing documents. Regarding late interest, the association can charge the maximum allowed by Delaware law which is 5% over the Federal Reserve discount rate.

Yes. An HOA and Condo must be a properly registered corporation and up to date on all of their state and federal filings. There is no special registration required.

Yes. Delaware does not differentiate between an in-state and out-of-state owner from a collections perspective.

3 years. The statute of limitations periods for HOA claims are different for every state. In Delaware, consumer debt such as HOA & Condo fees have a statute of limitations of 3 years.

Yes. The board of directors has a fiduciary duty to collect these assessments and if the individual is not in bankruptcy there is nothing legally stopping them from the collection of delinquent assessments.

The best way to handle collections for HOAs is to engage the owners and be armed with all the information you can acquire. Know the equity in the unit, read and understand the governing documents, find out where the owner is, and then begin to engage in the collection efforts. Once again, this is a very heavily regulated industry so this should be done by professional and licensed companies. Once you engage with an owner, you may be surprised to see that most of them will cooperate and come to the table. You just have to ask them and be willing to work with them.

The traditional way to collect is to have the management company send a few courtesy letters to a delinquent owner and then send the file to the attorney for foreclosure. Delaware is a Judicial Foreclosure state and the process can be long and expensive.

Yes, Delaware has state laws pertaining to HOA and condo associations. To better understand the laws for Delaware HOAs, please refer to:

• Delaware Unit Property Act – Chapter 22 of Title 25. This statute governs the formation, management, powers, and operation of communities formed before September 30, 2009, that opt-in to the Act by recording a declaration under the Act.

To better understand the laws for Delaware condos, please refer to: Delaware Uniform Common Interest Ownership Act – Chapter 81 of Title 25. This statute governs all common interest communities (planned communities, condominiums, cooperatives, and subdivisions) created after September 30, 2009, unless otherwise exempted.

Yes. Delaware is a super lien state. An HOA’s assessment lien on a lot in Delaware has priority, up to a specified amount, over the liens created by a lender’s earlier-filed first mortgage. This is referred to as a “super priority lien” and references the fact that in the event of a foreclosure sale, the super priority portion of the assessment lien must be paid to the HOA from the sale proceeds before satisfying the lien amount of an earlier-filed lender’s mortgage. When faced with a foreclosure proceeding, a lender may offer to pay off the super priority lien amount on behalf of the delinquent lot owner in order to prevent the foreclosure and thereby protect its mortgage or deed of trust. Finally, a bank foreclosure does not extinguish the debt that is owed to the association and the association has the right to pursue the old owner in court for a monetary judgment to recover this debt. It may not be a secured debt but it is surely collectible unless the governing documents say that the debt owed to the association rolls over to the membership.

Yes. Once a property has gone through probate and the court has decided who is the legal owner, all the past due fees are due and payable to the HOA unless the governing documents have a provision that says the debt rolls over to the association. Going forward, after probate has been settled, the new owner must pay their fair share.

An association should always contact a delinquent owner to advise them regarding what is owed. Every owner is entitled to see their ledger and know how much they are owed. An owner may request their ledger at any time and an HOA should be willing and able to provide it to them. An association that publicly publicizes information about a homeowner’s unpaid assessments potentially violates the federal Fair Debt Collections Practices Act which forbids disclosure of information to third parties relating to a debt (which includes HOA assessments).

Delaware laws place no restrictions on what you can do with the money your association collects in past-due assessments. As long as the money is accounted for in the budget, aligns with the governing documents, and/or is approved by the board of directors it can be spent on any improvements or maintenance that is required by the association.

An HOA can collect as much as is legally owed to them in fees, violations, special assessments, administrative costs, and legal fees – as outlined in the governing documents of the association.

No, but that does not mean that a management company cannot be in violation of the collection statutes. Collections are heavily regulated and anybody who attempts to collect debts should know what they are doing.

Unlike most states, Delaware depends on the Federal Fair Debt Collection Practices Act (FDCPA) as Delaware does not have its own statutes regarding collections.