MARYLAND 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. Under the Maryland Constitution, Article III, Section 57, the legal rate of interest is 6% per annum, unless a statute allows for a higher rate of interest. Unlike the Maryland Condominium Act, the HOA Act is silent on the issue of charging interest on delinquent accounts. Therefore, if no rate of interest for delinquent assessments is set forth in the governing documents, then the maximum interest that can be charged is 6% under the Maryland Constitution.

Yes. The management company must register with the Maryland Collection Agency Licensing Board.

Yes. Maryland does not differentiate between an in-state and out-of-state owner from a collections perspective. So, the HOA enforcement actions must be filed within 12 years for both in-state and out-of-state owners.

12 years. The statute of limitations periods for HOA claims are different for every state. These periods often range typically somewhere between two and six years, so Maryland is a bit of an outlier. According to the Maryland Contract Lien Act § 14-204, actions to foreclose a lien shall be brought within 12 years of the date the statement of lien was recorded.

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. Maryland is a Judicial Foreclosure state and the process can be long and expensive, so consider partnering with a merit-based collection agency that specializes in collections for HOAs and Condos.

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

• Maryland Homeowners’ Association Act – §§ 11B-101 through 11B-118. This Act governs the formation, management, powers, and operation of homeowners’ associations in Maryland.
• Maryland Cooperative Housing Corporation Act Md. Code, Corporations & Associations §§ 5-6B-01 through 5-6B-33. The Act recognizes and provides a structure for cooperative ownership, including formation, management, voting, and ownership rights in Maryland.

To better understand the laws for Maryland condos, please refer to:

• Maryland Condominium Act – §§ 11-101 through 11-143. The Act applies to all condominium associations, except as otherwise provided in the Act. For more on the applicability of the Maryland Condominium Act to condominiums that were established before July 1, 1982, see § 11-142.

Maryland is a Homestead state. Unlike most states, Maryland’s Homestead State provisions do not specify an acreage limit, but instead, limits are placed on the total value that can be set aside if you file for bankruptcy. Under Maryland law, the property cannot be valued at more than $3,000 for a single individual, plus a possible $2,500 in a Title 11 action.

Yes. Maryland is a super lien state. An HOA’s assessment lien in Maryland 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).

Maryland 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.

Yes. Maryland Collection Agency License Act states that a management company is considered a “collection agency” whenever it seeks to collect a debt on behalf of a homeowner’s association. As a result, a management company must have a collection license from the State Collection Agency Licensing Board to avoid possible criminal misdemeanor imprisonment, fines, or both. Moreover, in addition to the management company entity itself, an employee of an unlicensed management company can be held personally liable for seeking to collect a debt on behalf of an HOA without a collection agency license in Maryland.

In addition to the Federal Fair Debt Collection Practices Act (FDCPA) statutes, Maryland has its own laws regarding collections. The statutes codified in the Maryland Consumer Debt Collection Act are similar to the FDCPA in many respects, but broadens some definitions of terms and people.