There are many reasons why it is important that associations act quickly when an owner falls behind on their dues. There are also many competing factors which tempt boards or board members not to do so. For example, many board members feel a conflict between their duty to act in the best interest of the association, and their desire to be a “good neighbor.” It’s a tough decision to make, taking aggressive action when a homeowner falls behind on their dues. However, as you will see from the few (of many) reasons we cover in this post, it’s important to set aside your personal feelings and act quickly on all delinquencies.
First, current owners and prospective buyers will have a hard time getting financing (or refinancing) if your delinquency rate is above 15%. That means if more than 15% of your current owners are more than 30 days past due, financing could be hard to secure in your association. With property values already dropping rapidly and the real estate market as soft as it is, associations should take whatever steps they can to encourage homes in their communities to sell. Keeping the delinquency rate low is one such step you can take.
Second, in putting off taking legal action against a non-paying owner, you are actually doing them a disservice. Speaking from a large volume of firsthand experience as a lien enforcement attorney, I can tell you that the earlier our clients refer a delinquent owner to our office, the higher our success rate at collecting in full from that owner. Think of it this way; if you get a letter from a lawyer that says you owe $1,000, you may feel slightly overwhelmed and like that’s a lot to catch up on. Imagine how much more difficult it would be to face that same letter with an amount past due of $3,000, $5,000, or even $10,000 owed. The earlier you refer an owner to your association attorney for collection, the higher the chances are they can actually get caught up and keep their home. Resist the temptation to take a softer approach, realizing that the softer approach is almost never a benefit to the homeowner in question.
Finally, there is a statute of limitations on the collection of unpaid assessments. What does that mean? It means that if your association does not take action to collect delinquent assessments before the statute of limitations “runs,” those delinquent assessments that are older than the statute of limitations are no longer collectible. For condo associations, the statute of limitations is 3 years; for homeowners’ associations, it’s 6 years. What do you have to do to stop the statute of limitations from running against you? Initiate “proceedings” (i.e., a lawsuit) to enforce the association’s lien and/or collect the monies due before the statute of limitations runs out.
These are only three of many, many reasons to act quickly on delinquencies. If you have any questions we can answer, please feel free to leave a comment or contact us directly. We look forward to continuing this conversation with you in our future posts!