By Kiki N. Dillie, Altitude Community Law
No one feels good about collections. Board Members don’t relish sending their neighbors to collections. Professionals, be they managers or account techs or attorneys, don’t enjoy it either. However, the reality is that collections is a necessary reality for nearly every Association at some point.
Sometimes a homeowner is in a bad financial situation through no fault of their own, such as a medical issue. Sometimes a homeowner is unable to pay an emergency special assessment. Sometimes a homeowner just doesn’t want to pay because they are unhappy with the Association’s lack of maintenance. Regardless of the reason behind the non-payment, the end result is the Association now has a homeowner with a delinquent balance. Inevitably, the Association where you are a Board Member or an Association you manage or an Association you represent will have someone that is unable or unwilling to pay their balance.
This situation can be uncomfortable for everyone involved. The Board has responsibilities to the Association and is obligated to ensure all homeowners are complying with the governing documents of the Association, which includes paying assessments timely. But, the Board is also aware that they are sending their neighbor to collections, which can be awkward when meeting that homeowner at the mailbox or park. Conversely, the Association has its own responsibilities to uphold and relies on all homeowners paying their assessments timely. If some homeowners do not, the Association may not be financially able to provide the services and amenities it is contractually obligated to provide. If enough homeowners fail to pay their assessments timely, it could result in the need for a special assessment, essentially making the paying homeowners pay their fair share plus a portion of their neighbors’ shares.
The Board has a duty to uphold the governing documents of the Association, including the Association’s Collection Policy. Therefore, when a homeowner falls delinquent, regardless of the circumstances, the Board should follow the Association’s Collection Policy and send the notices as listed under the policy. However, if a homeowner reaches out to the Board before the balance has been sent to an attorney for collections, it is generally recommended that the Board and homeowner have an open dialogue to try to reach a resolution. Both the Board and homeowner should be reasonable and try to resolve the situation. For example, a waiver of late fees and/or interest may be a reasonable solution. Alternatively, an extended payment plan option may be reasonable.
However, it is important for both the Board and homeowner to understand the limitations of the discussion as well. Generally, a waiver of assessments is not recommended or permitted by the Association’s governing documents.
Additionally, the Board should be careful to avoid possible selective enforcement claims. All homeowners in similar situations should be treated similarly. Having standard practices in place can help avoid selective enforcement. For example, a Board could have a blanket practice that any homeowner that initiates settlement discussions with them will be offered a waiver of late fees and interest if the remaining balance is paid in full. What Boards should avoid is unilaterally waiving a balance for a homeowner or deciding to not follow the Collection Policy for a particular homeowner just because they happen to know about a medical condition or financial misfortune impacting that homeowner. It is entirely possible that other homeowners are experiencing the same misfortune, but the Board does not know about it, resulting in potential selective enforcement claims.
Collections is often uncomfortable for all parties involved and most people want to reach an acceptable resolution to help the homeowner get out of debt to the Association. It is important for Board Members to be aware of the potential problems with waivers or settlement negotiations, such as waiving assessments or selective enforcement. However, with the proper knowledge, collections can be done with compassion, while also being sure the Association is properly funded.
“Kiki Dillie is a Shareholder and Debt Recovery department head at Altitude Community Law, P.C., located in Lakewood, Colorado. Altitude Community Law specializes in representation of community associations all over Colorado and has offices in Lakewood, Loveland, Colorado Springs, Frisco and Durango.”