Lou pointed out that associations today are competing with other creditors for the limited liquidity of many owners. Those who get paid, or get paid quicker, tend to be those who have the most leverage with those who owe money. If an association doesn’t take a strong position, it may only get paid toward the end of the line, if at all.

 

He urged associations to formulate a strong delinquency policy and do everything possible to familiarize members with its provisions. Some owners think they are shielded by the Homestead Act from losing their home. It’s important to debunk this misconception – a foreclosure lien by an association can indeed cause the owner to lose their home, so it’s important to make sure that every owner understands this potential outcome. 

 

Lou noted that some associations are understandably reluctant to take aggressive action against their neighbors. But word of such a posture inevitably spreads in the community and may encourage others to stop paying maintenance fees, thus compounding the association’s receivables problem. 

 

He told the group that some associations also shy away from being aggressive about delinquencies because they assume they are playing second fiddle to the bank’s first position. However, bank foreclosure proceedings are taking longer than ever to come to a conclusion -- up to 24 months, even longer in some instances. These delays are in part due to a growing backlog in the court system. But banks are also reluctant to take title and therefore shoulder the carrying costs of dramatically increased filing fees, property taxes, insurance premiums, maintenance, utility services, association fees, and the other costs that come with ownership. 

 

The steady lengthening of the foreclosure dance for as much as two or more years means a lot of lost maintenance revenue, only a portion of which may be recovered when the bank finally takes title.

 

Lou therefore recommended that associations at least consider adopting a more forceful posture toward delinquency in the current climate, including giving thought to taking title. He urged Boards to take legal advice about their options and then make admittedly difficult business decisions about the best course of action on a case by case basis.

 

He reminded the audience that once an owner goes into bankruptcy, they are protected from creditors. That includes associations, who cannot even pursue collection of violation fines.

 

He urged Boards to move quickly in accordance with association documents – “consistency is the key”, Lou said more than once.

 

He urged Boards to be more open about payment plans, invoking the half a loaf adage. But he also suggested front-loading payment plans to give the association more protection in case the owner eventually defaults. He cautioned that a payment plan in the collection stage is different than a payment plan in the context of a lawsuit.

 

Another option to consider, subject to taking legal advice, is to go after lease payments to absentee owners who are in arrears with the association.

 

If a delinquent owner is known to own other properties or otherwise have deep pockets, it is worth considering going for a personal judgment rather than pursuing a foreclosure option.

 

For associations that are struggling to make ends meet, it may be possible to get some relief from bulk cable service providers. Borrowing from reserves is another option, but doing so in either condominium or homeowner associations may well require a member vote. 

 

The meeting had to end with many hands still in the air, even though Lou took lots of questions from the audience throughout his presentation. Delinquency is clearly a huge issue in most associations today. The bottom line appears to be that there are no easy answers, but doing nothing is a non-starter.

 

Alan Kellock