Obviously over the past few years association leaders have had to devote a substantial amount of time, energy, effort and money to collecting delinquent assessments. However, where there is need there is opportunity. New businesses sprung up all over the U.S. to take advantage of this need. Collection agencies, funding companies and others promise condo & HOA board members they will collect money from the deadbeat owners without disturbing the association’s cash flow needs.
Have you ever read a contract that contains something like this?
Association not responsible for fees or costs, except with prior Association approval in unusual cases or upon cancellation by Association. The delinquent Owners or other responsible parties shall pay all fees and costs incurred by [collections agency]. In the event [collections agency] is unable to collect fees or costs from the delinquent Owner or other responsible party, Association shall not be responsible for such fees or costs.
Sounds pretty good, right? The collection agency does its thing and you sit back and wait for the money. You don’t even need to pay attention to the charges added to the delinquent account since they are not your problem.
A new bankruptcy ruling throws a curve ball at those types of contracts. The United States Bankruptcy Court decided in In re ANTONIO CISNEROS that charges going beyond those contemplated by statute were not collectible against the owner/debtor. It said:
It is clear that the fees of [collections agency] are not allowable claims of the HOA because they were not costs incurred by the HOA in collecting the delinquent assessment. They are also not allowable because they exceed the amount necessary to defray the HOA’s costs; they are not costs of the HOA at all. To find otherwise opens the door to all sorts of mischief, as an HOA has no incentive whatsoever to question costs for which it is not liable and no incentive to search for services charging more reasonable costs. (Emphasis Added)
HOA leaders need to think twice about entering into contracts that seem to good to be true. Consider this in light of the lawsuit filed by Bank of America against dozens of HOAs over “excessive and unlawful” collections costs and attorney’s fees. Closer to home we see banks and third party purchasers questioning substantial collections costs and attorneys fees with increasing frequency. Judges are taking notice and seem to be more and more inclined to enter Orders based upon strict interpretations of the portions of the Condominium Act governing lender “safe harbor” protections and “joint & several liability” obligations.
For the most part, the Condos/HOAs are ultimately responsible for the actions of its agents (whether a management company, collections agency, law firm or other). Your association may face liability as a result of what is being charged and billed on its behalf, even if it did not reap the benefit of those additional payments by homeowners.