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It is very likely that your management company charges a fee to delinquent owners if they send collection letters or take other action to collect a delinquent assessment. After all, they are doing extra work that wouldn’t be necessary if the owner paid on time.

There is no mention of these management collection fees in the statutes governing Florida community associations. The association is entitled to collect interest on the delinquency by statute – interest is specifically addressed. It can charge late fees (if allowed by the governing documents) to the owner. Late fees are specifically authorized by the statutes. It can pass along the attorney fees and costs too, as those fees and costs are specifically mentioned in the statutes.

If the associations have to ask their management firms to collect assessments, why doesn’t the statute specifically allow associations to pass through those fees on to owners?

We have tried to do exactly that for many years. If you look at the legislative history for the 2010 legislative session, there were attempts to get these management or collection agency fees added to SB 1196. However, it was only added to the Cooperative Act (Chapter 719). The law for cooperatives said:

"The association has a lien on each cooperative parcel for any unpaid rents and assessments, plus interest, any authorized administrative late fees, and any reasonable costs for collection services for which the association has contracted against the unit owner of the cooperative parcel."

If that highlighted language was included in the Condominium Act (Chapter 718) and the Homeowners’ Associations Act (Chapter 720), then associations would specifically have the right to add management fees to their liens against owners. Isn’t that fair?

Well, since it said ‘reasonable costs’, some organizations claimed management companies and collection agencies would abuse this statute and charge outrageous amounts to unit owners. The term "reasonable costs" is broad. Arguably there is room for abuse. In fact, we see this all the time when it comes to estoppel fees. The statute says the charge for an estoppel certificate must be “reasonable”. Some places have a $100 fee, some have a $200 fee, some have a $400 fee – all of which are claimed to be “reasonable”. I heard of one company charging more than $500 as an estoppel fee. Obviously, there is a lot of room when you use the term “reasonable”.

So in light of those arguments, language limiting the collection fee to $150 was proposed to be added to the shared ownership statutes. CALL supported that effort. A number of management companies supported that effort. But there was still opposition, so Sen. Fasano came up with alternative language in his companion bill, SB 530, to provide as follows:

468.439 Collection services.-Collection services expenses that are reasonably related to the collection of a delinquent account rendered by a community association manager or management firm on behalf of a community association governed by chapter 617, 718, 719, 720, 721, or 723 may be secured by the filing of a claim of lien on behalf of the community association if the collection services expense is specified by amount in a written agreement with that community association manager or management firm and payable to the community association manager or management firm as a liquidated sum.

If you look at the CS 3 version of SB 530, you will see this language in the bill. However, the Legislature passed HB 1195, and not SB 530. CALL advocated for adding this language to HB 1195 (which is now the 2011 statutes). The position of some of the members of the Legislature was that this was an additional "fee" and they were opposed to any new fees. Since the ability to collect these fees wasn’t added to HB 1195, we still don’t have any specific authority in the laws to charge and collect these fees from owners.

So fast forward to 2012, and CALL is still advocating for some language that will allow associations to add collection costs to the lien. We have always supported that, but the opposition remains to any type of new fee. One of the suggestions that has been made to address this issue involves allowing associations to collect an increased late fee in order to recoup the costs that the management companies charge for the collection services. Currently, the law allows associations to collect a late fee of the greater of $25 or 5% of each installment for each delinquent installment, but only if authorized by the declaration or bylaws. If this amount was increased and if all associations were allowed to collect this amount, it would appear to be sufficient to recoup the costs of collection. This is the approach favored by some members of the Legislature, including the sponsor of HB 319, and CALL assisted in drafting the language.

So, long story short, the issue of management collection fees being added to the association's lien is still being debated. We are advocating for something to be done. Otherwise, there will continue to be no authority in the statutes for these fees and unscrupulous management firms and collection agencies will continue to charge unlimited amounts.

So I ask you, community leaders, don’t you want the Legislature to address this issue and allow associations to recoup the cost of collection, as long as the amount is limited to prevent abuse?

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Live Webinar on Wednesday, December 1, 2010
2:00 PM–3:00 PM Eastern (1:00 PM-2:00 PM Central)

Funding Owner Delinquencies: Collecting Rent From Tenants

The 2010 Florida Legislature created new procedures for community associations to collect assessments from tenants of owners who are in arrears. You’ll want to join us to hear about these new collection techniques and to learn how to avoid pitfalls in the process.

Lisa Magill, Esq. Becker & Poliakoff Ft. Lauderdale	Scott Petersen, Esq. Becker & Poliakoff Sarasota

Join moderator Lisa Magill and Scott Petersen of Becker & Poliakoff who will present with guest speaker Seth Heller of Heller & Company, Inc., a receivership, private equity, and advisory firm based in Miami, for this insightful live webinar on Funding Owner Delinquencies: Collecting Rent From Tenants.

Register below and you will receive a confirmation email with information on how to participate.

http://event.on24.com/r.htm?e=257939&s=1&k=E4782631B583E8047AAB430A0C918CA1

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On August 17, 2009, the Task Force On Residential Mortgage Foreclosure, created by the Florida Supreme Court, issued its final report on the "foreclosure crisis" affecting condominium and homeowners' associations throughout the state.

The full report can be viewed at http://www.floridasupremecourt.org/pub_info/documents/Filed_08-17-2009_Foreclosure_Final_Report.pdf

The following quote, taken directly from the report, succinctly sums up what community associations are presently dealing with. Here is what the Task Force said:  

 

Picture this: the biggest road out of town. Now imagine it is rush hour. In a thunderstorm. Add that it also a hurricane evacuation. A lane is closed due to construction delayed by budget impacts. Imagine the traffic jam.

The clearest description of the impact of the foreclosure crisis and the following recession on Florida's courts can be summarized by that picture. Imagine every car a case. The General Jurisdiction Courts of our State have a certain amount of judicial infrastructure, just like there is a certain amount of room on the road. There is a certain capacity of judges, of court staff, of clerks, of filing space, of hearing time, or courtrooms, even of hours in the day. Year in, year out, that capacity flexes with the caseload traffic to afford reasonable, prompt, efficient and fair justice.

The enormous increase in foreclosure filings has overwhelmed those resources in many circuits and represents a traffic jam that the infrastructure cannot meet in a timely and efficient manner without support and traffic management.

I would add to the above quote that at a time when the evacuation route is jam-packed with cars, imagine further that more and more roads are continuing to be closed as the traffic jam gets worse. Unfortunately, that's the scenario facing our courts when the Legislature insists on cutting funding of the courts. The largest expense of the court system is in personnel, so in a time of burgeoning foreclosure caseloads, the courts are actually being forced to lay off staff. Too many foreclosure cases and not enough people to handle them. Indeed, we hear the daily mantra from frustrated clients asking what is taking so long with these cases? Well, truly, this is a "perfect storm." The storm has caused a huge backlog in the court system which significantly delays the time it takes to complete a foreclosure lawsuit.

All is not lost, however. Associations need not sit idle on the sidelines once a mortgage foreclosure action is filed and seems to stall. Directors need to monitor these cases and can often, with the assistance of counsel, file motions with the court to force banks to either foreclose or pay assessments, ask for case management conferences where the court can set some deadlines for action, or the association might even notice the case for trial, which will force the bank to move forward. In fact, this tactic is working. Several judges in districts throughout the state have entered Orders requiring banks to take some action with their foreclosure cases and in some instances, pay assessments to the association during the pendency of the foreclosure.

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The Florida Consumer Collection Practices Act Prohibits Associations From Posting Delinquency Lists and Taking Other Actions to Collect Assessments and Maintenance Fees.

 There have been a number of newspaper articles explaining actions taken by community association boards and managers to collect delinquent assessments.  The Miami Herald reported that some associations post lists of the names of the owners behind on their fees and others deny security access devices to tenants of delinquent owners.  

The Wall Street Journal reported that some associations were taking control of the unoccupied units and renting them on a short term basis until the bank foreclosed.  

While we are all familiar with the idiom "drastic times call for drastic measures",  community leaders and property managers should understand that Florida law prohibits unfair or abusive tactics with regard to debt collection, including the collection of assessments.   Although the prohibitions in the Federal Fair Debt Collection Practices Act do not apply to the person or entity owed the debt (the 'creditor', which in this case is the Association), both community associations and their managing agents are responsible for compliance with the Florida Laws.

Among other practices, Section 559.72, Florida Statutes, prohibits the following:

• Use of profane, obscene, vulgar, or willfully abusive language in communicating with a debtor or any member of his or her family;
   
• Communication with a debtor under the guise of an attorney by using the stationary of an attorney or forms or instruments which only attorneys are authorized to prepare;
   
• Orally communicating with a debtor in such a manner as to give the false impression or appearance that such person is associated with an attorney;
   
• Publishing or posting, threatening to publish or post, or causing to be published or posted before the general public individual names or any list of names of debtors, commonly know as a deadbeat list, for the purpose of enforcing or attempting to enforce collection of consumer debts;
   
• Mailing any communication to a debtor in an envelope or postcard with words typed, written, or printed n the outside of the envelope or postcard calculated to embarrass the debtor. An example of this would be an envelope addressed to “Deadbeat, Jane Doe” or “Deadbeat, John Doe”;
   
• Communicating with the debtor between the hours of 9 p.m. and 8 a.m. without the prior written consent of the debtor.

While every association must be diligent with its collection efforts, those efforts must be in compliance with legal and ethical standards.

On the other hand, the Florida Courts are cognizant of the problem and have allowed Associations to have receivers appointed for the purposes of collecting rent from tenants when the owners of those units are facing foreclosure as a result of non-payment of assessments.  Remember to check this site in the future for more information about proactive methods to collect assessments.

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As naïve as it sounds, foreclosure is business, not personal. There are some fundamental questions that need to be asked to curb the passion and focus the decisions on the economics of business.  In truth, the Association does not want the foreclosure but rather what results from it, the sale. So we need both the foreclosure and the sale for the Association to be able to get the money it is owed.

Let’s talk a bit about whether the Association should foreclose. Given the past history of property values the foreclosure decision was simple. The difference in the amount of the market value and mortgaged value left significant excess available to settle the assessments from the foreclosure action at the sale. In the current environment of depressed market values, significant portions of the properties in arrears on assessments also have significant mortgages, putting the Association in a disadvantaged position. The disadvantage is lack of equity to foreclose against; making recovery of assessments a bit more complicated and sometimes even fruitless.

The above has to be balanced against the fact that the assessments are the lifeblood of the community to maintain, beautify, and provide the amenities to the members.  All members are required to support the community through the payments of assessments. Non-paying members should not be allowed to draw down the community. Therefore, respect for the paying members must be maintained by utilizing the tools available to enforce payment of delinquent assessments from the non-paying members. 

The normal process of collections requires a demand letter, a notification of intent to lien, the lien letter and the lien itself. Once the lien is recorded a Condo has up to a year to foreclose, while the Home Owners Association has 5 years. This provides for a unique position for the Association to work with the Unit Owner and to consider owner payment plan options before spending more money which it may have difficulty recovering. If this fails then the only recourse left is to file a lawsuit to foreclose the lien and ultimately sell the property.

My next series of posts will go into greater detail regarding payment plans and the actual foreclosure process.

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