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Acceptance and Application of Payments is ALWAYS the Right Answer

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Assessment payments are the life blood of every community association, and the recovery of delinquent assessments is the primary goal for every community association. However, many associations, and their management companies, refuse to accept direct payment from delinquent owners once the account is turned over to their attorney for collection proceedings. Many associations place a “collections hold” on the account, which can prevent an owner from making payments through online portals and, in some instances, results in the association’s bank rejecting an owner’s automatic payments. Not only do these actions prevent the association from receiving much needed funds, they can also result in the association running afoul of Florida case law.

The danger of rejecting payments, or accepting payments but failing to apply the payments to a delinquent owner’s balance, is highlighted by the holding in Rajabi v. Villas at Lakeside Condominium Association, Inc., 306 So.3d 400 (Fla. 5th DCA 2020). In Rajabi, the owner made several late payments toward his monthly assessments, leading to late fees and interest being incurred on the account. Rajabi continued making regular payments towards the monthly assessments until it became clear that the Association was no longer crediting the payments to his account. Rather than crediting Rajabi’s payments to his account, the Association forwarded the payments to its attorney, who deposited the checks in a trust account. The Association failed to respond to Rajabi’s repeated attempts to obtain an accounting of the payments or a ledger for his account. The Association’s attorney eventually responded to Rajabi’s request by producing a ledger that included all of the assessments, interest and late fees incurred, as well as notations as to when Rajabi’s checks were received, but the collected payments had never been applied to reduce the amount owed.

The Association eventually filed a foreclosure action against Rajabi for the delinquency. The trial court entered a final judgment of foreclosure in favor of the Association, which Rajabi appealed. The Fifth District Court of Appeals reversed the final judgment on two grounds, one of which is that the Association violated Florida Statute AND the express terms of the Association’s governing documents by failing to properly apply Rajabi’s payments to his account.

In overturning the trial court’s decision, the Fifth DCA cited to the language found in the Association’s governing documents, which stated, in relevant part: “[A]ny payments received from a delinquent unit owner ‘be applied first to any interest accrued on the delinquent installment(s) …, then to any administrative late fees, then to any costs and reasonable attorneys’ fees incurred in collection and then to the delinquent and any accelerated Assessments.’” Rajabi, 306 So.3d at 401. The Fifth DCA also cited §718.116(3), Fla. Stat., which states, in relevant part: “Any payment received by an association must be applied first to any interest accrued by the association, then to any administrative late fee, then to any costs and reasonable attorney’s fees incurred in collection, and then to the delinquent assessment.”

The Fifth DCA found that the Association did not “outright reject Rajabi’s continued monthly payments, but because it also did not apply them to his balance, it might as well have rejected them.” 306 So.3d at 404. Further:

The Association’s failure to properly apply Rajabi’s payments as they were received was a breach of the Declaration and a violation of the controlling statute that requires reversal. The procedure utilized was particularly egregious given Rajabi’s repeated attempts to obtain account information from the Association.

The Rajabi holding makes it clear that associations must continue accepting payments directly from a delinquent owner even when the account is turned over to an association’s attorney for collections. If the account has been turned over to the association’s attorney for collections, the association should alert the attorney as to the payment received and discuss the impact of the payment on the collections action. The payment should be applied to the account pursuant to the application of payment provisions found in the Florida Statutes governing community associations, i.e., §§718.116(3), 719.108(3), and 720.3085(3)(b), Fla. Stat. Pursuant to these statutory provisions, a delinquent owner’s payment is first applied to interest, then to late fees, then to costs and reasonable attorney’s fees and then to the delinquent assessment. By following the application of payment provisions found in the statutes, the association is recovering much needed funds and abiding by Florida law.

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