If you are on the Board of Trustees of a condominium, or simply live in a condominium, there is often substantial pressure caused by unit owners who do not pay their condo fees. Below are some tips to help with collecting overdue fees.
An association that has units owing condo fees can cause a shortfall in condo funds, and both (1) make it difficult or impossible to afford necessary repairs, and/or (2) make it difficult or impossible to refinance or sell a unit to anyone needing financing.
As to refinancing or selling a unit to a buyer needing a mortgage (as most do), lenders follow guidelines from the Federal Housing Administration, for condo mortgages. Among the requirements for most lenders, including Fannie Mae, is that no more than 15 percent of owners can be delinquent on condo dues.
In this market, where bankruptcies and foreclosures are so very common, condo trustees are in a difficult position when trying to collect past due fees, as most owners’ failure to pay stems from a simple lack of funds, rather than a disregard for condo rules. Regardless of the reasons why, a shortfall can make repairs impossible, and can even make it difficult to maintain utilities, such as keeping the lights and heat turned on. A shortfall leaves the remaining unit owners stuck with the choice of paying more than their fair share, just to keep the place afloat. Sometimes the board is forced to make special assessments to recoup the shortfall, again putting the onus on those unit owners who are paying their dues, which may seem like a “punishment” for those actually paying on time.
Massachusetts law provides a legal remedy for associations trying to collect past due fees, by way of the filing and enforcement of a condo lien against a delinquent unit. The lien even takes priority over the mortgages on the unit, for up to 6 months worth of condo fees and collection costs. The lien is a creature of statute, and therefore, the procedure for placing the lien is precise. If done right, the mortgage holder of the unit will often come forward and pay the arrears, including collection costs, in order to protect their own mortgage interests, as they do not want the condo lien to take priority over their mortgage.
Some basic tips to rely on:
- Do not wait. When a unit becomes delinquent by 30 days, send them a notice requesting payment. Under the statute, a unit must be at least 60 days in arrears in order to start the lien process, but a demand for payment from the association can be sent right away. If payment remains in arrears on day 61, have the condo’s attorney send out the statutory notice. The statute has specific waiting periods between each step in the process, so the ball needs to start rolling as soon as possible
- No exceptions. It is unfair and unprofessional to act differently towards different unit owners. If a notice is sent after 30 days, do the same for everyone, regardless of who they are, their reasons for non-payment, and even if they are trustees. Acting the same toward each unit avoids any discrimination issues and demonstrates the fairness of the board. To allow some untis more time than others creates the perception of unfairness, and may even be a breach of the trustees’ Fiduciary duty to act in the best interest of the condominium. A statement can even be written into in the notice stating that “all unit owners a certain number of days delinquent (I suggest 30 days) receive the same notice”.
- Rely on the professionals. If your condo association uses a management company, they may have procedures in place for collection notices already. Talk to them and see what they can do to help. Once the 60 day mark hits, notify the attorney and have him or her start the statutory process. The attorney will know how to properly draft and send the notice, so as to retain proper legal rights. Again, doing this uniformly for all units is best. Waiting too long can cause the arrears to go beyond 6 months, which can reduce the collectible priority amounts under the lien.
- Hire a good attorney. The attorney should be experienced at condo fee collection. I have done a huge number of these cases, and most of the time I am able to collect the funds owed without going to court or costing the association any money. An experienced attorney in this area will know that his or her fee is collectible against the unit owner, and therefore should not require a retainer up front for condo fee collection, other than to pay out of pocket costs, filing fees, etc. The unit delinquent unit is responsible for payment of collection costs, so even if the lender is going to pay, the attorney fees are part of the payment. I do not charge a retainer for this type of work, and typically do not charge costs up front either, unless there are many units in arrears at once.
- Do not make it personal. It is not necessary to agrue with or ostrasize a delinquent unit owner. Let the law work for you, and use your hired professionals to enforce it. If done right, the case almost always succeeds.
- Know your condo docs. Condo documents provide for whether or not an association can charge late fees or interest on past due fees, as well as any limits for such fees. If the docs do not provide for interest or late fees, you should consider amending your docs. Further, older associations have older documents, and the limit of fees might be too low for today’s standards, and provide little incentive to avoid being late. If this is the case, amend the docs. The docs themselves will spell out the procedure for amendments. Your condo’s attorney can assist with this, and if your condo is not represented, call me and I’ll help you.
- Keep records up to date. It is important to always know what units are behind, by what amount, and what other fines or fees are to be added. Your professionals need to be updated so that they seek the proper amount of payment. Be prepared to go to court if the case gets that far, but most cases do not.
Collecting condo fees from people you live with is never easy. Rely on hired professionals to take advantage of the legal process, and keep you from having to do the work yourself. If your association needs representation, call or email me, 978-657-7437 or firstname.lastname@example.org. I have had great success with condo collections, and most of the big firms that represent lenders know me for this type of work, which helps in negotiating and ultimately collecting payment. With no retainers, and the fee being assessed to the unit owner, the association gets the collection work done for free in most cases. I do not require filing costs be paid in advance unless we are doing multiple units, and those costs are reimbursed when payment is collected. See my website for more info, www.montefortelaw.com and click the tab for “Real Estate and Condominiums”.