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Frequently Asked Questions

EE utilizes a five-step process:

  1. Notification that the debt has been given to a collection agency and that if the debt is not resolved a Lien will be filed in approximately 30 days
  2. Lien – Actual filing of a lien with the County securing the Association’s interests
  3. Constant Contact – Pursuit via telephone, internet, written correspondence and e-mail
  4. ITF – Notification of the Intent to Foreclose on debtor’s home/condo
  5. Foreclosure by Advertisement – Actual foreclosure without court order or judgment

The whole process averages about 90 days if all steps are required to collect on debt. If a foreclosure is required, the 90 days increases to approximately 280 days because of a state-mandated six-month redemption period. (See diagram.)

Yes! There are numerous reasons for an association to pursue outstanding debt, including:
 

  1. Association Boards have a fiduciary duty to achieve and maintain the best possible financial state for their association. This duty is expressed in most associations’ bylaws.
  2. The new lending requirements for Fannie Mae and Freddie Mac place a greater level of responsibility on the association board to proactively manage delinquencies. If the delinquency rate for the association rises above the allowable percentage, potential homeowners would not be able to receive Fannie Mae or Freddie Mac backed mortgages. This has the potential to drive down property values and stigmatize the association in the resale community.
  3. Debt is often easier to collect when the outstanding amounts are smaller. If the association acts quickly, before debt amounts become large, the debt is much more likely to be collected.
  4. Debtors are much more likely to pay off debt if they perceive the association to be serious regarding the collection of past due balances. If the association acts quickly when the unit owner becomes delinquent, the debtor will understand that they will be required to pay their dues and assessments. If the association is slow to react, the debtor may perceive this as indecisive, leading to lack of motivation by the debtor to pay their balance.
  5. News spreads quickly within condominium communities. As unit owners become aware of other co-owners being past due on association dues, they start to wonder why they are paying their own dues. The opposite is also true - if a unit owner hears that the association acts quickly on delinquencies, they will not want to face the legal ramifications of being delinquent themselves.
  1. The first and greatest value in utilizing a collection agency to pursue outstanding debt is perception. When a debtor is made aware that a collection agency is involved, they look at the situation with more urgency. They know that the association is serious about collecting the debt.
  2. Debtors are aware that pursuing debt is the collection agencies’ primary function. They will understand that the debt is not going to go away or be easily manipulated. They know that their association’s board of directors has numerous responsibilities above and beyond the collection of delinquent balances.
  3. There are legal limitations as to what a non-collection agency can do to pursue debt; these are defined in the “Fair Debt Collection Practices Act.” Also, boards and management companies may be limited by their bylaws.
  4. A collection agency creates a concern for the debtor about credit scores. They realize that unpaid debts reported to credit agencies can negatively impact their credit score.
  1. By providing current and complete ledgers with new files.
  2. By responding promptly to requests for information or questions related to a delinquent account. We strongly suggest that one board member be authorized to make decisions on collection issues, as time is critical in the collection process.
  3. By directing delinquent homeowners to Equity Experts if they try to contact the association or management company. Debtors may try to use dishonest and inventive methods of reducing their debt. One representation provides a consistent and clear message.

The Fair Debt Collections Practices Act, Section 803, Paragraph 6 states that a debt collector means “any person…who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” When a property management company sends an outstanding balance ledger to a delinquent homeowner, there is no collection action taken on their part, simply a notification and factual summary of information provided to the homeowner. In contrast, a phone call initiated by the management company could be construed as a collection activity and is subject to the perception and recollection of the callers. This could cause the management company to be in violation of the FDCPA, exposing them to potential claims that would likely require indemnification and legal representation at the expense of the community association.
 

Foreclosure is a distressing thought for anyone; the mere mention of it in many cases will cause a debtor to make good on their debt. It is the final step in our process. Therefore, our notification of the association’s intent to foreclose holds great value in that it makes the homeowner aware of the seriousness of the matter and consequences thereof.
 
By foreclosing on a unit, the association sends a clear message that delinquency is unacceptable. All too often, homeowners think that association dues are an unsecured, trivial debt they do not need to be concerned with. Once they realize this debt can lead to foreclosure they understand that the debt is real and secured.
 
Liability to the association on a unit they foreclose on includes:

  • Payment of property taxes
  • Maintenance of property and surrounding area
  • Cost of listing or selling the unit
  • Cost of eviction, if necessary

Associations can sometimes recover funds in excess of their debt if the value of the unit is greater than the mortgage debt. However, if the equity is insufficient to satisfy the debt, it may make sense to hand the unit over to the mortgage holder. In this case, the unit will be placed back on the market and the mortgage company will be responsible for the association fees and other unit costs until they sell.

It is quite easy to gain a judgment in the association’s favor. However, collecting on the judgment is the hard part. Most people in this situation may have lost their job or are working side jobs that are not “on the books.” There are significant costs in trying to pursue the debtor after a judgment. These costs include finding the debtor’s bank account information, their employer and setting up a garnishment. Often, the costs eliminate the benefit.
 
If the homeowner has declared bankruptcy, courts will wipe out the debt with the bankruptcy. In many cases when someone has lost their home, they will declare bankruptcy, as their home is most often their greatest asset.

Association Boards have a fiduciary duty to manage debt and pursue the best financial condition for the association. A key to maintaining a healthy financial condition is managing debts.

Excessive debt can impact the entire association in numerous ways, including new requirements by Fannie Mae and Freddie Mac which place a greater level of responsibility on the association board to proactively manage delinquencies. These organizations will not allow financing for potential owners if the association’s delinquency level is too high. This has the potential to drive down property values and stigmatize the association in the resale community.

Also, if too much outstanding debt is accrued, associations miss budget goals and are forced to seek other means to make up the difference. They may have to increase association dues or issue special assessments. Unfortunately, this approach further burdens the co-owners that pay their assessments while simply increasing the delinquency of those that are not paying.

Boards owe it to themselves and their neighbors to act quickly when a unit owner becomes delinquent, and to act aggressively when it becomes clear that the delinquent unit owner is not taking action to correct the issue.

 

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