No condominium association wants to pursue a unit owner for unpaid common area charges. If and when your association is faced with doing so, however, the more prepared you are, the better. This article provides helpful tips to ensure the lien enforcement process is as smooth as possible for everyone involved.
In order to avoid claims of bias or discrimination against the condominium association, always remember that the association must treat all owners equally.
1. Legal invoices. Make sure all charges are timely posted to an owner's ledger, including assessments, fines and legal fees. In 2024, our firm encountered numerous ledgers sent for lien enforcement that did not have the legal fees posted to the accounts. Under the terms of the standard engagement letter between a condominium association and legal counsel, the condominium association is responsible for payment of the legal fees to the firm (though MBM does not require our clients to pay the legal fees associated with handling delinquent common expense assessments out of pocket until the lien enforcement process is completed). The owner is then responsible to reimburse the fees and costs to the condominium association as they are part of the lien. By posting the legal fees to the ledger, it will ensure those owners who make payment through a payment portal will see them and pay them.
Additionally, no association board member or management company should send the legal invoices directly to the owner, as there may be items contained in the legal invoices that are attorney-client privileged. If requested, legal counsel can send copies of the legal invoices to the owners, after review and redaction of any attorney-client privileged entries.
2. Association collection fees. Most management companies charge a flat collection fee when an account is sent to counsel for legal action. This fee should be posted to the ledger before it is sent to counsel. If the fee is not posted, and the owner signs into the payment portal to make payment, then it cannot be later added to the ledger.
3. Flag accounts sent for legal action. Once an account has been sent to legal, make a notation on the ledger system. Once in the hands of counsel, neither board members nor management should be speaking directly to the delinquent owner so as not to have conversations occurring without counsel’s knowledge. Direct communication can create a “he said-she said” situation. Direct communications may lead to a circumstance in which the owner will inform legal counsel they are in a payment plan with the condominium association. Without being privy to this information, legal counsel is continuing to incur legal fees. Of course, some owners mistakenly believe they are in a repayment plan, which may not be accurate. Further, if the delinquent owner makes a payment soon after the account has been sent to counsel, it is best practice to advise counsel of the payment so a decision can be made as to whether to proceed with the lien enforcement action.
4. Bankruptcy. Always advise legal counsel of a bankruptcy filing, even if the owner is current at the time of filing, as the case should, at a minimum, be monitored in case the owner’s intentions under bankruptcy are in conflict with the condominium association’s interests. If the owner is in fact delinquent, no lien enforcement action can take place without authorization from the Bankruptcy Court – including the sending of late notices.
5. Owner Address. The condominium association often relies on the unit owner to provide their current mailing address; however, more frequently, we are encountering ledgers stating the unit is owner occupied, when it is not. Provide legal counsel with an owner’s address if they are an absentee owner. Ledgers should be immediately updated when an owner provides a new address. Many foreign owners provide an email address only. Under Chapter 183A, Section 4(4), all owners are obligated to provide their name and mailing address. Under Section 6(c), legal counsel is required to send notices of delinquency to the owner via certified and first-class mail, not via email. Consequently, all owners shall provide a mailing address. Routine communications between the condominium association and the owner can be sent via email.
If the condominium association and/or property manager is aware that a unit owner is deceased, this information should be provided to legal counsel at the beginning of a lien action. The notice of lien letter needs to be sent to a surviving spouse or personal representative of the late owner’s estate. Having this information at the start of an action will save considerable time and effort.
6. Federal Fair Debt Collection Practices Act. Everything we have discussed above is affected by the Federal Fair Debt Collection Practices Act (“FDCPA”), as legal counsel complies with FDCPA out of an abundance of caution in the event counsel is considered a debt collector (as opposed to an entity seeking to enforce a lien). As of November 30, 2021, some consumer protections were changed in order to create more transparency for consumers. One of the most important changes was to the mailing requirement. Previously, an owner was given 30 days to respond to a notice of lien letter. Under the changes, the owner now actually has 45 days to respond. The changes, in effect, stretch the 30-day response period to approximately 45 days. Consequently, condominium associations should be prepared to send delinquent accounts to legal, at latest, when they are no more than 90 days delinquent, to ensure that counsel has sufficient time to file a complaint before the account is more than 6 months in arrears.
7. Treat all owners the same. In order to avoid claims of bias or discrimination against the condominium association, always remember that the association must treat all owners equally. Board members must remember they wear two hats – one as an owner and another as a board member, and when acting as a member of the board, they have a fiduciary duty to act in compliance with the condominium documents for the best interests of the condominium association and not for the benefit of any individual unit owner. Board members cannot give friends within the condominium community preferential treatment. If an owner falls into arrearages, the board cannot allow the account to slide by without being sent to legal counsel. The same holds true if the delinquent owner is a board member themself.
Additionally, boards should establish a policy for repayment plans. Absent unique circumstances, a board should generally not grant some owners a repayment agreement and refuse the same for other owners. The simplest policy is to allow each owner one repayment plan. Condominium associations are non-profit entities and choosing to allow owners multiple repayment agreements that they may not comply with may compromise the budget and negatively affect all other paying owners.
Happy New Year and best wishes to all; and remember that MBM is always here to answer any questions you may have.