Collecting Delinquent Homeowner Association Assessments
Delinquent Homeowner Association Assessments
Homeowner association (HOA) assessments are charges levied by the HOA to pay for the expenses of the community. HOA assessments can be substantial because some homeowner associations pay for utilities, road maintenance and other services. When an owner does not pay HOA assessments, all the remaining owners must pay more to cover the expense.
Many homeowner associations are unsure about what to do when assessments go unpaid. While hiring a lawyer or collection agency may seem like the obvious choice, that choice generates more expense before recovering the assessments and sometimes is not recovered, at all. The secret is to properly manage the HOA collection process.
There are three distinct phases of the HOA collection process. Those phases are pre-lawsuit collection efforts, the collection lawsuit, and post judgment collection efforts. Pre-lawsuit collection efforts can be as simple as a letter or can be a series of letters and phone calls. Before any collection efforts begin, it is probably a good idea to confirm who is in title to the real property, confirm the HOA has the mandatory written collection policy in place, and confirm that written policy is being followed.
HOA pre-lawsuit collection efforts may have little effect on a homeowner who has numerous debts. The HOA letter or phone call is probably just one of many communications from creditors. A collections lawsuit must be filed to obtain a judgment and to create a choate judgment lien against the real property. A certain percentage of delinquent homeowners will pay once served with the HOA lawsuit.
County court HOA collection lawsuits are not expensive to file. If the homeowner does not answer the lawsuit, a default judgment is entered. The process can be relatively easy and quick. However, sometimes the homeowner will file an answer denying that assessments have not been paid. This can generate additional legal expense that is typically recoverable as part of the collections lawsuit. For this reason, the law firm should properly and timely track all legal expenses and include those expenses in any request for judgment. This tracking of all legal expenses is not as easy as it sounds because legal expenses continue to accrue even after settlement is reached, and court procedures regarding appearance and filing for default judgement vary by county.
Post judgment HOA collection efforts are where many HOA lawyers and collection agencies stumble. County court post-judgment collection tools are limited in scope. Delinquent homeowners tend to be evasive if not downright uncooperative. Legal costs tend to increase while collection success tends to decrease. If the delinquent homeowner is not a Colorado resident, the process can be lengthy and relatively expensive compared to the amount owed.
The secret to post-judgment collection success starts with the pre-lawsuit collection efforts. Prior to filing the lawsuit, the lawyer should be thinking about how to collect on the judgment. Names and aliases should be documented, research should be undertaken on collectability, and a decision made about the likelihood of quick recovery. That information should be shared with the HOA so that the HOA can decide if it wants to proceed.
Sometimes, the best collection technique is patience, a good calendaring system, and accrued interest. Colorado county court judgments expire after six years unless revived. The judgment expiration date should be calendared and the judgment recorded in at least one Colorado county. Recording the judgment in the county where the real estate is located increases the likelihood that the credit reporting agencies will pick up the judgment, creates a choate HOA lien against the real property, and solidifies the homeowner association’s lien.
County court judgments can be calendared and typically revived every six years. HOA assessments can accrue interest of up to twenty one percent per year. It does not take long before the accrued HOA interest is substantial. Eventually, the delinquent homeowner may want to borrow money, refinance a home loan, or sell the real property. When that day comes, the homeowner must deal with the delinquent HOA assessments, accrued interest, and legal fees.
