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This column is comprised of questions that have been posed to me by homeowners, property managers and related professionals regarding legal issues that they have encountered with respect to their associations. Discussion of these questions, as well as prior questions, can be found on the CAI-MN LinkedIn page: www.linkedin.com/ groups?gid=1769135
My association has obtained judgments against homeowners who did not pay their assessments, but we have not done anything else. Is there anything we can do to collect these judgments? We are noticing a trend away from personal judgments and back towards foreclosure for association collections. This is due to the recovering economy and the slowdown in mortgage foreclosures. When the mortgage companies were foreclosing at a higher rate, associations needed to turn to personal judgments to collect delinquent assessments due to the liens being extinguished by the mortgage foreclosures. Now that the mortgage foreclosures have slowed, associations are more frequently choosing assessment lien foreclosure as the preferred means of collecting delinquent assessments. However, many associations are still sitting on judgments that they obtained over the past several years. The collection process should not stop once judgment is obtained. As a judge in Hennepin County is known to say, “A judgment is just a piece of paper that says one person has to pay another person a sum of money.� The payment does not occur automatically, and often an association will often be required to take further steps to collect on the judgment.
Information In order to collect a judgment, some basic information about the debtor must be known. The best information is often where the debtor banks or works. If the association has checks that the debtor used to pay assessments 22
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previously (always keep copies of checks for this reason!), or knows where the debtor is employed, it is in a good position to start collection. However, if that information is not known, your attorney can issue a Demand for Disclosure. The Demand is an order from the court requiring the debtor complete a Financial Disclosure Form (FDF). The FDF requires that the debtor disclose current banking information, employment information (location and salary), real property owned (including estimated value and amount owing on the property), as well other collectible assets such as vehicles and investments. The homeowner is required to complete and return the FDF within 10 days of receipt. Failure to do so leads to an Order to Show Cause (OTSC) hearing where the debtor will be required to explain to a judge why he/she failed to complete the form. If the homeowner appears at the OTSC hearing, which is rare, they usually complete the disclosure form in the presence of the court. However, if the homeowner fails to appear for the OTSC hearing, the judge will find them in contempt of court and issue a warrant for their arrest. Some counties will actively pursue these individuals, while other counties will simply wait until the individual is stopped for another reason (most commonly a traffic stop) and arrest them at that time. Upon arrest, the individual, after being booked, is able to complete the disclosure form, or pay bail.
Bank Levy If the association has bank account information, or even just the bank name, its attorney can levy the accounts held by the debtor. Notice is not provided to the debtor first, as that would allow them to either change banks or empty the account. Therefore, the bank, upon receipt of the levy notice, will freeze the account. All funds in the account at that time will be held for a period of 14 days. During this period,
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the account holder has the opportunity to produce documentation showing that the funds being held are exempt from levy. The most common exemption is for government benefits (Social Security, Medicare, etc.) Once the hold period has expired, and the exemptions have been sorted, the remaining funds, up to the amount of the judgment, are released to the association. A bank account can be levied repeatedly, but if you succeed in obtaining funds via a second levy, the debtor will usually wise up and change banks preventing a third levy of the same account. If a bank account is closed, a new FDF can be issued to ascertain the new bank information.
Wage Garnishment If you don’t have bank information, or are not able to obtain enough to satisfy the judgment via a levy, the association can garnish wages. Prior to starting a wage garnishment, a notice must be sent to the debtor stating that a garnishment will be starting in ten days. This gives the debtor a chance to satisfy the judgment prior to his/her employer being notified about the situation and also provides an opportunity for the debtor to claim that his or her earnings are exempt from garnishment. If the judgment is not satisfied after the ten day period, garnishment documents are sent to the employer. The employer is required to withhold a portion of each paycheck for the following 70 days. The exact amount is calculated based on the number of hours worked, pay rate, and other garnishments that may be pending. The law requires that the employer hold all funds for 70 days and then remit the holdings to the the association. However, in practice many companies will send the association a check each pay period rather than wait until the end of the 70 days. In addition, the garnishment is meant to be re-submitted by the association every 70 days, but if the judgment amount is not satisfied, many companies will simply keep garnishing the debtor until they are told to stop. Your