Confessions of a Delinquent Homeowner

Homeowners Associations and Condominium Associations have one less weapon to use in the fight against delinquent assessments. A recent Maryland Court of Appeals decision (Goshen Run Homeowners Association, Inc. v. Cisneros, 463 Md. 524 (2019), held that association assessments are “consumer debt” for purposes of the Maryland Consumer Protection Act, and as such, the use of confessed judgment clauses in settlement agreements with delinquent homeowners is prohibited. The inability to use a confessed judgment clause in a settlement agreement with a homeowner makes it more difficult for associations to collect delinquent assessments.

What is a confessed judgment clause?

When a homeowner is delinquent in the payment of their assessments, the association turns over the delinquent account to the association’s attorney for collection. After reviewing the collectability of the amounts shown on the account, if the attorney determines the account is collectible, they will send a demand letter, demanding payment and notifying the homeowner that a lien will be filed against their home if they do not pay the delinquent amounts or dispute the debt within thirty days. Oftentimes, upon receipt of the demand letter, the homeowner will contact the attorney to work out a payment arrangement. The attorney will typically prepare a promissory note and formal settlement agreement, which, among other things, will have the homeowner acknowledge they owe the debt and agree to the entry of a confessed judgment in court if they fail to comply with the terms of the settlement agreement. A confessed judgment clause allows the attorney to file an affidavit with the lawsuit and confess, on behalf of the homeowner, that the judgment is owed. The Court can then immediately enter judgment against the homeowner. Having a confessed judgment means the association can avoid the time and cost

associated with going to trial and begin to collect on the judgment by garnishing bank accounts, wages, and other collection methods. The process of obtaining judgment with a confessed judgment is significantly shortened compared to the regular litigation process. Without a confessed judgment clause, the association’s attorney would have to file a complaint for breach of contract, conduct discovery, and either file a motion for summary judgment and/or go to trial.

Association Assessments Fall Under the Maryland Consumer Protection Act

The Maryland Consumer Protection Act prohibits the use of confessed judgment clauses in all consumer contracts, which include contracts for the provision of consumer credit, debts, goods, realty and services. Consumer credit, debts, goods, realty and services mean, respectively, credit, debts, goods, real property, and services which are primarily for personal, household, family, or agricultural purposes. Until the Maryland Court of Appeals’ recent decision, most attorneys in the community association industry (including the judges who granted confessed judgments in assessment collection cases), did not consider a homeowner’s obligation to pay assessments under association covenants recorded in the land records as a consumer transaction covered by the Maryland Consumer Protection Act. A homeowner’s obligation to pay assessments and the association’s obligation to collect them are expressly covered under the Maryland Condominium Act or Maryland Homeowners Association Act, as applicable, and were thought to be distinct from “consumer transactions.” However, the Court of Appeals held that the payment of assessments to an association provides the homeowner with the right to use and enjoy common area and community facilities and are debts incurred primarily for household or family purposes.

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As a result, an association’s attorney will no longer be able to use this abbreviated process to obtain judgments against debtors who default on their settlement agreements. In order to obtain a judgment against a delinquent homeowner, the attorney will have to file a complaint in court and prepare the case for trial. The board of directors of associations should discuss with their attorneys what the Maryland Court of Appeals’ decision will mean for their assessment collections efforts.

Written by: Judyann Lee, Esq., of Counsel McMillan Metro, P.C.

240-778-2308

jlee@mcmillanmetro.com