Collections Options Collections Options

No matter the size, type, or location, every association has to deal with collecting dues from its members. Most homeowners know and understand their obligation to pay association dues, and if they fall on hard times or just plain miss a payment, they make the effort to bring their account current. But what about those owners who, for whatever reason, just will not make their payments in full or on time? The association spends money and turns the account over to an attorney for collections, but then how does the association actually get paid? There are multiple options for an association to employ, and some of those options are not as standard as maybe they should be. The traditional option that most Boards are aware of is filing a lawsuit to obtain a judgment. Once a judgment is entered, the association has the pleasure of going through the laborious steps of garnishing wages or bank accounts. These steps cost the association additional time and money, and the costs are mostly non-recoverable (including the cost of locating an asset to be garnished). The other option is to place a lien on the lot/unit to secure the amount due in the event of a sale of the lot/unit or if the owner files bankruptcy. This is typically a passive collection option – record the lien and forget it. In most cases, the lien will only be satisfied when the property is voluntarily conveyed.

But what do you do when a lien and/or a lawsuit simply cannot compel the intransigent owner to pay what’s owed?

1. Restricting Voting or Access to Facilities – Does your Board have the authority?

Enforcing a judgment requires information about an owner’s employment or assets and foreclosing on a statutory lien is time consuming. Not every consequence has to be monetary. An alternative is to check the association’s governing documents for what powers the Board has to suspend voting rights, candidacy for a Board position, or restrict access to facilities if an owner’s account is delinquent. When an owner finds out that they cannot vote at the annual meeting or their families cannot enjoy the pool during the summer months, that is quite often the time that the association will hear from the owner to bring the account current or work out a payment arrangement. These non-monetary methods are strong tools to use as leverage to get paid, but there is a note of caution. Under Maryland law, the authority to impose any of these restrictions has to be specifically granted in the association’s governing documents. It’s not enough for the Board to pass a simple resolution – suspension authority has to be in the recorded governing documents to be enforceable and any process listed should be strictly followed.

2. Mediation or Alternative Dispute Resolution – Is it really worth the Board’s time?

In some cases, an account being tur ned over to an attorney for collections automatically makes the situation adversarial. Owners pretend the attorney does not exist or they are just scared and shy away from communicating. In these situations, mediation and alternative dispute resolution (ADR) can be helpful. All of the courts in Maryland have mediators available, and the judges are strong advocates for mediation. For some judges even, there is no choice: the parties are going outside the courtroom to mediate. Mediation has the benefit of allowing owners to feel heard in a less adversarial space than a courtroom. It gives both parties more control over the outcome of a case in lieu of a judge making the final decision. Note that the association does not need to file a lawsuit and go to court to obtain the benefit of a mediator; certified mediators are available across the State of Maryland. There are also ADR organizations where the claim is brought in front of an arbitrator instead of a judge. ADR sessions can be more flexible with dates and allow for more discussion for a resolution than a courtroom provides. However, ADR or arbitration can be just as expensive, if not more expensive, than hiring an attorney and filing a lawsuit. If the association ends up having to enforce the arbitrator’s decision, then the association has ended up right back in the courtroom.

3. Property based remedies

When an owner is either delinquent for extended periods of time, or is frequently delinquent, the Board may feel that it is necessary to ratchet up the pressure to try to put an end to the cycle. In such cases, the association may want to take drastic measures by foreclosing on the judgment or statutory liens against an owner’s property. In Maryland, judgment liens may be satisfied by seizing and selling a vehicle, or any of the owner’s real property. In both cases the sheriff is involved which is usually enough to get an owner’s attention. And, obviously, selling the real property will at least prevent further delinquency on the account.

Maryland law also permits the holder of a statutory lien on property within the association to sell the property and satisfy the lien. This procedure is a considerably longer process with more requirements, but it allows the association to recover most of what is owed in total. Either way, foreclosing on one of the liens tends to get the attention of a delinquent owner. Owners may complain bitterly about the association going to such extremes, but it may be what the association needs to do to make sure assessments are taken seriously and paid. Not every option is available or right for every association. Associations may not have the money for litigation or ADR, and having restriction authority in their governing documents may be the best leverage that they have to collect dues. Other associations may not have facilities or benefits to restrict and filing a lawsuit or lien may be their only options. It is best for Boards to discuss with their attorney what options are possible and most beneficial to their specific association.

Written by: Rasneek Gujral & R.A. Hurley Rees Broome, PC rgujral@reesbroome.com rhurley@reesbroome.com