Managing Delinquencies – Beware the Pitfalls
 
By Hans G. Huessy, Esq.
 
[Published in Condo Media magazine – July 2019 Issue]
 
It is important to stay on top of delinquent owners and to never allow owners to become significantly overdue in their payments.
 
First, it is unfair to other owners that pay their assessments on time. In my experience, most associations have several owners who are routinely delinquent, using the association as an informal bank. This causes bookkeeping headaches and can needlessly tie up the project manager chasing down payments.
 
One way to manage delinquencies is to regularly impose a significant late fee for accounts that are over 90 days delinquent (after having been given a reminder to pay at 60 days).
 
LATE FEE POLICIES
 
Many associations have such fees and procedures already in their bylaws, but hesitate to impose them. This failure, especially with respect to repeat offenders, can expose the association to significant and unnecessary risk. By allowing some accounts to routinely be 90 days overdue, one creates the likelihood that an owner could be six or more months in arrears before any action is taken.
 
While in Vermont, the association has a super priority lien for up to six months of assessments, if an owner defaults on their mortgage and the unit goes into foreclosure, that process can take several years. The association can be stuck footing the bill for thousands of dollars in assessments if there is little or no equity in the unit after paying off the first mortgage.
 
I am familiar with one such circumstance where, even though the association recovered all of its legal expenses and six months in assessments, it still was out-of-pocket to the tune of almost $20,000. While it obtained a judgment for the outstanding amount, collecting that judgment is only possible if the former owner has means, and even then can take several additional years.
 
Therefore, I recommend adopting a firm and clear process for imposing significant penalties for late payment and, if those fees do not prompt payment, initiating the foreclosure process sooner rather than later. Almost all declarations provide for the recovery of all legal costs so incurred, so the risk to the association is minimal.