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Subject: Assessments in arrears - payment plan, write-off/down, foreclose or just lien?
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GeorgeS21
(Florida)

Posts:1469


11/14/2019 8:01 AM  
Hi All,

Very specific circumstance many of you have probably been through. 314 SFH with mandatory CCRs, solid governing documents, etc. under property management.

This Board (I'm pres) inherited an owner who has, since 2008, not paid, then paid some, then paid some more, been on failed payment plans, etc. Total owed exceeds $3000. Property is liened and we are considering foreclosure. A decade long problem. Owner has gone 3 years at a time without payment of any kind, then just show up and pay a couple hundred dollars on a $3000 account.

Given the history, I would like to foreclose, but I know this is fraught with lenient judges, high legal fees, etc.

So, our basic options are:

1. Write off more and set up payment plan at $200/mo - but, owner has historically proven failure to pay
2. Don’t write off and set up payment plan at $200/mo - but, owner has historically proven failure to pay
3. Write off more and set up six month payment plan - but, owner has historically proven failure to pay
4. Don’t write off more and set up six month payment plan - but, owner has historically proven failure to pay
5. Simply continue to lien until the house is sold - low cost option to eventual payment (must keep up with liens)
6. Foreclose - could go well or not - more certain to be paid if simply lien?

The last offer from the owner was to pay $1800 of the $3000 on a $200 a month plan (assessments are $675/yr), but with this in the letter ... "Also, if I am for some reason am unable to make a payment, I will correspond as soon as this is known”

If we just keep billing, keep assessing interest and fees, lien and keep it up to date, is this a reasonable, low cost solution?

What would you do?
CD6
(Texas)

Posts:2


11/14/2019 8:27 AM  
Option 4,with the Payment Plan spelling out that ANY missed payment or a non zero balance at the end of the six months will result in the start of foreclosure proceedings.
He will probably default along the way but it is what it is.

Do not write it off, the next person you don't do that for will holler "selective enforcement".
GeorgeS21
(Florida)

Posts:1469


11/14/2019 8:38 AM  
Oh, forgot to add the owner in question had offered to sign an NDA ...

I feel like we are being had.
AugustinD


Posts:2045


11/14/2019 8:50 AM  
George,

I loathe settling with deadbeat HOA members, such that they end up paying way less than others. Here are some questions whose answers would affect my decision-making:

What is the dollar amount of expenses in your HOA's annual budget? If $3k is a drop in the bucket, I'd just lien for every dollar owed, plus interest and fees pursuant to the HOA's Declaration, and collect upon sale of the house.

How much does the nearest (relative to the person in your post) deadbeat HOA member owe? If the nearest deadbeat owes a lot less, then I would just keep liening.

Does the HOA need a deterrent via taking someone to court to foreclose? In other words, would it help to set an example with the HOA members who owe the most? If not, just keep liening.

Once in awhile there are extenuating circumstances. I suppose how to deal with these situations should be case by case. But bottom line is that the covenants say people have to pay, and the law supports this. Afaic, directors have a fiduciary duty to avoid settling such that much of the assessment (plus allowed fees and interest) is not collected.
SheliaH
(Indiana)

Posts:2761


11/14/2019 9:43 AM  
Like AugustineD, I HATE deadbeats – dealt with them over and over again when I was treasurer of our board for five years, and yours is a mash-up of several from my community.

You’re correct that foreclosure is a pain in the butt and most of the time the association winds up writing off the account anyway (I’ve been there more times than I care to remember), but this owner’s history leaves you no choice, in my opinion – and you should tell him that. If he wants to keep his house, he needs to come up with ALL the money, including whatever collection expenses the association has spent in pursuing the debt. It’s not your problem where the money comes from, so if he has to crack open his IRA or 401(k) or both, so be it.

The ONLY way I’d accept a payment plan is through automatic deduction of his bank account and the monthly amount has to cover the debt and current fees. Give him six-eight months, but no more than that because right now, he’s digging himself deeper and deeper because what he is paying is only going towards the current debt, but not this year’s assessments. In fact, once he’s current, I’d insist on automatic payments from now on. After a year or two of that, the board can revisit the account to see if it wants to lift the restriction. Or insist on certified checks only.

The reason I required automatic deductions on our more difficult deadbeats was to ensure the association got its money – and if an electronic payment is rejected, that’s technically a form of wire fraud and you might be able to have a chat with your local prosecutor to file charges. Gangster, I know, but it would appear the man has been taking advantage of the association for years and it’s time to stop.
Go ahead and file that lien if you haven’t already (and the homeowner has to pay the costs of that as well). I believe we’ve had discussions on foreclosures in other conversations in recent months where Richard from California (a property manager) spoke of how you can find information on the homeowner’s mortgage company – use the search and you should find it, as I think it was within the last three months or so.

If you find that information, have your association attorney use it to locate this guy’s mortgage company and then contact them. They’ll find out about a foreclosure sooner or later, but maybe if you give them a heads up now, they will pay what’s owed and then add that to the owner’s mortgage. Again, if this makes his mortgage period lasts longer, oh well – that’s what you get for not paying assessments in full and on time.

Finally, if this drives him to bankruptcy (I’m surprised he hasn’t already tried this), be sure your attorney files a proof of claim immediately. I’d also make a point of attending the hearing so I could testify before the judge about this man’s behavior so it’ll be on record and perhaps it’ll persuade the judge to drop the hammer to ensure you get paid in a chapter 13 or perhaps refuse to write off the debt if he goes chapter 7.

It takes forever to get your money through chapter 13, but if the judge stays on top of it, you do get everything sooner or later with interest (took us nearly 3 years to grab the money this way on one deadbeat, who eventually sold the house – only to fall behind on assessments at the next home and got foreclosed on it as well).

One more thing - you've asked a number of really good questions on this website. You can always vent and lern from our victories and mistakes, but I also think it would be good for you to check out the Community Association Institute website (CAI). I often recommend them because they sponsore education seminars and webinars on best practices for new and experienced HOA board members. Some of the services are free for members, but their not overly expensive if you decide not to join. Some people don't like CXAI because they think they represent the property managers and assornesys more tha the HOA members, and while that may be true in some states, I always found the folks in my state to be reputable. Take a look and see for yourself - the educational materials would also be great for your colleagues.
JohnC46
(South Carolina)

Posts:8867


11/14/2019 10:15 AM  
I find that few people pay attention to dunning notices from the HOA. They do seem to pay attention when a threatening letter comes from an attorney. Discuss such a plan of action with an attorney. Maybe even one that specializes in debt collection.
GeorgeS21
(Florida)

Posts:1469


11/14/2019 10:33 AM  
John,

We have an attorney and they are handling this, but looking for direction. They recommend forgiving more because the county courts sometimes side with owners. I think they are advising against spending the money to foreclose ... they have liened this property, already.
CathyA3
(Ohio)

Posts:526


11/14/2019 11:37 AM  
I think we have that guy's cousin living in my community.

Anyway, yes to the lien and don't remove it until his account has been paid in full. Also, have you considered going to small claims court? I think the amount owed is within the limits, and the process is less involved and expensive than doing a foreclosure. I also think you're more likely to get a favorable judgement in small claims court - our attorney said that you really have to jump through all kinds of hoops, dot your i's and cross your t's to foreclose successfully. If nothing else, small claims court may help to reset some false expectations your deadbeat may have.
DaveP8
(Oklahoma)

Posts:1


11/14/2019 12:01 PM  
Another cousin is in our community. Similar situation, has not paid dues in several years and balance is now over $3000. We have had a lien on the property for several years but we are way down on the list of lien holders. Mortgage company, business vendors, and IRS to name a few. House was up for auction a couple years ago and owner filed bankruptcy the day of the auction. I'm told the bankruptcy could drag this out a few more years. I seriously doubt we ever see a dime towards the debt. I'd be interested to know what other HOAs would do.
GenoS
(Florida)

Posts:3362


11/14/2019 2:13 PM  
Posted By GeorgeS21 on 11/14/2019 10:33 AM
John,

We have an attorney and they are handling this, but looking for direction. They recommend forgiving more because the county courts sometimes side with owners. I think they are advising against spending the money to foreclose ... they have liened this property, already.

This sounds really strange. If you do it for one guy then you have to do it for anyone else who falls way behind. Have you run that by your lawyer?
MelissaP1
(Alabama)

Posts:8753


11/14/2019 3:50 PM  
I have done a foreclosure. Similar situation. They had renters and tried to put it on them...etc....

Think you are overlooking the obvious. A foreclosure STOPS as soon as it is paid. Once that person pays the 3K plus legal costs, they get to keep the house. There is also a right of redemption period. Which varies in every state. Some states there are none to up to a year. Meaning the owner can get the house back if they pay what is owed plus other expenses incurred by new owner etc...

The expense isn't that much. It was only $800 for us. There are expenses like running the notification in a local newspaper for a 3 month period prior. Plus notification fees like certified letters. With liens the legal expenses may be added onto the amount owed.

A lien may need to check up on to see if needs renewed. Never ever sue for back dues. The HOA never wants the house even though the get the first bid at foreclosure. Make sure if it does go to foreclosure there are potential buyers to show up. You don't want it to go into a tax foreclosure. Also ALWAYS check with the bank if they are foreclosing. Otherwise the HOA is doing the work of the bank. Which gets paid first and foremost even when it does the foreclosing.

Former HOA President
JohnC46
(South Carolina)

Posts:8867


11/15/2019 6:18 AM  
Typically bad debtors will also have a mortgage and other liens on themselves. Few are worth foreclosing on.
GeorgeS21
(Florida)

Posts:1469


11/15/2019 7:39 AM  
I believe this particular situation a bit different in that the owner is not behind on mortgage (may own house outright). Further, the property is generally well cared for ... there is no renter.

Some input received from other Board members is to allow the attorney to continue to offer their six month payment plan, and, whether or not accepted, continue to maintain the lien up to date. The only negative in this case is that if there is a foreclosure from a bank, then our POA is at least second in line. The positive is that we receive interest, and that we avoid the legal costs of a foreclosure.
SheliaH
(Indiana)

Posts:2761


11/15/2019 9:53 AM  
You should be able to check if there is a mortgage - your attorney should be able to do that for you - and then you may want to compare the total amount owed vs. what the association has already spent pursuing the debt. Then it becomes a numbers game - what are the odds that this account will ever be current?

Get the numbers and talk to your attorney and get his/her opinion. I understand your colleagues probably don't want to throw good money after bad, but on the other hand, it appears this owner has never followed through on his promises. What's the point of offering yet another payment plan that he'll likely renege on again?

I said earlier that foreclosure is a last-ditch effort, and that's why you'll need to consider it carefully before proceeding. In the end, the best you might hope for is to take the house from the owner and then resell it to recoup some of your money. Hopefully, there's no mortgage company, but you may have back taxes to consider, so you might want to have your attorney check on that. If this guy owes back property taxes, they must be paid before anyone, followed by the mortgage company, and then you. Depending on the selling price, you may be back where you started, with little or nothing and then you'd have to write it off.

Let's throw in another wrinkle in case you do write this off. According to the IRS, if a debt is canceled, forgiven or discharged, that's considered income and the owner would have to list that on his taxes and pay taxes on it - unless he qualifies for an exclusion or exemption. the association would have to file a 1099-C with the IRS if the amount is $600 or more. Once you file this, you can't go after the money any longer, but depending on whether this would really f***up the man's taxes, the threat of doing this might persuade the man to pay his debts once and for all. Talk to your attorney and perhaps the association accountant for more details and then decide what you want to do.

Once again, I know it's gangster, but sometimes that's what it takes to make people act right.
EdC5
(Florida)

Posts:114


11/15/2019 11:19 AM  
I'm going approach this as a Florida CAM. If I were managing the community, I would have recommended foreclosing the lien before the end of the first year. The problem is that a lot of the homes in Florida (and elsewhere) are subject to a mortgage (it is unknown if the property you're discussing is or not) and due to that, the mortgage companies have the execrable advantage of the "safe harbor" provisions. The longer these properties are allowed to be late, the higher the outstanding balances, and "safe harbor" limits what mortgage companies have to pay to: 1) a maximum of 1 year's assessments; or 2) 1% of the mortgage, which ever is lesser. Also, you mentioned "writing off" the balance -- in case you're not aware, that can only be done if your association is using the accrual method (don't know if you are or not).

Edward J Cooke, CMCA, LCAM
JohnC46
(South Carolina)

Posts:8867


11/15/2019 2:13 PM  
Posted By GeorgeS21 on 11/15/2019 7:39 AM
I believe this particular situation a bit different in that the owner is not behind on mortgage (may own house outright). Further, the property is generally well cared for ... there is no renter.

Some input received from other Board members is to allow the attorney to continue to offer their six month payment plan, and, whether or not accepted, continue to maintain the lien up to date. The only negative in this case is that if there is a foreclosure from a bank, then our POA is at least second in line. The positive is that we receive interest, and that we avoid the legal costs of a foreclosure.




Your lawyer should be able to find out the mortgage on the house. Get that info first.
GeorgeS21
(Florida)

Posts:1469


11/15/2019 2:17 PM  
Was trying to avoid spending the $150 on that report - they would normally do that prior to filing foreclosure.
NpS
(Pennsylvania)

Posts:3910


11/16/2019 5:00 AM  
Consider things from the debtor's perspective for a moment:

- I'm paying 29% interest on my credit cards. I need those cards to buy gas and food. Hmm ... who should I pay first this month - the credit cards of the HOA? And next month? And the month after that?

- I need less than $350 to cover the bankruptcy filing fees. Since bankruptcy lawyers are paid off the top, I might not need cash up front to pay the lawyer. Hmm ... I don't have to make that decision right now. I just need to be able to get my hands of a few bucks when it's absolutely needed.

- I don't want to lose my house. As soon as someone tries to foreclose, that's when I'll file for bankruptcy. I'm swamped. Maybe I'll lose my home. Maybe I'll trash it before I have to leave. Maybe I can live here rent free til they force me out. I know some of it may be may fault, but I'm plenty mad.

------------------

Things we've done that didn't worked:

- Reach out to mortgage companies. There are regulations that restrict disclosure of info to other creditors. There are regs that require banks to sell their bad paper after X days -- If you are not in the business, you are wasting your time chasing who owns that mortgage today. MERS filings are not open to non-members.

- Attend a foreclosure sale, check in hand to buy the foreclosed house. Waste of time. You might not learn til the day of foreclosure what the Bank has set as the strike price - The minimum bid that can buy the house. Sat through 2 sessions. More than 80% of all the houses that got foreclosed got sold to the bank for $1. If anyone bid on the house, the banks bid $1 more - up to the amount listed as owed to the bank - so it became obvious quickly how the game worked. Very few got sold to someone other than the bank.

Things we've done that did work:

- Got a personal judgment from the small claims court. Max recoverable in PA is $12k. By not showing, debtor lost the case for the full amount we requested. we gave the sheriff info on debtor's vehicle and when it was likely to be parked on site. Sheriff was about to impound vehicle. Surprise, surprise, debtor came up with the cash.

Things we thought about that might work:

- Send a threat email that we will notify Equifax, Experian, and TransUnion notifying them of the debtor's delinquencies if we don't receive $X in Y days. We would not demand the full amount. But we would demand no less than the max amount received in a month. Include a statement that we do not know if our notice to the credit reporting agencies will affect the amount of credit they can get or the amount of interest they pay.

Things we investigated but didn't do:

- Attend a bankrupt creditor's meeting. Most bankruptcy filers file Chapter 13 (payment plan) and if they follow through with all the requirements -- put together a 5 year plan of payment. 2/3 of the filers never complete a plan. It gets converted to a Chepter 7 (liquidation).

- Reduce the amount claimed against the debtor. We went the other way. If we're only going to get 2 cents on the dollar, we'd rather get 2 cents on $3,700 than on $3,000. We hit the debtor for the max allowed by law knowing that it would only affect the share that the other creditors got. The pie was only going to be so big no matter what. We wanted the biggest slice we could get.

Sikubali jukumu. Read all posts at your own risk.
EdC5
(Florida)

Posts:114


11/16/2019 5:01 AM  
Posted By GeorgeS21 on 11/15/2019 2:17 PM
Was trying to avoid spending the $150 on that report - they would normally do that prior to filing foreclosure.




In most of Florida you can look that up online for free. Just go to your county's clerk of court site; it'll take a bit of searching but it'll save the $$.

Edward J Cooke, CMCA, LCAM
NpS
(Pennsylvania)

Posts:3910


11/16/2019 7:18 AM  
Posted By EdC5 on 11/16/2019 5:01 AM
Posted By GeorgeS21 on 11/15/2019 2:17 PM
Was trying to avoid spending the $150 on that report - they would normally do that prior to filing foreclosure.


In most of Florida you can look that up online for free. Just go to your county's clerk of court site; it'll take a bit of searching but it'll save the $$.


You can look up the original amounts of the mortgages, but not the current amount owed on those mortgages. Info might be of limited value.

Sikubali jukumu. Read all posts at your own risk.
GenoS
(Florida)

Posts:3362


11/16/2019 12:57 PM  
Posted By EdC5 on 11/16/2019 5:01 AM
Posted By GeorgeS21 on 11/15/2019 2:17 PM
Was trying to avoid spending the $150 on that report - they would normally do that prior to filing foreclosure.


In most of Florida you can look that up online for free. Just go to your county's clerk of court site; it'll take a bit of searching but it'll save the $$.

That's what I was going to say. In my county - and I guess in most of Florida - mortgages have to be filed with the county's official records.
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