Past due HOA fees from a unit that was sold

Started by MiloK • 30 replies • 2982 views

💬 Join us to post & get advice from 50,000 HOA & Condo leaders.

⚡ Takes 30 seconds

Already a member? Log in

MiloK (California)
Posts: 12

Posted:

Hello Everyone,

I recently become treasurer to a small HOA of 20 units. The HOA is setup as a non-profit organization. All board members are volunteers. We had a unit that closed escrow on December 2007. Due to accounting errors, the previous owner of the unit still owes the HOA 4 months of dues for 2007 and 8 months for 2006 (totaling approximately $2000). Collecting the 4 months from 2007 should be no problem as closing of escrow was delayed for several months. However, collecting the 8 months from 2006 may be difficult. Does anyone encountered similar situations before? Please shed some light!

Based on payment records, the previous owner was a repeat offender in paying dues late. In mid 2006, they made 2 lump sum payments. The first lump sum covers HOA dues for 2005. The second lump sum only covers HOA dues for the first 4 months in 2006. Because those two lump sums are deposited into the HOA account in mid 2006, it would appeared that this Unit had an over payment. This is where the error was made when the former treasurer reported dues owe by the Unit to escrow. Can you contact the Title company to inform them of the accounting error? After all, isn't this what title insurance is for?

What can the HOA do to make the previous owner paid the past dues (in case they refused to pay)? We have all payment records to prove

Thanks

MiloK (California)
Posts: 12

Posted:

I know liens can be filed against the property. But in this case, the property already closed escrow and it wouldn't be fair to the new owner. If the previous owner refused to pay, can the HOA report this debt to the 3 major credit bureaus against the previous owners?

Thanks
Milo

BrianB (California)
Posts: 2,820

Posted:

Unpaid Dues are like cows. Escrow having closed is like an open barn door.

That cow is already out of the barn. THe only option you have is to file a personal claim against the former owner in court for unpaid dues, and try to get a collection order.

You cannot ethically assess them against the new owner now, because you didn't have them on the table when the sales agreement was being negotiated.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Milo,

Sure hope this is a wake up call to firm up your accounting procedures. Are you self-managed or do you contract with a mgmt co? If the latter you may be able to make a claim against them for not doing their job in making sure the matter was settled at close of escrow.

MiloK (California)
Posts: 12

Posted:

The HOA is non-profit and volunteer basis. The former treasurer was really messed up. He would collect all the payment checks and hold onto them for a long time (upto 3 months or sometimes longer) and then deposit them. Since the payment schedules are semi-annually and many homeowners don't pay on time, he often apply the payments to a wrong period. He also doesn't take initiative to inform homeowners of pastdues.

Since I came on board, the audit results showed that several units owe the HOA money. We were able to collect them all, except for the unit that was sold. We are currently working on collecting the past dues from the previous owners. The HOA is planning to take them to small claims court if necessary.

GeorgerwilliamsW (Indiana)
Posts: 975

Posted:

Quote:

Posted By MiloK on 07/29/2008 12:37 AM
The HOA is non-profit and volunteer basis. The former treasurer was really messed up. He would collect all the payment checks and hold onto them for a long time (upto 3 months or sometimes longer) and then deposit them. Since the payment schedules are semi-annually and many homeowners don't pay on time, he often apply the payments to a wrong period. He also doesn't take initiative to inform homeowners of pastdues.

Since I came on board, the audit results showed that several units owe the HOA money. We were able to collect them all, except for the unit that was sold. We are currently working on collecting the past dues from the previous owners. The HOA is planning to take them to small claims court if necessary.

Milo,

I don't entirely agree with some of the responses here.

The association may have lost its right to collect by not following up in a timely manner. Both statutes and case law in the Uniform Commercial Code are clear on this point.

Were I a defendant, I would assert that by not attempting to collect at the time the unit was sold is evidence that the debt was discharged.

Does not the association have to certify to the title company at closing that payments of association fees are current? (It is common practice, and part of title services, to ascertain all association fees are current.)

A debt not pursued in a timely manner may not be collectable.

Nevertheless, it is a different story in small claims court. The rules and interpretation of the law is quite different. However, a small claims judgment in your favor only validates the claim. Collecting it is entirely different.

Were I the small claims magistrate, I would ask to see the closing documents to determine what the association reported to the title company at the time of sale.

I would urge you to stay away from (1) debt collection agencies and (2) reporting to credit agencies. Both can get you into very difficult circumstances, particularly as a small association. Don't go there.

Unless it is a huge sum, I would counsel you to chalk it up to bad debts and institute policies and procedures that prevent it from happening in the future.

Let us know what happens in small claims court.

MicheleD (Kentucky)
Posts: 4,491

Posted:

This is yet again another example of why self-management might not be a great idea, even on "smaller" organizations.

The fact is that the treasurer can vary from term to term regarding ability and skill. Thus creating a situation like above.

This is also another reason to be very conservative when giving a homeowner a "break" on paying dues. Every time you grant extensions or what-have-you, you increase the chances of losing track of what is owed by whom.

MiloK (California)
Posts: 12

Posted:

I investigate this matter in details... speaking to every former board member for phone conversation, paper and email records. Evidences suggests, the former treasurer made a mistake in reporting the delinquent dues to the title company(instead of 8 months from 2006 and 3 months from 2007, he said they were delinquent by one month).

The title company did issued a demand letter for delinquent dues, however, the property didn't close escrow until 4 months later. During close of escrow, the title company did issue a check to cover 3 months HOA dues. I don't know how the title company come up with the dollar amounts but it's wrong.

Even based on the wrong deliquent amount provided by the former treasurer, the escrow check is still short of 2 months of dues. In addition to paying the wrong amount, the title company also didn't contact anyone in the HOA for an update prior to closing. Isn't this the escrow officer's duty to conduct these updates?

Anyway, I said the former treasurer is to blame but so does the escrow officer. Our approach is to try collecting from the previous owners first. If that works, that is to everyone's benefit. If not, we will pursue other options.

SusanW1 (Michigan)
Posts: 5,202

Posted:

Learn from your mistakes. Get a Financial Committee together to work with the treaurer and make sure procedures are checked and doubled checked.

Remember: The Treasurer does NOT have to personally do the invoicing and collecting and posting - he/she only has to make sure it gets done and report the findings to the Board. A billing company or bookkeeper can be hired to do this task.

And forget about the 2 months arrearage. It's not worth going after at this point. Write it off as a bad debt.

KirkW1 (Texas)
Posts: 1,665

Posted:

First, the assessments run with the land not the owner. As such you have no recourse against the former owner.

Second, when your organization informed the title company of the amount of outstanding dues, they lost all claim to additional moneys.

You can go after anything that accrued during escrow (assuming that no letter was sent indicating the incorrect amounts were correct). Short of evidence that the fault is with the title company, that amount should be written off as well. The alternative is to inform the new owner of the previous mismanagement of association finances. Nothing like getting off on the right foot eh??

Does the situation stink? Yes, it really stinks. But you should focus on the positive of how much you did collect. And you should also take this moment to asses the need for an annual audit. An audit will protect you as the treasure since it will catch any legitimate mistakes early and verify that you have followed good accounting practice.

MiloK (California)
Posts: 12

Posted:

Thanks for everone's input! Hiring billing company and bookkeeper are really good suggestions and we have consider it. But doing so will probably increase the current HOA dues 3 times.

The main reasons the HOA ran into so many problem with collecting dues are

1. The previous board members change the payment schedule from monthly to semi-annual thinking it may simplify the job for the treasuer. This actually had cost the HOA more problem than ever. The change of payment schedule creates confusion for homeowners. As a result, some continues to pay monthly, and some semi-annually.

2. Although the HOA stated clearly the due date being the 1st of January and 1st of July for the semi-annul payment. Most homeowners won't pay until 3 or 4 months after the due date. Well, let's face it... coming up with a lump sum for six months is much more difficult than just one month. With most dues coming in so late, the HOA is often faced with the risk of running out of operating funds for the 1st 4 months of the calendar year.

3. The inability of the former treasurer ...
a. hold onto payment checks and won't deposit them until 6 months later - this contributes to the depletion of operating funds, return checks due to check expiration, etc.

b. won't take action to inform homeowners of deliquent dues.
c. applies the payments to the wrong payment period...

Since the audit in May 2008, we were able to collect all deliquent dues and updated the payment schedule back to monthly with strict due and past due dates. When payments are received the HOA will send payment confirmation email to the homeowners. I'd like to say the HOA is now on track in terms of due collection.

SusanW1 (Michigan)
Posts: 5,202

Posted:

How much are your assessments?

Monthly payments must be a clerical nightmare. And to get a volunteer to do this must be tough! No wonder there was confusion. How about quarterly payments?

Investigate having a billing company do this for you. It may be cheaper than you think.

SusanW1 (Michigan)
Posts: 5,202

Posted:

Also - do you have a procedure adopted by the Board for delinquent payments?

The Treasurer is NOT a collection agent!!!

Your Board needs clear and consise steps for when assessments get behind.

BradP (Kansas)
Posts: 2,640

Posted:

Quote:

Posted By GeorgerwilliamsW on 07/29/2008 3:39 AM

George:

good points, but I have also learned in my time that not all title companies are on the up and up and we have had a few houses slip through sales without them asking and settling up with us.

KirkW1 (Texas)
Posts: 1,665

Posted:

Quote:

... I have also learned in my time that not all title companies are on the up and up and we have had a few houses slip through sales without them asking and settling up with us.

Understand that the title company is not failing you as the HOA. They are failing the buyer of the house. And he buyer might have claim against them for failing their duties. It should also be noted that the title search company could get in trouble as they are responsible to the title insurance company to find all claims against the property (including unpaid taxes and assessments).

EllenS1 (Florida)
Posts: 1,148

Posted:

Milok,

I wish you luck but our docs state that late assessments cannot be passed on to the new owner unless they are aware of them before closing and agree to pay them. This is why it is essential to have a certificate that assessments have been paid. Now, if the title company did not even check, you may have a case. If they checked and your association did not certify that all assessments were paid you have a problem.

KirkW1 (Texas)
Posts: 1,665

Posted:

In looking back over things, there is a suggestion that you may want to consider setting up a "lockbox" at the bank. These are magic little things in that your membership then mails the checks to the lockbox. The bank (blindly) deposits the checks in your account and sends on a copy of whatever was in the envelope.

In the case of Bank of America, you can see the information on a web site for a period of time. Then you can download and/or have a CDROM to keep the information forever. Other services are available.

This could provide your middle ground between paying someone for all the financial work and having the treasurer carry the checks to the bank.

MicheleD (Kentucky)
Posts: 4,491

Posted:

0.0

hmm.....

I have never heard of this before. . .

Will have to investigate. . .

EllenS1 (Florida)
Posts: 1,148

Posted:

Kirk,

If the association indicated assessmemts were paid up and there was no lien filed in the public records, the title company is off the hook.

SidneyP (Florida)
Posts: 302

Posted:

This can't be blamed on self-management....we have had MC's (three) in the 2 1/2 years the HO's have had control and our delinquencies are out of control. To this day there is NO collection policy drawn up. I had ask the Board to do this for the 2 1/2 years...I am now the treasurer and have ask again and again, still hasn't been done. This MC wasn't even charging interest or a late fee until I demanded it be done because it reflects on my duties as the treasurer...But the MC even went about that wrong...at a Board meeting they decided to charge the late fee (never done), they even made it retro-active to Jan/08. To me this was not a legal act because the HO's were never informed of this new policy of charging a late fee (the interest had been done before by the old MC so HO's were aware of this charge)but never notified of the new late fee. Some HO's had even already paid their dues and interest and the MC went back and charge the late fee after the fact.

Had I been the treasurer in a self managed community I would have drawn up this collection policy from the beginning and we wouldn't be in the red financially w/all these delinquent accounts.(some going back as far as three years.

I may carry the title of treasurer but I have no power as long as we have a Board President and her clones believing "each of her choosen" MC's rule.(this is why our community is financially a mess)

EllenS1 (Florida)
Posts: 1,148

Posted:

Milo.

Why go to small claims court? Send an intention to lien letter to the owners and after the approriate length of time just file a lien. Any title company will pick this up when they do a search. And don't forget to charge interest on the unpaid amount.

EllenS1 (Florida)
Posts: 1,148

Posted:

Sidney,

You need to report this management company to the DPR and explain that their license should be removed. You don't need the board's approval to take this action. I would suggest that you might mention that the management company should pay for your losses while they "managed" your hoa.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

To all,
I am surprised that no mention was made to the fact that any monies owed the regime and are not collected, thus a loss, have to be made up by the remaining owners. Maybe this law does not apply to California, I know it does to SC and Flordia. I also don't know how many associations follow the letter of the law on this.

EllenS1 (Florida)
Posts: 1,148

Posted:

Robert,

Are you sure about Florida? I don't think this is the case.

KirkW1 (Texas)
Posts: 1,665

Posted:

Ellen,

Filing a lien on a property for dues owed at this point is a sure fire way to cost the HOA huge sums of money. If an attorney were to try it he/she would probably be lucky if they only faced punishment from the bar association and not loss of their license.

Sidney,

I would recommend that you draft a collection policy and put it forth in a motion to the board. Insist that the motion be noted in the minutes of the meeting regardless of what happens next. It can then die either of failure for a second or failure to pass. But you are then on record as having tried to create a collection policy.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Ellen,

This is what I posted on another thread:

To RW and all,
Note above in referenced to unpaid assessments in SC.

Below clippedfrom Florida Statutes 2007, 718.115

(g) If any unpaid share of common expenses or assessments is extinguished by foreclosure of a superior lien or by a deed in lieu of foreclosure thereof, the unpaid share of common expenses or assessments are common expenses collectible from all the unit owners in the condominium in which the unit is located.

****************************************************
I am pretty sure to "Extingusih" by foreclosure mean the money is uncollectable because there is no money left in the foreclosure to distribute.
In that vein, if the association has a lien against the owner they may be able to get some money from him before foreclosure, but I could be wrong about that. It apparently worked for us, but I am afraid I don't give much weight to the Boards proclaimation of this sort. I don't ree any receipts for money recovered, but they may have them, who knows.

EllenS1 (Florida)
Posts: 1,148

Posted:

Robert,

I erred. This is condo law with which I am unfamilar. I live in a townhouse assn

KirkW1 (Texas)
Posts: 1,665

Posted:

For the late people, the issue was that a previous treasurer sent a document to the title company before closing stating what was owed. (But this was not the full amount owed.) The title company paid that amount from escrow plus amounts for the period between the letter and closing. There may have been an incorrect amount paid for delay between the letter and closing.

Federal (and probably state) collection laws are solidly against the ability to collect the amount between what was really owed and the amount in the letter. And the title company probably has a lawyer on staff to fight this fight because they take their business very seriously. On top of this, there is a title insurance company that could likely join the legal fight.

The best thing in this case is to learn from the loss of funds and go on with life. If you need further evidence of that, consider how many of the news articles on the front to this forum paint a good picture of HOAs. News organizations find it much easier to publish the negative.

EllenS1 (Florida)
Posts: 1,148

Posted:

Kirk,

I did not mean filing a lien on this particular property. I meant for future unpaid assessments to prevent something like this from happening again.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Ellen,
Not to add confusion here but to get me straight. You say," I live in a Townhouse Association>" No thought of disagreeing, but, a Townhouse can be either Condos or HOA and in some places may come under an HOA but still maintain Condo status. In our case we are a condo and pay dues to a POA, and the Condo and are governed by both, with Condo covenants senior on complex and POA covenants for whats left off campus, so to speak.

EllenS1 (Florida)
Posts: 1,148

Posted:

Robert,

Wow, really confusing since condo law and hoa law differs. I have no idea what governs your place but I do know here in Florida townhome hoas can definitely record a lien for unpaid assessments and in short order.

🎯 You've read this entire discussion

Join the conversation with 50,000 HOA & Condo Leaders:

✓ Ask follow-up questions
✓ Share your experience
✓ Get expert advice
✓ Access 350,000 discussions

Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in here