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Subject: Priority of Dues Payment on unit with Fines
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DeeS1
(Michigan)

Posts:223


01/17/2011 6:36 AM  
Our governing documents state that payments for accounts in default must be applied in the following order:
"Payments on account of assessments in default shall be applied as follows: first, to costs of collection and enforcement of payment, including reasonable attorney's fees; second, to any interest charges and fines for late payment on such assessments; and third, to assessments in default in order of their due dates."

For the first time, we have a homeowner who has an outstanding ACC fine and situation, but has just paid her annual dues in full. Our MC advised that the money goes first toward her fine, which leaves the annual dues partially unpaid.

I had always thought this too; however, in reviewing the text prior to writing up the late notice, I'm now reading it as that it would only be applied to fines for late payments first, not necessarily violation fines. What has your experience been?

FYI -- we are a Michigan nonprofit. I looked in the MI Condo Act and didn't see anything that specified. What else would be a higher authority on this? I do not believe Davis-Sterling applied here.
SusanW1
(Michigan)

Posts:5202


01/17/2011 6:44 AM  
Sounds like a lawyer wrote that - they want to be paid first.

SusanW1
(Michigan)

Posts:5202


01/17/2011 6:53 AM  
This site's archives may have info:

http://www.communityassociations.net/michiganlaw/
RogerB
(Colorado)

Posts:4886


01/17/2011 9:10 AM  
Dee, My experience is to have a clause which states: "all payments shall be applied to the oldest outstanding account balance". In your example I would apply the payment towards the annual assessment and invoice the owner for the balance due on their account.
JeanneK3
(Maryland)

Posts:556


01/17/2011 11:35 AM  
Dee:
Looks to me like an attorney got you to change your bylaws and slipped in language to the effect that the attorney gets paid first. Pretty unethical to me.

There's a bill pending in Texas (HB No. 366) which forbids a forclosure sale for either fines or attorney's fees associated with fines. It also says a property owner's payment must be applied in the following order:
1. any delinquent assessment;
2. any current assessment;
3. any fines assessed by the association; and
4. any attorney fees incurred by the association solely associated with fines.
I hope it passes.

If I were you I'd change your bylaws to be more reasonable.
Jeanne


DeeS1
(Michigan)

Posts:223


01/17/2011 12:03 PM  
Thanks for the input. I have no problem with the way the clause is worded as it applies to the annual dues/assessment. My concern is IF this clause's payment priority also includes assessment fines. For example, a HO has previously been assessed a $25 dollar fine for parking, which remains unpaid, but pays their upcoming $500 annual assessment totally. IF this clause applies, the first $25 of the $500 goes to the fine, making them $25 sort on the annual assessment and subject to late fees and collection procedures. IF it can not be applied, the HO still owes $25, but it is not subject to late fees/collection etc. I'm not sure if I'm explaining myself well enough :-(. I am now reading the clause's priority of payments ONLY to apply to the fines associated with "late payment on such assessments," not on violation fines.

As far as the attorney fees being applied first, I have no problem with that. We pay the attorney up front anyway -- he's not waiting on us collecting. Applying any payments to fees first still leaves us lien/foreclosure options for HOs who don't pay completely because their assessment is still considered past due.
JanetB2
(Colorado)

Posts:1962


01/17/2011 12:46 PM  
With regards to your concern "IF this clause's payment priority also includes assessment fines.", the way I read your initial post pertaining to your documents my answer would be YES.

Your documents state the following priorities for payments:

First: To costs of collection and enforcement of payment, including reasonable attorney's fees;
Second: To any interest charges and fines for late payment on such assessments;
Third: To assessments in default in order of their due dates.

"Assessment fines" are still assessments or money owed against the property and homeowner. Once you get to applying any payments for assessments it just must be applied to the defaults in order of their due dates.

I am slightly confused by your statement regarding the $25.00 not being subject to late fees or collection procedures. Unless your documents or statutes state otherwise, then I believe the same late fees and collection procedures would also apply for the $25.00 assessment fine ...

Essentially all HOA dues, special assessments, fines, collection costs, attorney fees, etc. ... are money due to the HOA and assessed against the property that owes said amount of money. All usually are subject to late fees and collection procedures until paid in full.
SusanW1
(Michigan)

Posts:5202


01/17/2011 6:14 PM  
I would not mix assessments with disciplinary fines.

JanetB2
(Colorado)

Posts:1962


01/17/2011 6:44 PM  
Hi Susan ... can you please clarify. I want to make sure I do not misunderstand anything regarding keeping these separate. They would be noted on a properties account as being different items, but still assessed against the property.
RogerB
(Colorado)

Posts:4886


01/17/2011 8:33 PM  
We agree with Janet WHEN the Declaration or Rules and Regulations on Delinquent Accounts includes the following statement:
"Assessments may include, but are not limited to, the annual (regular) assessment, special assessments, late charges, interest, fees, fines, attorney fees, collection costs and court costs."
KellyM3
(North Carolina)

Posts:1089


01/18/2011 6:48 AM  
The secured portion of HOA debt is the amount of money owed in unpaid HOA dues. You can place a lien and move toward other actions because HOA debt is delinquent.

My understanding as an HOA president is that fines and legal fees associated with dues collections are not such a high priority debt but HOA's are allowed to recoup that "lost" money before paying off the HOA dues.

While collection of fines amounts to "found money," paying a lawyer bill up front is truly lost revenue if it's not recouped and if an HOA decides that HOA dues are paid in full before the legal bills are accounted.
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