Appropriate Steps to take when Collecting Assessments from Delinquent Condominium and HOA Homeowners

If you are a Board Member of a condominium or homeowners’ association, you may encounter residents who do not pay their monthly or annual assessments on time. Although an association’s governing documents, along with Michigan law, outline the procedure for collecting assessments, they do not always include the timing or strategies involved. A collection policy is the foundation of a successful assessment collection program in order to maintain necessary cash flows, reduce financial loss from owner defaults on assessment payments, and maintain adequate reserves. In this article, I will explain the importance of a Board adopting a written policy for collecting assessments and making it part of the Association’s governing documents.

A carefully written collection policy informs members of your condominium or homeowners’ association exactly what to expect if they become delinquent. It also informs the Board as to what to do when a member becomes delinquent. Among other things, a collection policy should:

• Define when monthly/annual assessments are due and at what point they are considered delinquent
• Explain any fees and/or interest charged by the Association and when they can be imposed
• Establish the steps that a Board may take to collect delinquent assessments

Below are a few suggestions on what to include in a collection policy:

Step 1

• When a homeowner fails to make payment after receiving their initial statement and is ten (10) days delinquent, send a politely worded Notice of Delinquent Assessment letter informing them of the delinquency and requesting that they bring their delinquent assessments current immediately. The Notice should also include what actions the Board will take if assessments remain unpaid.

Step 2

• When a homeowner fails to pay after a ten (10) day grace period elapses, late fees and/or interest may apply:
  • The authority to include late fees and/or interest as part of a homeowner’s financial obligation to their Association comes from the Association’s recorded governing documents. For HOA’s this may include the Declaration and bylaws. Condominiums may also rely on the applicable provisions of the Michigan Condominium Statute. If not already provided by your documents, Boards should adopt a late charge policy. Usually a percentage of the payment is better than a set charge. An Association cannot arbitrarily charge late fees, fines, or interest. They must be authorized by state law and/or the Association’s governing documents and must be charged consistently with the applicable authority.

Step 3

• When a homeowner fails to pay after thirty (30) days, an additional letter may be sent advising the homeowner that the matter is being turned over to the Association’s attorney for collection purposes. Delinquent assessments should then be turned over to legal counsel who will send a Notice of Intent to Lien letter to the homeowner, among other collection notices.

Step 4

• When a homeowner fails to pay after forty-five (45) days, legal counsel should discuss with the Board the placing of an assessment lien on the property. The lien should reflect the time period in which foreclosure proceedings will be commenced and/or if a complaint will be filed with the local court. Typically, a lien foreclosure is directed for delinquencies of more than four (4) months.

It is important for Boards of Directors of an Association, with the assistance of its legal counsel, to create a reasonable collection policy which treats all delinquencies equally. Once a collection policy has been established, it must be communicated and disseminated to all homeowners and become part of the Association’s governing documents.

John D. Gwyn is an attorney in our Livonia office where he focuses his practice on the representation of community associations, management companies and developers with a particular emphasis on real estate and commercial litigation. He has handled many types of community association related matters, including assessment collections, lien foreclosures, bylaw violations, civil rights defense and creditor bankruptcy matters.

Mr. Gwyn has gained experience in community association law over the years through his representation of condominium and homeowners associations, as well as individual homeowners, in matters involving real estate, contract, and construction defect litigation issues. His extensive litigation and transactional background provides him with the experience necessary to handle even the most complex legal issues that neighborhood associations may encounter. He may be reached at (734) 261-2400 or jgwyn@cmda-law.com.