My
firm’s experience suggests that running an association like a business
is the best practice, and nowhere is this clearer than in the case of
collecting delinquent assessments.
No
one moving into, much less managing, a community association ever
imagines that one day she’ll end up “playing the heavy,” pleading and
haggling (or worse) with the next door neighbor over the past due
invoice, but this is exactly what happens and it is not a good time.
Thankfully, North Carolina’s Planned Community Act (
PCA)
provides an efficient three-step process for collecting assessments
which rewards timely payment while “punishing” late-paying owners. It
behooves the Association to treat the collection process like a business
in the sense that the association diligently follows the
PCA’s procedures and time line.
1.
Issue a “Notice of Intent to File Lien” Letter
to the Delinquent Owner.
On
the first day following the expiration of the stated deadline for the
payment of the assessments (at least 30 days), the Association – or its
attorney, accountant, or agent – should send a letter giving the owner
notice of the Association’s intention to file a Claim of Lien (“
Notice”). Be aware that there are strict statutory requirements regarding the content of the letter.
The
Notice serves two purposes: it is a legal prerequisite to filing an actual
Claim of Lien,
and it alerts the owner to the fact that the Association intends to
seek reimbursement of any attorneys’ fees and costs it incurs if forced
to move forward with the
Claim of lien and/or foreclosure.
The
owner has 15 days to pay the assessments, any late charges and/or
interest while not incurring attorneys’ fees. If the owner fails
to take advantage of this grace period, however, then from this point on
the owner is responsible for the payment of the fees and costs the
Association actually incurs.
The
prospect of having to pay attorneys’ fees and costs operates as no
small incentive for the owner to pony up because the amount of
attorneys’ fees and costs can vastly outstrip the amount of those
assessments. To take an admittedly extreme example, in one of our
cases an owner who refused to pay $1,700 in past due assessments
ultimately reimbursed the association the $35,000 it spent in legal fees
to collect that sum – and that’s not counting what the owner spent on
his own attorney just to defend and ultimately lose the case.
2.
File a Claim of Lien.
If no payment is received after the 15-day “Notice” period expires, the Association should file the
Claim of Lien
and provide a copy to the owner of the subject lot. Once filed,
the lien remains valid for a period of 3 years, and will be “picked up”
by any attorney reviewing title history prior to a possible sale of the
lot or refinance of the mortgage. The lot cannot be sold or
refinanced without the lien either being paid off or, at a minimum, the
amount of the lien being placed into escrow if the owner is challenging
the amount of validity of the lien. It is not at all unusual for
an Association to suspend its collection efforts at this point but the
PCA provides the ultimate collection tool: foreclosure.
3.
Commence Foreclosure Proceedings.
Assuming
the delinquency continues after the filing of the lien, the Association
may initiate foreclosure proceedings as early as ninety days following
the due date of the assessments. Needless to say, initiating
foreclosure proceedings never fails to get the delinquent owner’s
attention, arguably exacting the greatest incentive for the owner to pay
up.
In
sum, the formidable prospects of having to reimburse the association’s
attorneys’ fees and costs and defending a foreclosure proceeding often
serve as the “inspiration” a delinquent owner needs to write a check for
the past due assessments. An indirect benefit to this strategy is
that taking just one delinquent owner through this process serves as an
excellent warning to other owners who may be inclined to pay late.
Like
one’s utility company, finally, the more an association acts as a
well-oiled machine to collect assessments, the less likely its directors
and officers will find themselves pleading and haggling with their
neighbors, leaving more time for the fun part of living in this
beautiful area.
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