Don’t Refuse to Accept Delinquent Payments

Don’t Refuse to Accept Delinquent Payments

Unfortunately, you’ll sometimes have to determine how to handle a situation where a member is delinquent in paying assessments or other fees or charges from the association you manage. Tread lightly in this situation. There can be major ramifications from—and even penalties for—associations that are deemed to be acting as a “debt collector” while trying to recoup what the member owes. And if a member is trying to pay delinquent fees, you should also find out how you can work with him to pay down the balance. The fact that the matter has been referred to a third party for collection doesn’t necessarily give you the right to automatically refuse to accept delinquent payments. A Nevada case that was decided in favor of a member highlights the trouble associations can get in under these circumstances.

There, a homeowner owed $150 in past-due fees to the association. The association sent her a bill for over $1,000. It then pursued a homeowners’ association foreclosure sale. The homeowner sued the association and its management company for wrongful foreclosure, bid rigging, and unfair debt collection practices, among other claims. The association and the management company each asked the trial court to dismiss the claims.

A Nevada trial court ruled in favor of the homeowner on the wrongful foreclosure, bid-rigging, and unfair debt collection practices claims.

The trial court refused to dismiss the wrongful foreclosure claim against the management company and the association. That was because the homeowner had made several attempts to pay her past-due fees in order to avoid foreclosure, but the management company had refused to accept the payments. The trial court pointed out that the management company was an agent of the association for the purposes of collecting both currently due and past-due assessments. Under state law, a community manager is specifically prohibited from refusing to accept from a unit owner's payment of any assessment, fine, fee, or other charge that is due simply because there is an outstanding payment due, the trial court pointed out.

The trial court also ruled in favor of the homeowner on her bid-rigging claim. The association had attempted to sell the property for approximately 10 percent of its fair market value and conducted the sale in the private offices of an auctioneer.

The trial court determined that the association—but not the management company—had engaged in unfair debt collection practices. The notice of default included a past-due amount that was greater than 10 times what the homeowner owed. She asserted that unlawful fines and fees had been added so that she wouldn’t be able to afford to pay the bill prior to the impending sale. The trial court noted that the association and its attorney attempted to collect amounts “not authorized by law or contract.” This violated the rule against unfair or unconscionable debt collection under state laws [Mendez v. Fiesta Del Norte Home Owners Association, August 2015].