Initiating Assessment Collection Process
If a member of the community you manage has fallen behind on his assessment fees--and even the association efforts to assist him haven’t helped him to get current on the charges--what’s the next step it can take to recoup what it’s owed? In cases like this one, your association has three options: (1) file a lien against the member’s unit; (2) sue the member for payment; or (3) foreclose on the unit. (But as with any major legal decisions concerning its members, the association should contact its attorney first to find out which, if any, of these options are appropriate.) While it’s unfortunate that the member is experiencing financial difficulties, it’s important to remember that letting assessment debts become too large creates unfair burdens on innocent members and the association.
Step #1: If the association is forced to initiate a collection process, the first step is recording a lien—that is, a legal claim against a property that must be paid off when the property is sold. Recording a lien with the recorder of deeds puts the public on notice that the member owes money to the association. The most important function of this lien is that it secures the association’s position and protects its interest in the property. That means that, if the member transfers title to a third party or files for bankruptcy, the association is still protected. The lien also ensures, in most cases, that the total amount owed by the member will be paid, if and when the property is sold. The lien amount should cover the amount of the assessment owed and include all fees and charges associated with the default payments.
Step #2: It’s also a good idea for the association to order a title search when considering how to deal with a delinquent member. When a lien is recorded, it shows up in title searches, so you’ll know whether the members has any other debts you should be aware of; other parties may be ahead of you in line to collect money from the member. A title search will also provide important information, such as how much equity the member has in his unit. The association’s decision to foreclose the lien may depend on the equity in the member’s unit. Typically, the equity available after foreclosing is based on “priority.” Real estate taxes get paid first. Then the mortgage lien takes priority over all other liens secured after the mortgage lien was recorded.