Withholding Assessments Won't Work

Sometimes community residents become dissatisfied with the association for some reason. In this case, let’s use maintaining the parking lot as an example. Mr. Homeowner is unhappy because several small potholes have appeared in the parking lot, and the association hasn’t repaired them. He called the manager who said that all potholes will be repaired in the spring. “It’s much easier and cheaper to fix them now, while they’re small,” Mr. Homeowner states. The manager explains the association’s maintenance schedule and states that parking lot repairs are scheduled, and budgeted, for spring.

Mr. Homeowner wants the potholes fixed now, so he decides to withhold his assessment payment until the potholes are filled. Sorry Mr. Homeowner, withholding assessments will not get the potholes filled. Here’s why:

You signed a contract with the association called the Declaration, or CC&Rs, in which you agreed to pay assessments. Period. There are no Unless Clauses in the Declaration—“I agree to pay assessments, unless . . .”

Yes, the association has an obligation to maintain the common areas. Since the repairs are on the maintenance schedule and in the budget, the association is fulfilling that obligation.

Filling every pothole as it appears throughout the winter isn’t economical. Agreed, it’s less expensive to fill a small pothole. However, it’s far less expensive to have only one visit from the asphalt company to repair all potholes—even the big ones.

Unfortunately, Mr. Homeowner, instead of getting the potholes filled immediately, you get a lien filed against your home for failing to pay your assessments.

But, let’s say the potholes get especially large before the end of winter and Mr. Homeowner fears they’re dangerous. He’s believes the potholes may cause damage to his car or he injure himself. He should call the manager and explain the situation. The association will make emergency repairs to protect owners and avoid liability.

If the association still fails to repair what Mr. Homeowner believes is a hazard, he has the right to pursue other legal channels to require the association to perform its duties. But, withholding assessments isn’t one of them.

Applying the Oregon Planned Community Act

The Oregon Planned Community Act (ORS Chapter 94) was adopted in the early 1980s. The Act applies to any subdivision where the owners have collective obligations. Collective obligations include maintaining common property or paying assessments that are used for association operations. A community may be subject to ORS Chapter 94 even if created prior to the adoption of the Act and even if the governing documents make no mention of the statute.

The applicability of the Act depends on the year the community was created, the number of lots, and the total amount of annual assessments. The number of lots and the total amount of annual assessments determine the "class" of the planned community. Class 1 planned communities contain at least 13 lots with at least $10,000 in total annual assessments. Communities with 5-12 lots and at least $1,000 in total annual assessments are Class 2 planned communities. All other subdivisions with collective obligations are considered Class 3 planned communities.

For Class 1 and Class 2 planned communities created prior to 2002, certain provisions of the Act apply to the extend the statute is consistent with the governing documents. Here is a quick way to determine which portions of ORS Chapter 94 apply to your community (if created before 2002): https://calaw.attorney/ors94applicability

Collecting on Judgments

Sometimes owners in a community don’t pay their assessments. Often, the Board of Directors must file a lawsuit to collect the delinquent assessments. The lawsuit is filed in small claims court or the civil court in the county where the property is located. Typically, owners do not respond to the lawsuit and the Association receives a “default judgment.” But a judgment is only as good as the Association’s ability to collect the judgment.  For a more detailed overview of collections, click here. Once a judgment is secured, there are several avenues the Association may pursue. Here are some of those options:

1. Garnish Wages or Bank Accounts

At anytime after the judgment is entered in the court records, the Association’s attorney may issue garnishments. Items that are subject to garnishment include: bank accounts, wages, certain personal property, rental income or income tax returns.

The “writ of garnishment” is sent to the individual or entity that holds an interest in the owner’s assets or property.  For example, writs are sent to banks where the owner has an account or to the owner’s employer.

There are some assets or income that are exempt from garnishment, such as social security or disability income.  In those cases, the owner may challenge the garnishment and a judge will then determine what is exempt and what is subject to the garnishment.

2. Debtor Examinations

Once the judgment has been entered in the court records, the Association may obtain an order requiring the owner to appear at the court house.  On the stated day and time, the Association’s attorney may ask questions of the owner related to their finances, bank accounts, assets, or any other information relevant to collecting the judgment.  The information gathered from the debtor exam is then used to issue garnishments or take other collection action to pay off the judgment.

3. Execution on Vehicles

In some cases, a delinquent owner may own cars, boats or other vehicles that are owned free and clear.  In those circumstances, the property may be taken by the sheriff, sold at auction, and the amount received is credited toward the Association’s judgment amount. The Association’s attorney can determine if such assets are available.

4. Settlement

The threat of garnishment may be enough to cause the owner to voluntarily pay the amount of the judgment or make regular payments until the judgment is satisfied.  In those cases, the Association may want to enter into a formal settlement agreement which includes all of the costs and fees that were incurred after the judgment was entered.  This avoids having to file a “supplemental” judgment to collect those fees and costs.

Effective Collections Policies

At some point every condominium or homeowners association experiences delinquencies. Assessments are critical for the association to pay insurance, maintain common property, or hire professional management. When an owner is delinquent, the association has two options. It can foreclose on the association’s lien against the lot or unit, or file a personal lawsuit against the owner.

Every association should have a collections policy which outlines the steps that will be taken when an owner is delinquent. It’s critical that the policy is followed each time an owner is delinquent, and that the same steps are used with each owner.

The policy should include the following:

1. Citations to the authority to levy and collect assessments (usually the governing documents and state statutes)

2. The amount of the late fee and when the late fee will be charged.

3. Interest rate.

4. A statement that the association may file a foreclosure action.

5. When the first demand letter will be sent.

6. When the file will be turned over to an attorney or collection agency.

7. When a lien will be filed against the property.

8. If a judgment is obtained, how the association will collect on the judgment (garnishment, writ of execution against personal property)

Click here for a sample collections policy: CALAW COLLECTIONS RESOLUTION

For more information about Community Association Law Group's collections program, click here.