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.

Tips for Collections Policies

The authority to levy and collect assessments is found in the Declaration/CC&Rs of community associations.  However, there aren’t typically specific procedures to follow if an owner is delinquent in the payment of assessments.  Most condominium and homeowner associations adopt a separate resolution or policy which governs how the association will handle collecting from delinquent owners.  Here are a few things to consider when adopting a collections policy:

1. State the authority for collecting assessments

The policy should begin by citing to the appropriate authority to file liens, charge late fees and interest, and turn the account over to an attorney for collections.  The governing documents will contain the obligation for all owners to pay regular assessments.  The authority to charge late fees or interest (sometimes the amount is left open for the board to decide) will also be in the association’s governing documents.  In addition, cite to the appropriate state law which grants community associations the power to collect assessments, fines, late fees or interest.

2. Define the process

Most collections policies include the following steps:

a. Initial letter indicating delinquency and the amount of any late fees or interest

After 30 days from the due date, the Association will provide notice to the delinquent owner stating that a late fee and interest have accrued. The notice shall state that if the balance is not paid, the account will be turned over to a law firm for collections.

Any assessment which becomes delinquent will be charged a late fee in an amount equal to 5% of the unpaid assessment. In addition, the assessment will accrue interest at the rate of 9%.

b. Lien filed on lot or unit

c. Second demand letter stating that the file will be turned over for collections

Any assessment including late fees unpaid and past due for more than 60 days will be referred by the Board of Directors to its law firm  for collection.

d. Provisions to comply with the Federal Fair Debt Collections Practices Act

e. The type of garnishment tools which will be used once a judgment is entered against the owner.

After CALAW obtains a judgment, it will begin collection of the judgment by:

garnishing the owner's bank account; or

garnishing the owner's wages; or

executing a writ against the owner's real or personal property; or

any additional methods authorized by law.

3. Publicize the policy

The association will have a difficult time enforcing its policies if those policies aren’t publicized and distributed to owners. This puts owners on notice of the steps that will be followed for the collection of delinquent assessments.  Keep in mind that when new owners move to the community, copies of all resolutions, policies or other unrecorded documents need to be provided.

4. Enforce the policy consistently

Once the board of director adopts a collections policy it must follow the steps outlined in each and every circumstances.  Special arrangements or exceptions are not appropriate. The exact same procedures must be followed in each case.  If not, owners may challenge the application and enforcement as selective or unfair.