A large focus of our firm is on helping our association clients recover unpaid assessments. Both Florida Statutes 718 (Condo) and 720 (HOA) provide strong mechanisms for collecting on delinquent accounts. While there are some critical differences between the two, the approach is often quite similar whether a homeowner association or a condominium. In this section we will discuss some of the basics of the process and our approach, and how our model differs from many others in the field.
Unlike so many other collection companies and firms, we do not take a portion of the money recovered. In our model, when we have a successful collection the association receives all back-owed assessments, any accrued interest and late fees and is even reimbursed to the penny for all legal fees and costs paid to our firm. Both 718 and 720 provide that the owner is responsible for all charges related to the collections process. As a result, once we have successfully collected on a file, the client has recovered every penny owed at a total end-cost of ZERO to the association.
Many entities in our state pitch models where they claim the association will never have to pay any attorney fees. These models seem too good to be true until you read into the fine print and watch how they often unfold for a community. We routinely take on clients who have signed up for these contingency-based models based on how great the sales pitch sounds on the front end, only to greatly regret it down the road and, unfortunately, often be stuck with them with every file they have turned over. While an association may not have to pay anything up front, they often walk away from hundreds if not thousands of dollars they could have recovered.
We understand the hesitancy of a cash-strapped association to come out of pocket to initiate collections; this is why those contingency models have spread so rapidly. But under our approach, the process usually pays for itself very quickly. Merely sending out an initial wave of Notice of Intent to Lien (NOIL) letters often leads to numerous accounts contacting our office and making payment arrangements. If just one or a few accounts pay in full, you’ve likely recouped the cost of the entire batch of demand letters that went out. It is a positive snowball effect that occurs and, in our opinion, much better in the long-term for an association than giving away a portion of the money or control of the collections process.
Either way, it is critical that an association have a uniform and aggressive collections policy in place. The worst thing an association can do is nothing at all.
Now, let’s look at some of the basics of the collections process itself and some information about our costs…
There is no ‘cookie cutter’ approach to HOA/Condo delinquent assessment collections. Each account is inherently unique and often has its own challenges or best approaches for success. The key to this all is creating leverage against the owner to get them to agree to pay. Simply filing lien foreclosure on auto-pilot against every account can be disastrous for a community. While we analyze each file at the start of the process to determine what will likely be the most efficient way to get this particular owner to pay, there are some basics that apply to most of the files.
The Lien Foreclosure Process
Both 718 and 720 allow for an association to record a Claim of Lien against a property and ultimately foreclose this lien. The lien secures not only the back-owed assessments, but also late charges and interest (if authorized in your governing documents) as well as all related collections costs/legal fees. The statutes mandate a strict procedure which must be followed to begin this process. While we do not always advise filing for lien foreclosure, we almost always take these initial steps against a delinquent account as these steps alone very frequently lead to payment.
Notice of Intent to Lien (NOIL) – Florida law requires the association to start by sending the owner an NOIL. There are strict procedural and mailing requirements which must be followed. NOTE: The NOIL can be done by the association or management company and not the attorney. While most of our clients have us do the NOIL, we are happy to operate either way and can provide a template for the association to work off if you would prefer to generate them internally.
Claim of Lien – After 30 days (Condo) or 45 days (HOA), the association can then record a Claim of Lien in the county’s public records. This is considered the practice of law and should be done by an attorney.
Notice of Intent to Foreclose (NOIF) – Once the lien has come back recorded and stamped by the Clerk of Court, we send a copy of the lien to the owner along with a statutory NOIF letter. This also must meet the required procedures mandated by statute. This letter informs the owner that we will be filing for lien foreclosure if payment arrangements are not made in the next 30/45 days.
Again, we do not always file lien foreclosure – in fact, there are only certain circumstances where doing so is in the association’s best interest – but these letters are a big wake up call to delinquent owners and the vast majority of our delinquent accounts contact and pay after receiving the NOIL or particularly after receiving notice that a lien has been recorded against them and they are at risk of losing their property. This all goes back to that goal of leverage!
Our firm charges $150/hour for all of our legal work. While we do not offer set prices, the legal fee for an NOIL, a Claim of Lien, and an NOIF is almost always $75 (.5 hour, approximately how long these tasks take). There are rare exceptions when more time is required (i.e. having to recreate a ledger, having to mail to numerous owners, needing to research the file substantially before beginning etc), but that is very uncommon. There is an additional hard cost of $7.50 for the certified mail/postage cost on the NOIL/NOIF and a $10 hard cost paid to the Clerk of Court to record the lien. So the total charge to the association is generally $82.50 for the demand letters and $85 for the lien. Again, as discussed above, these charges are added to the owner’s delinquent account and they are required to reimburse the association in full for them in order to bring their account current. For example, if an owner owes $500 to the association and contacts us subsequent to the NOIL, they are now required to pay $582.50 to be paid in full. Unlike most firms, when an owner contacts us to make payment arrangements, we rarely ever tack on additional legal charges for the time related to the correspondence. It can make collections very difficult when every time an owner calls our office or we contact the association or management company, etc, another .1 or .2 charge is added to the bill.
These stages alone frequently get accounts paid with no further action needed. We often get a batch of files turned over to us, begin the NOIL/Lien/NOIF process, and have more than 50% of the owners contact and make payment arrangements before these stages are even complete. As you can imagine, the recovery of a large number of the accounts in full brings in substantially more money to the association than the cost of the entire set of collections tasks we have performed on all of the files. Now the association is operating with a positive cash flow, and on top of that, one by one we are getting every penny paid to our firm reimbursed back to the association.
So what happens when an owner does not call and pay? The next step is conducting a pre-foreclosure review. We research the file carefully and determine whether we feel filing a lien foreclosure lawsuit is the right approach for this specific account/owner. There are numerous potential obstacles to a lien foreclosure lawsuit being successful; if not researched carefully, it can end up not only failing to recover the amounts owed, but causing the association to lose substantial money by filing the lawsuit. However, when successful, the association is reimbursed for every penny paid to the court or our firm related to the lawsuit. It is generally a .5 hour ($75) charge for a pre-foreclosure review.
We take our results of the review to the Board of Directors and discuss whether we believe we should foreclose. We discuss the advantages, the potential risks, the likelihood of a full collection, the costs, etc. Lawsuits are inherently expensive, and this process helps ensure we are only initiating this step when there is a strong likelihood of getting a positive return.
There are other non-foreclosure steps that can be taken as well. This is why we say there is no ‘cookie cutter’ method. Some examples are…
Rent Demands – Both 718 and 720 allow for an association to demand that a tenant in a delinquent property pay their rent directly to the association (under threat of eviction) until the owner’s balance is paid in full. When you are award of a tenant occupying a property with a delinquent account, this can often be the quickest and most efficient means of recovery!
Money Judgments – In addition to pursuing lien foreclosure, an association can also sue an owner for a simple money judgment. Assessment delinquency is personal debt to the owner, no different than standard debt like credit card debt. There are certain circumstances where seeking a money judgment makes the most sense.
Intervening in Bank Foreclosures – Sometimes an account is basically paralyzed due to a pending bank foreclosure against the owner. We help associations identify the times where answering the bank’s foreclosure complaint (always notify your attorney immediately when the association is served as a defendant in a bank foreclosure!) is in your best interest. We monitor these proceedings to determine whether an association is likely to get paid in full or only receive the safe harbor limitation (12 mos/1%), or times where we need to go in front of the Court and get a stalled foreclosure case moving forward, etc.
These are examples of some of the different avenues of assessment collections. They are cost-effective in certain situations and not in others. It is critical that each file is analyzed independently to determine the best approach.
Solving your delinquency problem is achieved by ensuring a strong collections policy is in place; initiating action against accounts as soon as they become delinquent (it is much easier to get an owner to pay off a $400 balance than it is to get them to pay a $4,000 balance); making sure the community is informed that action will be taken if payments are missed and that fair and reasonable procedures are in place for doing so; working together on a day-to-day basis with the association and/or their property management company to make sure the process is streamlined and that deadlines correspond with action; maintain communication and keeping the association updated; and employing the right customized strategy to each file so that collections are successful and cost-effective.
Whether your association already has a collections process but is not satisfied, or whether you need to initiate one from scratch, we would love the opportunity to learn more about your community and see if we are the right ones to help you. We always offer free consultations with your Board or management company to discuss these matters further.