In August of this year, the Second District Court of Appeals issued a ruling which has potentially big ramifications for HOA/Condo collections. The case was St. Croix Lane Trust v. St. Croix at Pelican Marsh Condominium Association, Inc., 144 So.3d 639 (Fla. 2d DCA 2014), and the ruling addresses the acceptance of partial payments from delinquent owners.
Under current law, when a delinquent owner makes payment, the association is required to apply it in the order dictated by statute (interest, late fees, collections costs/attorney fees, and only then to the delinquent assessments). The widely accepted understanding was that associations were required to accept all partial payments and apply it in this order. The St. Croix ruling dramatically changes how partial payments need to be handled.
The Court in St. Croix held that when an owner makes a partial payment which is accompanied by an offer to resolve the matter in full (i.e. accord and satisfaction language, “payment in full”, etc), the association is agreeing to the settlement of the entire matter by accepting and processing the payment. Meaning, if an owner makes a partial payment and states with it that the payment is for resolution of the entire balance, by accepting the payment with those terms attached they have accepted the settlement proposal and are barred from collecting any remaining portion. This also means that associations now have the right (in fact, the obligation!) to refuse partial payments unless it is clear that the owner is in agreement that only a portion is being paid and do not believe they are resolving the matter in full. If the partial payment is not being accepted it must be returned within 90 days. If a partial payment is erroneously accepted it may be refunded to the sender within the same 90 days, and the association must inform the sender why it is being returned and then continue pursuing the full amount.
Clearly, this could have major negative consequences for associations if payments are not being received and processed carefully. The association from the St. Croix case accepted an $840 payment and in doing so lost their right to pursue a delinquent balance over $35,000! We are advising that all associations and property management companies create clear procedures to review and apply payments. Most importantly, any payment that comes in on a file that is with the attorney for collections needs to be immediately forwarded to the attorney with all corresponding communication from the owner. In addition, as to all accounts, we feel it is wise to create a form letter that is given upon receipt of any partial payment clearly stating that the association is not agreeing to a full settlement of the account but is only processing one installment payment. Be cautious, however, as this form letter alone may not be sufficient if the owner clearly communicated that they believed their partial payment was settling the entire balance and the association accepted it. After this ruling, it is best to be on the safe side and not accept any partial payments unless this understanding is clear and documented between the parties.