Guest Post By Floyd Dickens, Lisa Fuerst, Scott Kuperberg, and Barbara Miciul of Weissman,Nowack,Curry&Wilco, P.C.

The strength of an association can be measured by its ability to perform its duties. In today’s tough economic times, it is more crucial than ever that an association act diligently to perform its duty to collect assessments/dues and properly handle the association’s financial affairs.

Assessments or dues are the lifeblood of associations. Without assessments, an association cannot operate. To comply with their financial mandate, a Board of Directors relies on the timely payment of assessments. If owners fail to pay lawfully imposed assessments as required, a Board must take action to secure payment from the delinquent owners. A comprehensive collections strategy must incorporate all of the tools in the association’s arsenal to efficiently and effectively deal with collection issues that inevitably arise. That includes a board willing to be practical in resolving delinquent accounts.

The effective collection of assessments requires that every Board establish a collections policy and distribute the policy to all owners. The policy should establish the due date and a timeline of when notices are sent to delinquent owners and when a suit will be filed. This policy should also include the consequences for the owners that fail to pay their assessments in a timely manner. The Board may also choose to include information as to when the delinquent account is forwarded to the association’s attorneys for collection action and, if the documents permit, that all attorneys’ fees actually incurred by the association will be assessed against the owners. Once the policy is distributed to owners, the Board should work with the association’s managers and attorneys to ensure uniform implementation of the policy.

Prior to proceeding with the discussion of tips to collect delinquent assessments, it is important to first discuss the realities of collecting delinquent assessment in these economic times. A Board of Directors should use the association newsletter, email, etc. to remind owners of the importance of paying assessments on time and stress the consequences that delinquent accounts have on every owner. Owners should also be advised to contact the board if the owner cannot pay assessments. If an owner is unable or unwilling to pay, then a board must become a debt collection. Board members should be flexible. If a member is unable to pay in full, a Board should recognize that something is better than nothing; a written agreement allowing partial payments and a promise to pay the remainder should be considered.

Securing an association’s lien rights

Condominium associations under the Georgia Condominium Act (GCA) and homeowners’ associations subject to the Property Owners Association Act (POAA) have a statutory lien against the property of a delinquent owner. The GCA and POAA establish that the association has an automatic, statutory lien for unpaid assessments, late charges, interest, and collection costs, including reasonable attorney’s fees actually incurred. No physical filing of the lien is required; the recording of the association’s Declaration constitutes record notice of this automatic, statutory lien. The lien remains in effect until it is paid or the property is foreclosed.

Many clients question the effectiveness of a lien that is not filed in the land records of the county where the association is located. They feel an owner is not as likely to pay if a paper lien is not filed and a copy sent to the owner. Because GCA and POAA liens are statutory, the law does not allow an association to file a lien for unpaid assessments. An association that files a lien jeopardizes its claim for all delinquent assessments as they become due. Rather than filing a lien, an association has the right to file a paper “Notice of Statutory Lien” in the county land records. While not a lien, it has the same effect of a lien – a recorded notice of the existence of a debt and a claim against the property to secure the debt.

Homeowners associations not subject to the POAA must record a paper lien in the land records of the county in which the property is located. The timely filing of the association’s lien is critical to perfecting the association’s lien rights against the property. Unlike the statutory lien that includes all sums from the moment they are late, the amount captured by a recorded lien is limited to the amount listed in the lien. If past-due assessments are owed to the association and the association fails to secure its lien rights against the property by filing a lien, or fails to update the amount of the lien, the property may be sold without the association getting paid all sums that are owed.

Pursuing the delinquent owner personally

Most association’s governing documents provide that the delinquent owner is personally obligated to pay the assessments. That allows an association to pursue the delinquent owner for a money judgment through a lawsuit. The lawsuit or complaint will set forth the legal theory of recovery and the amount the association claims is due by the delinquent owner.

Once the complaint is filed with the court, it must be served upon the defendant. The county sheriff, county marshal, or a private process server will serve the complaint on the delinquent owner. The timeline of the lawsuit does not begin until the delinquent owner is served. Be aware that on occasion the delinquent owner will attempt to avoid service and delay the lawsuit. The delinquent owner has forty-five (45) days to file an answer after he is served.

The delinquent owner’s response or lack thereof, determines the next course of action in the suit. If the delinquent owner fails to file an answer, the association will be awarded a default judgment. The Court may or may not require a court hearing in order to obtain the default judgment. In the majority of all assessments collection lawsuit, the delinquent owners do not file answers and the associations obtain their judgments by default.

If the delinquent owner does file an answer, depending on the defenses raised, the case may proceed down one of three paths. The association may work out a payment agreement with the delinquent owner in the form of a consent order. This is a document signed by the judge that makes the agreement the order of the court. Consent orders are a recommended tool in an association’s collection arsenal, as they allow delinquent homeowners to make payments over time on their delinquency. The association in turn receives some monies, as well as a cessation in the homeowner’s current delinquency. It is a no lose prospect for the association, as long as the consent is constructed in such a way that a default by the homeowner allows the case to proceed on a fast track to a judgment in the association’s favor.

In the alternative, the association may proceed to file a motion to resolve the case. The court may or may not require a hearing on the motion. If the court grants the association’s motion, the case is over and the association has a money judgment against the delinquent owner.

If the Court denies the association’s motion, the case may proceed to mediation or trial. Mediation is a formal settlement process with a trained neutral mediator present to facilitate negotiations between the association and the delinquent owner. If these efforts fail, then the trial will be set. The judge or jury will render a decision at the conclusion of the trial. Only a small fraction of cases actually end up going to trial.

Next step after being awarded a money judgment against the delinquent owner

An association should view a money judgment as one does the financial market – sometimes it is necessary to take both a short term and a long term approach to both the market and a judgment. In some cases, a judgment will pay immediately, thereby contributing to the short term gains of the association. Far more often than not, however, an association does not simply receive a check from the delinquent owner after obtaining the judgment. Instead, an association may need to take additional actions to collect the judgment. To do this, you will need to locate the owner’s assets.

An easy way to locate assets is to run the owner’s credit report. Credit reports contain a wealth of asset leads as they list the owner’s financial accounts, employers, lenders and potential lenders. Even if you do not find an active bank account on the credit report, you may learn of other entities to which the owner may have furnished a credit application or financial statement. You may then send a subpoena to these entities for the production of these documents, which, as you would expect, are loaded with asset information.

Another effective way to locate assets is through the use of post-judgment discovery. Post-judgment interrogatories and requests for production of documents may be sent asking for very specific asset information and documentation. Once served, the owner must appear and answer the association’s questions under oath. If not, the association may file a motion with the court to compel the person’s presence or an acceptable response. Should the owner remain uncooperative, a motion for contempt may be filed calling for the incarceration of the owner pending answering the questions, as well as the payment of additional attorney’s fees the association incurs in having to file the motion. Further, a post-judgment deposition may be scheduled. Again, this is not optional, and the owner must appear and truthfully and completely respond to the questions asked. If not, the same remedies apply as for the failure to respond to written discovery. If neither option is effective, a private investigator may be hired to conduct a search for garnishable assets. Private investigators are often very effective at locating assets, even where all other efforts have failed.

However, the best source for locating assets is already in an association’s files. An association or it manager should make copies of every owner’s checks every four to six months. That way, the association has instant bank information if the owner falls behind. Also, simply pay attention. Keep your eyes and ears open. Make a note of the owner’s automobile and tags numbers, as well as of the owner’s employer and business address. If the owner lives elsewhere,

and if your documents allow, require and keep a copy of the lease for the rental of the unit. Often the best post-judgment collection efforts may be made before the owner ever becomes delinquent in the first place.

Collecting your judgment after locating an owner’s assets

The first and best option is to file a garnishment. A garnishment may be filed on the owner’s bank accounts, wages, rental proceeds or anything else of value owed to him by another. The garnishee then is required to file an answer to the garnishment, and pay into the court any monies subject to the garnishment. In the case of a bank account, this means the entire balance up to the value of the garnishment. In the case of wages, this means twenty-five percent of the owner’s disposable earnings after taxes and social security are paid for the six months the garnishment stays in effect. In the case of a rent garnishment, the owner’s lessee pays the rental proceeds into the court, instead of to the owner’s pockets.

However, there are certain categories of monies that are exempt from garnishment. Under all circumstances, social security benefits may not be garnished. Furthermore, non-IRA pensions, retirement plan benefits, and some life insurance benefits are exempt until paid out and “in the hands” of the owner.

What to do when the standard collection tools are unsuccessful

When an association has exhausted standard collection vehicles, the association may proceed to foreclose its lien. Under Georgia law, an association must file a lawsuit to proceed with judicial foreclosure of its lien. Georgia law always has allowed for lien holders, like a community association, to foreclose its lien to collect outstanding charges. However, foreclosure of an association’s lien requires the association to first pay off any first mortgage on the delinquent owner’s property (superior liens). Now, property subject to the GCA and POAA can foreclose subject to a first mortgage. The unit owner remains liable for the mortgage even through the association has foreclosed its lien and forced the owner to vacate the property. For traditional homeowners associations not subject to the POAA, the association is obligated to cross this hurdle if it wishes to foreclose on the association’s lien. To foreclose, the association’s lien must be first in line. That means the association must pay off all superior liens before the association can proceed with the sale. This requirement makes foreclosure extremely difficult for most associations.

Foreclosure is no longer an impossible remedy for associations subject to the GCA or POAA. In July of 2004, the Georgia legislature adopted a simpler, more effective foreclosure power for communities struggling with serious delinquencies which gave associations submitted to the GCA or POAA the statutory authority to get court orders to foreclose their liens without first paying off superior liens, like first mortgages. This change in the law gave a tremendous new collection power to condominiums submitted to the GCA and homeowner associations submitted to the POAA.

Under the GCA and POAA, the association must provide notice to the delinquent owner prior to proceeding with the foreclosure suit. If the owner fails to pay the total balance owed to the association, or work out payment arrangements, within the thirty-day period, the association may proceed with the foreclosure suit.

Foreclosure suits are filed in the county in which the property is located. In July of 2008, the legislature amended these statutes and now requires that the association lien amount exceed $2,000.00 before a foreclosure lawsuit can be filed. This threshold applies to the amounts owed to the association at the time the complaint is filed with the court, not when the notice of foreclosure is sent to the delinquent owner. Remember, the amount of the lien includes principal, accelerated assessments after proper notice, late charges, interest (as applicable per your declaration) and attorney’s fees.

When the association obtains the order of foreclosure from a court, it will proceed to work with the sheriff’s office to sell the property. At the sale, either a third-party buyer or the association may purchase the property. This sale divests the delinquent owner of title to the property. The purchaser then holds legal title to the property. After purchase, the buyer will have to deal with the superior encumbrances on the property, i.e., the first priority mortgage. Typically, upon notice of the foreclosure sale, the mortgage company will call the mortgage due and the buyer will have to make arrangements to pay that debt.

Because this is a drastic collection remedy that will divest the delinquent owner of title to his/her property, there are several likely outcomes to the foreclosure suit. If the delinquent owner files bankruptcy, the foreclosure action will stop. Or, the delinquent owner may sell or refinance the property to avoid foreclosure. The association may also decide to accept a payment plan from the delinquent owner. In each of these outcomes, the association is likely to receive some or all of the amounts due to the association.

In some cases, however, the results of the foreclosure suit will not result in payment to the association, but will result in the owner losing title to the property. Once the unit or lot owner loses title, the delinquency will cease. The personal obligation against the delinquent owner remains but all liens are extinguished. While it does not result in any payment to an association, many associations are pleased with this result because the delinquent owner is forced out of their community and the continuing increase of the delinquency stops. This result may also occur if the lender forecloses any time during the foreclosure process.

Once a money judgment is obtained, associations can levy on real or personal property owned by the delinquent owner. To levy against personal property, the association will notify the sheriff’s office of the judgment and send the sheriff to collect and sell the goods. To be able to file a levy on the owner’s real or personal property, the judgment must be recorded and the association must obtain a writ of fieri facias (“fi. fa.”). The fi. fa. attaches to all real and personal property owned by the judgment debtor on the county where it is recorded. This process is expensive. The association must pay the costs of transporting, storing and advertising the sale of the goods. Typically, the value of personal items is very small. A possible exception to this rule would be an automobile. To levy on an automobile, or any personal property, the property must be owned outright by the delinquent owner at the time of the levy.

Delinquencies are a serious concern for many associations. Because the association has the obligation to collect assessments and the association’s board has the responsibility to manage the association’s finances in a fiscally responsible manner, boards must utilize all collection tools at their disposal to achieve their goals. From proper monthly oversight, collection letters and collection calls, to lawsuits for money judgments and judicial foreclosure, the association’s board must utilize their business judgment to determine the best tool to use at any given time. Association boards should utilize the experience of their managers and the association’s attorneys to determine the best course of action to develop a strategy for success.