Keeping on Their Toes Condos Need to Stay On Top Of Delinquent Monthly Fees

Keeping on Their Toes

If a unit owner has trouble making mortgage payments, can non-payment of condo fees be far behind? In what feels almost like a “tough love” scenario, experts are encouraging condo boards to be proactive about collecting late fees, even though New England communities have not been hit as hard as those in other parts of the country.

David A. Levy, CPA, of Brookline, Massachusetts, advises condo boards to “keep a close eye on ‘aging reports’” that reveal how long it is taking to collect the revenue needed for regular maintenance as well as long-term, capital expenditures. He is personally observing situations where “an association may be on-budget, but receivables are growing… from 30 - 60 days out to 60 - 90 days.” This trend has not been as severe in New England as in other regions, he says. “I’m reading about it [foreclosures] but I’m not seeing it first-hand.” He contends that condominium communities in this area may be more well-established, and notes that, “owners with a lot of equity are not going to default on their mortgages.”

However, Levy points out that associations have no way to know the status of mortgage payments by unit owners, which might serve as a warning bell. “If they’re not paying their mortgage they’re probably not paying their condo fees either,” he states, adding, “While the bank or mortgage company is settling up with the homeowner, [such as] re-writing the note or starting foreclosure, will [either party] pay the condo fees?”

If a condo sale or re-financing of a mortgage is pending, a 6-[d] certificate will be required at the closing, Levy notes. This is essentially a document obtained from the Board of Trustees that states all fees, fines, assessments or other monies due to the association are paid up. This assurance of fee payment only applies when there is a buyer. In the case of a pending foreclosure, the association fees may get lost in the line-up of creditors.

In most states, community associations have no special status when a unit owner stops paying maintenance fees. But in Massachusetts, the state’s condominium statute includes a so-called “super-lien” provision (Chapter 400 of Mass. General Laws 183A), that allows the association to assume the position of first lien-holder on a property about to default.

Boards Seek Guidance with FDCPA

Attorney Gary Daddario, an associate at Perkins & Anctil, PC, of North Chelmsford, Massachusetts, is director of that firm’s collections department, and serves clients in Massachusetts and New Hampshire. He notes that associations trying to collect late fees need legal support just to navigate their way through the federal Fair Debt Collection Practices Act [FDCPA] of 1966.

The act outlines specific rights that in-debt individuals have, but “it is so old,” he says, “it needs to be revamped… it’s not a good fit anymore.” It makes no provisions, Daddario says, for modern communications such as fax or Internet and it often conflicts with state-level collection laws. “It was originally intended,” he adds, “to protect consumers from unscrupulous or unlawful collection agencies, but now, even people practicing law according to the rules can get tripped up by FDCPA.”

When an association starts missing fee payments from a unit owner, the board usually opts to call in some legal help. Daddario outlines the steps in a typical case. “First, when the unit owner is 30-45 days late, we send a demand letter that offers a very simple outline of the debt situation and refers to people’s rights under the FDCPA. Then, 30 days after that demand letter, if there was no response, notices go out that include one to the unit owner and to the first mortgage holder, with a 60-day late warning; and another one to the first mortgage holder with the warning that if unpaid fees are not cleared up within 30 days, the association will file suit in court. When this complaint is filed [in Massachusetts], the ‘super-lien’ kicks in.”

Daddario notes that associations must move quickly in response to late payments, to maintain super-lien status with the original owner. If a mortgage lender begins foreclosure proceedings on a homeowner, the lender is only required to give the community association three weeks’ notice of a pending auction or foreclosure sale. The opportunity for simply collecting the past-due fees may diminish.

“The association is not really interested in owning a condo through foreclosure,” says Daddario, “… especially if it’s [eventually] held by a mortgage company or bank. The association just wants the fees that are due.” In most instances, the super-lien threat is enough to compel the owner or mortgage lender to pay past-due condo fees, he contends.

“Sometimes the problem can be resolved before legal fees become an issue,” he says, because that’s when any spirit of cooperation tends to disappear. “It doesn’t make sense to hit people hard [with threatening letters],” says Daddario. The first warning letter should prompt the homeowner to focus on the problem. “Sometimes,” he points out, “there’s an error somewhere” and the debt gets resolved without further consequence.

Foreclosure Procedure May Trigger Payment

Attorney Henry Goodman of the Law Offices of Goodman & Shapiro, LLC, in Dedham, Massachusetts, reports that in general, for this region, he is seeing condo foreclosures but nothing that compares to the downturns in places like Florida, California and Nevada. On the local level, he states, “We’re seeing them in working-class communities… not so much in the high-end developments”

He points out that a condominium association’s collection task is unique, “When a homeowner is not paying condo fees, all the other unit owners are paying the defaulted owner’s expenses, and that’s not fair. We recommend that if an owner is over 60 days in [fee payment] arrears, the condo board should turn the matter over to a lawyer for foreclosure proceedings. While board members may sympathize with the owner’s difficult times—no one wants to seem mean-spirited—they need to look out for the best interests of the entire community.”

In Massachusetts, at least, it would be unwise for a board to initially negotiate a payment plan with a unit owner—that might hold off or reduce fee payments—to help the owner get through a rough patch. This is because, Goodman points out, “it is essential to start [foreclosure] proceedings on schedule to preserve the priority lien which the association has under state law.”

The Massachusetts condo statute only protects the association for fees due within the six months preceding a foreclosure filing. The longer it takes for an association to take action against a default, the less protection the law provides.

Goodman has observed that when associations start foreclosure proceedings, the other lien-holder—the mortgage lender—generally steps in and pays fees, to protect their own interests. “That way,” he says, “the association may not have to foreclose after all… In fact, it’s been months, if not years, since we’ve had a client actually take a unit by foreclosure.”

One-On-One Approach Can Work Well

Daddario agrees that such extreme measures are rare, but says sometimes it’s the only option. “Once the case is in litigation… when the association gets a judgment, it usually includes the ability to attach rents …or foreclose on the unit, if necessary.”

He adds that even with the Massa-chusetts super-lien provision, associations must stay diligent in protecting communities against individual defaults—beyond just maintenance fees. “We are advising [Massachusetts] clients,” he notes, “that special assessments and other payments owed [by a unit owner] are not protected under the super-lien statute.”

And in other states, associations that are owed money must compete with other creditors that may have higher status, such as a mortgage-lender. Rules vary from state to state. In New Hampshire, says Daddario, “the condo statute requires filing a lien on paper and recording it at the registry of deeds… and it must be renewed every six months.”

An association trying to collect may be more successful taking a one-on-one approach instead of pressing forward in a lock-step of impersonal legal procedures. “Sometimes [the parties in default] surface at the very end of the process” and are willing to cooperate with the association, he reports. “In that case, we try to negotiate a fair and reasonable payment plan proposal—all in writing, which everyone, including all board members, must receive. If it’s reasonable and the association accepts the terms, a contract will be drafted in which the unit owner acknowledges exactly what [monies] are in default, how it will be paid and what are the ramifications of breaking the contract. At this stage, the mortgage company may be involved, as well.”

Ultimately, he states, “Our philo-sophy is to settle [a debt issue] before it gets to court.” Sometimes the unit owner can satisfy one but not all of his or her creditors. The association needs to be high on the payment priority list. And the association can gain a high priority if its collection callers are respectful instead of demanding. Daddario believes, “Given the choice, unit owners will spend their limited resources on [whoever] treats them with dignity…” even, perhaps, at the expense of other creditors.

The collection process may be daunting and complicated to association directors, but the association board is still the unit owner’s closest ally, compared to other creditors. As such, the association has an opportunity for collecting past due fees, especially if its directors understand, as Daddario insists, “It clearly pays to treat people fairly, and with respect.”

Marie N. Auger is a freelance writer living in Westminster, Massachusetts.

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  • According to the Mass General Laws, notice is to be given when a unit owner is 60 days late, no sooner. Also, if the mgt company hired by the association sends it to an atty prior to that ,is the homeowner obligated to pay atty fees when conversations were held and the mgt company did know payment would be late.thanks
  • is california a super lien state?
  • I am a volunteer association board member in NH and we don't have a management company. We have a problem with a unit owner that owes us at least $2,000 at this point, but because she is still paying her mortgage or owns her home outright (we don't know which one), there is nothing we can do to collect that money. Right? We went to court, have a lien, but if she never tries to sell, or isn't foreclosed upon, we are helpless to get that money back.
  • My condo association has serious governing document issues with fatal legal flaws and has chosen to sue 3 homeowners rather than try to deal with reality. Originally we were told the case(s) were bound by mandatory arbitration. This was used as a ploy to gain approval of the $50/month litigation fee (which will never end..even after the litigation is over) for 20+ people who refused to pay for the upkeep of the golf course property we do not own. Now we have discovered that this was untrue. The $130,000 litigation cost is already been overspent and we are at least a year away from the court date. Did I mention the HOA has yet to win a single motion? Now what?
  • This is a fantastic article and was so helpful. Many Thanks.
  • Condolawyer New Hampshire on Monday, January 16, 2012 11:02 AM
    To Liz, if you have a Judgment you can move forward with a Sheriff's Sale. That is surely to get the unit owner's attention.
  • I am a unit owner in a small 9-unit association in Salem, MA. in November of 2010, one of the condo unit owners passed away. she left no will & her family didn't want the unit. the condo is now owned by Chase Mortgage. i am looking for advice as to how we, as a self-managed condo association, can collect delinquent condo fees. it has been 19 MONTHS since a condo fee has been received from this unit.
  • is it permissible for an association to require a unit owner to pay the association through a direct debit? we have a chronic late payer.
  • Hello, I am a MA real estate attorney on Cape Cod and some of my clients buy condos at foreclosure sales. If the condo association never filed a Complaint, what is responsibility of new owner and when does his responsibility begin, date of sale or date of deed into the new owner? Also, if they have filed prior to foreclosure, other than the six months, collection & attorney fees, is the new owner liable from date of foreclosure sale or date of his deed. I never get a clean answer from local attornies. Thank You, Stan 508-771-8080
  • Ice dams are a major problem this year and the board says it's the unit owner's responsibility to pay for removal and/or damage. The unit owner's think the association is responsible. Who's right?
  • We were led to believe that we were responsible for the inside and the mgt co was responsible for the dams, snow removal on roofs, decks, leaks, dryer vents, chimneys etc. what are the ma laws concerning this issue.
  • Simple fee owner in MA on Sunday, March 8, 2015 2:19 PM
    Hi, I live in a fee simple townhouse which is part of a HOA in Salem, MA. The HOA is made up of fee simple townhouses and a condo association with two units that are condos. The lawyer for the board stated that HOA fees are not at the same level as COA fees and it would be difficult to attach a lien for a delinquent owner in a HOA. Is this true? and would a HOA fine like loud noise fall under that logic even if the by-laws state failure to pay may cause a lien.
  • lawyer fee on late payment of special assessment, on Friday, May 8, 2015 10:28 AM
    I own a condo in Quincy, MA. I have been paying my monthly maintenance and I went out of country for an year. During that time, the association met and decided on special assessment, which I do not know, as I was out of country. They imposed monthly late fee of $25 and turned my condo to a lawyer. Now, I came back, and learned about the special assessment and paid the due balance. But, they are also asking me pay the lawyer fees of $150, which is what surprised me. My questions are: 1. As I was out of country and I do not know about this special assessment, what are the legal rights to HOA to assess late fee and turn over my condo to a lawyer for collection? 2. Is this legal in Massachusetts to turn over a condo by HOA in absence of owner on special assessment? 3. What are my options to not to pay the above $150 lawyer of HOA and late fees imposed by the HOA? I have paid all the due balance till now, except the lawyer fees, which I would like to have an advise, before moving forward. Thanks in advance!
  • We are a self managing 3 unit condo association. 1 condo owner has been late with payments the past couple of months. Looks to be in financial trouble and I fear may not be paying bills/mortgage. Mail building up in his mailbox and he doesn't seem to care. Also has a drug & alcohol issue. We now fear he may not going into foreclosure and we may not see any condo fees. Each month is a struggle to get the money off him. The fear is now he won't have the money and the condo association fee will not be paid. Can you help me understand is there any legal way we can follow up on this? I notice there is a condo rider on his mortgage - can this help us? (I just wish he would sell). Thanks in advance!