With the collection rate being what it is and bank foreclosures taking forever, I understand that Boards do not want to wait any longer than necessary to take action to collect overdue assessments.  Many Boards give management and their attorneys “marching orders” to proceed as quickly and as forcefully as possible and I agree – that is prudent in light of the current economic climate. 

 However, the desire to do something fast should never replace or outweigh the desire to do something right.  Management, legal counsel and the board all need to work as a team.  They need to figure out the best way to handle each situation for the benefit of the community – not run to the courthouse to file a lawsuit in every single case.

Moreover, the team has to do its homework as a team.  You all have to communicate.  The left hand needs to know what’s happening with the right hand, especially when it comes to financial matters such as the application of payments made by owners, charges on owners’ accounts, levying fines, bankruptcy filings and suspending use rights.

Being quick on the trigger worked against the Wellesley at Lake Clarke Shores Homeowners’ Association when the case came under review by the appellate court.  In this case management sent the homeowner a demand letter claiming a certain amount was owed.  The owner responded saying she had canceled checks reflecting payment for that period of time.  The account was turned over to legal counsel which issued another demand letter saying that the first quarter regular assessment and 4 months of special assessment payments were late.  Counsel demanded payment for these assessments, late fees, interest and attorney’s fees.  Canceled checks reflecting payment for the first quarter and those specific special assessment installments didn’t make the association take a step back and look at the situation.  Instead it filed a claim of lien and foreclosed. 

The owner continued to claim she paid these assessments.  She even paid additional amounts for late fees.  Why did she still owe all this money?  It didn’t make sense to her.

In the end it didn’t make sense to the Court either.  The trial court calculated the amounts the association claimed were past due.  There was $20,485.08 in total past due assessments.  The owner’s records proved she paid the total sum of $20,561.76 to the association for the relevant time period.  The trial court’s judgment against the homeowner also included close to $2,000 in interest and late fees in addition to a little over $10,000 in attorney’s fees and costs.  After delving into the history of payments and credits deeper, the Court found that this homeowner owed less than $1,000 before the lien was filed and the association didn’t even explain how the amounts claimed due on the account were calculated.

The Court almost scolded the association, its management team and counsel by saying:

…the association and its accounting methods were woefully inadequate to correctly ascertain and give notice of the amounts claimed to be due.  Because of this imperfect record keeping, the association did not make a proper claim of lien, nor did it give sufficient notice in its complaint of its claim.  Had it done so, in all likelihood this case would not have even been filed. …

What can we learn from this case?  Well, of course you must keep accurate records and send accurate disclosures.  There is another very important lesson – if the board took a step back and compared the proof of payments with the assessments due, it would have realized there were simple mistakes made and not escalated the dispute into a full fledged lawsuit. It could have saved money and maintained a better relationship with the owner by working it out before filing.

This case also reminds us to accept partial payments on account.  A previous case held that associations (management company or legal counsel for that matter) cannot refuse payments tendered by unit owners and then continue legal proceedings or foreclosure for the full amount due.

The point is that owners make mistakes from time to time, banks make mistakes from time to time & associations make mistakes from time to time.  Take a step back and think about the association’s goals – the goal is to get paid what is owed.  If you can achieve that goal without adversarial action, all the better. 

The decision in this case was just issued on September 7th.  It is therefore subject to rehearing or appeal.