Collecting Past Due Assessments
A Legal Moment

Collecting Community Association Assessments -- "It's Just Business"

     Treating Your Collection Process Like a Well-oiled Machine Encourages Timely Payments

   My firm’s experience suggests that running an association like a business is the best practice, and nowhere is this clearer than in the case of collecting delinquent assessments.

   No one moving into, much less managing, a community association ever imagines that one day she’ll end up “playing the heavy,” pleading and haggling (or worse) with the next door neighbor over the past due invoice, but this is exactly what happens and it is not a good time.

   Thankfully, North Carolina’s Planned Community Act (PCA) provides an efficient three-step process for collecting assessments which rewards timely payment while “punishing” late-paying owners. It behooves the Association to treat the collection process like a business in the sense that the association diligently follows the PCA’s procedures and time line.

1.    Issue a “Notice of Intent to File Lien” Letter
       to the Delinquent Owner.

   On the first day following the expiration of the stated deadline for the payment of the assessments (at least 30 days), the Association – or its attorney, accountant, or agent – should send a letter giving the owner notice of the Association’s intention to file a Claim of Lien (“Notice”).  Be aware that there are strict statutory requirements regarding the content of the letter.

   The Notice serves two purposes:  it is a legal prerequisite to filing an actual Claim of Lien, and it alerts the owner to the fact that the Association intends to seek reimbursement of any attorneys’ fees and costs it incurs if forced to move forward with the Claim of lien and/or foreclosure.

   The owner has 15 days to pay the assessments, any late charges and/or interest while not incurring attorneys’ fees.  If the owner fails to take advantage of this grace period, however, then from this point on the owner is responsible for the payment of the fees and costs the Association actually incurs.  

   The prospect of having to pay attorneys’ fees and costs operates as no small incentive for the owner to pony up because the amount of attorneys’ fees and costs can vastly outstrip the amount of those assessments.  To take an admittedly extreme example, in one of our cases an owner who refused to pay $1,700 in past due assessments ultimately reimbursed the association the $35,000 it spent in legal fees to collect that sum – and that’s not counting what the owner spent on his own attorney just to defend and ultimately lose the case.

2.    File a Claim of Lien.

   If no payment is received after the 15-day “Notice” period expires, the Association should file the Claim of Lien and provide a copy to the owner of the subject lot.  Once filed, the lien remains valid for a period of 3 years, and will be “picked up” by any attorney reviewing title history prior to a possible sale of the lot or refinance of the mortgage.  The lot cannot be sold or refinanced without the lien either being paid off or, at a minimum, the amount of the lien being placed into escrow if the owner is challenging the amount of validity of the lien.  It is not at all unusual for an Association to suspend its collection efforts at this point but the PCA provides the ultimate collection tool: foreclosure.

3.    Commence Foreclosure Proceedings.

   Assuming the delinquency continues after the filing of the lien, the Association may initiate foreclosure proceedings as early as ninety days following the due date of the assessments.  Needless to say, initiating foreclosure proceedings never fails to get the delinquent owner’s attention, arguably exacting the greatest incentive for the owner to pay up.

   In sum, the formidable prospects of having to reimburse the association’s attorneys’ fees and costs and defending a foreclosure proceeding often serve as the “inspiration” a delinquent owner needs to write a check for the past due assessments.  An indirect benefit to this strategy is that taking just one delinquent owner through this process serves as an excellent warning to other owners who may be inclined to pay late.

   Like one’s utility company, finally, the more an association acts as a well-oiled machine to collect assessments, the less likely its directors and officers will find themselves pleading and haggling with their neighbors, leaving more time for the fun part of living in this beautiful area.


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Philip Roth is a founding shareholder at Marshall, Roth & Gregory, PC. One of the firm's principal litigators, Philip's practice involves myriad issues involving community associations.
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