Now that the hustle and bustle of the legislative session is over and those interested parties that like to read legislative bills have been able to fully digest the contents of what was passed, we thought it would be a good idea to review what we know. We know that the legislature has placed a full court press on regulating common interest communities and their actions. We also know that next year may prove to be just as exciting. With that said let’s look at the 2013 legislative session, one bill at a time, in close detail.
Today’s lucky contestant, which promises to have the most significant impact on Common Interest Communities, is HB 1276, the HOA Debt Collection Bill. The Debt Collection Bill was born from complaints by owners of out of control boards and collection companies who were abusing the process, and adding late fees and collection costs to such an extent that owners were never able to get out of debt to the association. Additionally, concerns were raised regarding associations that were foreclosing on homes for relatively small debts.
In response to these concerns, the legislature passed the Debt Collection Bill. This bill has an effective date of January 1, 2014, at which time the following must be in place prior to the Association taking legal action or using a collection agency to collect assessments:
While having a collection policy is not a new requirement the contents of the collection policy are new and substantial. Additionally, if an association does not have a collection policy that is HB 1276 compliant, an association may not use a collection agency or attorney to collect assessments. And, while an association may have been permitted to be somewhat loose in its previous collection policies, today’s standards are much different. The new collection policy must state:
- when assessments are due;
- when the assessments are deemed delinquent;
- how much the Association may charge in late fees, interest and bounced check fees; and
- the circumstances in which the owner may enter into a payment plan of at least 6 months, which payment plan requires that owners stay current in regular occurring assessments;
- that before an account is turned over for collection the association will send the owner a notice specifying those things set out below.
- how payments are applied on delinquent accounts; and
- the remedies available to the association to collect.
The other major change relating to debt collection is the contents of the association’s delinquency letter. Historically, delinquency letters could be short and sweet and contain somewhat minimal information concerning the debt. Commencing on January 1, 2014, and PRIOR to the Association turning the account over to a collection agency or attorney for collection activities, at least one of the association’s collection letters shall contain the following information:
- a statement of account indicating the total delinquency along with the manner in which the debt was calculated;
- a name and phone number of a person the owner can contact to either contest the debt or enter into a payment plan;
- a list of all Association remedies that the Association may use to collect the debt;
- a statement as to whether or not the owner may enter into a payment plan and the terms of such plan; and
- a statement indicating that the owner has a period of 30 days in which to address the situation prior to the Association turning the account over to an attorney or collection agency.
The third part of the Debt Collection Bill states that the association may not foreclose on any association lien prior to the delinquency becoming the equivalent of 6 months common expense assessments past due. Also, the board of directors must individually consider and vote the foreclosure with each board member’s vote being recorded. This is in an attempt to ensure that no matter what the debt; the association is considering the impact of the foreclosure.
In review of this bill, it appears that a majority of the requirements were already being practiced by a large number of associations, such as multiple reminder letters, collection policies that indicate the amount of flat fees, when the fees would be applied and when the account is turned over to an attorney. The new requirements are intended to let owners know, prior to incurring fees, what remedies the Association may have along with a time to cure prior to incurring these fees.
We will need to wait and see if the Debt Collection Bill has a positive impact on collection activities. However, as indicated above, without a proper policy, the Association may not move forward with collection activities. And, without proper notice, the Association may be required to start collection activities over again which will cost the association time and money that may not be recoverable.