When a property is set for a closing, the title company handling the closing will request a status letter from the management company or board. The status letter contains quite a bit of information, including telling the title company how much of the profits from the sale should be withheld to pay the balance due to the association. Usually this is a straightforward amount, as listed on the homeowner’s current ledger. However, here are some specific items to look at to be sure the full, accurate balance is being collected:
If the homeowner has previously had a bankruptcy or is currently in bankruptcy, be sure to contact the association’s attorney to confirm the accurate balance to collect at closing. In most cases, the homeowner’s bankruptcy discharge will only wipe out their personal responsibility for paying the pre-bankruptcy balance. In those cases, the bankruptcy does not impact the lien against the property. The status letter balance would include both the pre-bankruptcy and post-bankruptcy balance due.
When a property is selling, the association is collecting on the lien against the property, not against the homeowner personally. While it may seem like we are splitting hairs with a legal distinction, being able to collect a pre-bankruptcy balance in addition to the post-bankruptcy balance could make a difference of thousands of dollars to the association. This is money validly due to the association that might otherwise be written off as bad debt and covered by the paying members of the community through increased assessments.
Quit Claim Deed(s)
If Homeowner 1 transfers ownership of a property to Homeowner 2 via quit claim deed or other method that doesn’t involve a title company closing, the association’s owner of record changes from Homeowner 1 to Homeowner 2 as of the date of the transfer. Homeowner 2 is only personally responsible for payment of any assessments due after they became owner of the property. But, if a title company didn’t handle the closing, any balance due from Homeowner 1 was probably not paid when the ownership changed. Therefore, the lien was never cleared against the property.
When Homeowner 2 attempts to sell the property to Homeowner 3 through a closing with a title company, the unpaid balance due from Homeowner 1 plus any balance due from Homeowner 2 can be included in the status letter amount. Like in the example about bankruptcy, the Association is collecting on the lien against the property, which is equal to the full balance due from both homeowners, not just the current homeowner. Again, the association’s attorney can answer any questions about what balance to collect in the case of a quit claim or other transfer without a title company.
More information about the distinction between collecting from a homeowner personally and collecting on the lien can be found here.
If a homeowner has been sent to collections, covenant enforcement or foreclosure with the attorney recently, be sure to always contact the attorney when you receive a status letter request. The attorney can confirm any attorney fees incurred but not yet showing on the ledger that should be added to the balance requested in the status letter.
Additionally, the attorney can advise of any very recent payments that may not have made their way to the association yet. If a homeowner has been sent to an attorney for any reason, be sure to reach out to the attorney to confirm the balance for the status letter. Otherwise, the association may lose out on otherwise collectable amounts.
The balance due in a status letter can be straight forward, but if you have any of the above situations or any other questions about what amount should or should not be included in a status letter amount, it is best to contact the association’s attorney to confirm.
If you have any questions or concerns about collections options, please feel free to contact any of our Altitude attorneys at 303-432-9999 or [email protected].