In this economy, it is no surprise that your association’s delinquencies may have increased.  As such, the costs of collection are increasing.  Costs of collection include not only the legal fees and court costs, but also include costs and resources expended by the management company for monitoring the delinquent accounts.  Many management companies charge a service fee for delinquent accounts.  This charge is provided for, generally, in the management contract between the association and the management company.  This fee generally ranges from ten to twenty-five dollars per month per delinquent account.

With the increasing number of delinquencies, management companies have increased responsibilities and obligations and this fee compensates management companies for additional work performed on the delinquent accounts.  Such work includes sending late notices to the owner, discussions with owners regarding their accounts, turning files over to the attorney, and then maintaining and monitoring accounts that have been turned over to the attorney.  But, how could this charge adversely affect a collection case?

Association governing documents and Colorado law set forth rights of associations to collect delinquent accounts.  Associations have the authority to impose late fees on delinquent accounts, either by the declaration or law.  However, many times, the association is also charging owners a service fee (the fee charged by the management company to the association via the management contract).

What document or law gives associations the right to collect these charges from the owner?  The management contract is between the association and the management company, not the homeowner.  The answer is, in many cases, there isn’t a document allowing associations to pass this cost to the owner.  This means that judges can (and HAVE) determine the owners are NOT RESPONSIBLE for this charge!!

How can your association protect itself from eating these costs?  The following are actions your association can take to minimize this risk:

  • Amend your declaration to include a reimbursement assessment provision:  A reimbursement assessment provision provides that any willful or negligent failure of a member of the association to comply with the association’s governing documents, can results in the imposition of a reimbursement assessment, which is equal to the cost incurred by the association.
  • Your association can also amend its collection policy to state that on any delinquent accounts, after the first delinquency notice, will be charged this service fee for as long as the account remains delinquent.
  • Additionally, delinquency notices should also contain a warning that this charge will be assessed to the account.

These actions can help your association recoup funds spent, outside of legal fees and court costs, in efforts to collect on delinquent accounts.

Ashley M. Nichols
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