Most properties are owned by individuals.  Collections for unpaid assessments due from individuals generally involve lawsuits against the owners, leading to wage garnishments, bank garnishments, or tenant garnishments.  However, occasionally a board is faced with attempting to collect unpaid assessments on a property owned by another type of owner, such as an LLC, a trust, or an estate of a deceased homeowner.  What type of collections options are available for these types of owners?

It is possible to proceed against an entity in the same manner a board would attempt to collect against an individual homeowner.  The association can file a lawsuit against the LLC, trust, or estate, in hopes of obtaining a judgment against the owner.  However, once judgment is obtained, practical options for collecting the judgment become limited, as garnishments are often not very effective.  For example: because the debtor is not employed, wage garnishments may not be obtained.

LLCs, trusts, and estates are often created with the primary goal of dealing with a particular piece of real estate.  It is very common for the property to be the largest, and many times the only, asset of the LLC, trust, or estate.  These types of entities often have limited funds in a bank account, so bank garnishments will also likely result in little money for the association.

If the property is rented to a tenant, the association could attempt a tenant garnishment in an effort to intercept the rent payments that would otherwise be paid to the owner.  However, if the property is not rented, this option is also not available.

Fortunately, other types of collections options exist that are often more effective against LLCs, trusts, and estates.  Judicial foreclosures and/or receiverships are often excellent collections options for these types of owners.  Additionally, an association can proceed with a foreclosure or receivership, or both simultaneously.

A judicial foreclosure is a process whereby the association forecloses on its lien against the property.  If the homeowner wants to retain the property, it will be required to pay the full balance due to the association, plus the legal fees incurred in attempting to collect.  If the homeowner does not pay the balance due, the association may take ownership of the property through the foreclosure process.

In a receivership, the Court appoints an independent third party to manage the property.  If the property is vacant, the receiver markets the property and locates an appropriate tenant.  If the property is currently rented to a tenant, the receiver contacts the tenant and collects the rent payments that would otherwise be paid to the owner.  The receiver is reimbursed for his costs and paid for his services. Any additional funds at the end of each month are forwarded to the association until the balance due from the homeowner is paid in full.

If you have additional questions, or may be interested in pursuing collections against an owner in your community that is an LLC, a trust or an estate, please contact a Altitude Community Law attorney at 303.432.9999 for additional information.

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