Situation: On January 10, 2012, your association obtains a judgment against a homeowner for the balance, as of that date, of unpaid assessments, late fees, interest, attorney fees, and costs. In June of 2012, through a wage garnishment, the judgment balance is collected. Success? YES and no.
Problem: The homeowner has erroneously believed that because his wages have been garnished, once the garnishment stops, that he is paid in full. Based on this notion, the homeowner has failed to pay assessments from the judgment date forward. Therefore, there is going to be a new balance that will have to be pursued through further collection efforts.
This is the vicious cycle of collections. If the homeowner fails to pay voluntarily, because assessments are a revolving debt (meaning that they continue to be incurred monthly, quarterly, etc.), there is usually a remaining balance due once a judgment is satisfied. So what options are there for associations?
Solution: Option 1: If your association has an acceleration provision in its Declaration or Collection Policy, USE IT! Option 2: If your association does not have an acceleration provision in its Declaration or Collection Policy, GET ONE!
Acceleration allows the Board to accelerate the entire fiscal year’s debt against the owner’s account, rather than just the current delinquency. In the case presented above, had the Board chosen to accelerate the homeowner’s debt, the judgment obtained on January 10, 2012, would have been for the amount due through December 2012. Once the judgment was collected in June 2012, the association would be paid in full through December, rather than just through the judgment date of January 10, 2012.
By accelerating dues against an owner’s account, the association is able to more economically pursue collections against an owner. This is because a single collection action (and a single set of legal fees and court costs) is brought, rather than multiple actions throughout the year. Associations should be mindful, however, that this remedy can backfire against an association in the case of a subsequent bankruptcy or foreclosure. Therefore, the ability to decelerate assessments in such event is also an important protection against the loss of future assessments.
When considering whether to accelerate dues against an owner’s account, the board’s decision should be documented in the board’s records. The decision can be made on a case-by-case basis for repeat debtors or because other circumstances warrant acceleration. The board can also choose to make a blanket decision for acceleration, for example, all accounts turned over to the attorney’s office for collections are accelerated per the association’s policy. Whatever the board’s policy, decisions should be well documented.
Acceleration is an especially useful tool in the early months of each year, since you can accelerate for the remainder of the fiscal year. If you have questions or need information about using an existing provision for acceleration and deceleration or if your board needs to amend its governing documents to take advantage of this type of provision, please contact one our attorneys at: 303.432.9999.