In today’s economy of rampant foreclosures and bankruptcy filings, it is becoming all too common for associations to be confronted with the unpleasant task of “writing off” uncollectible debt. There are a few common instances when a debt becomes uncollectible. When an owner files a bankruptcy and obtains a discharge from the court, then all debt owed prior to the bankruptcy filing is not collectible from the owner. If the owner is foreclosed upon by the first mortgage holder, then the association’s lien is extinguished, and the debt is not collectible from the property. If both of these scenarios apply to the same property, then the debt owed is truly uncollectible.
However, there are other circumstances where an association can still attempt to collect its debt, even if facing long odds. If the association obtained a judgment, and merely can’t collect on the judgment through garnishment or other court action, the association still has options. In Colorado, a judgment obtained in county court is valid for 6 years from the date of entry. A district court judgment is valid for 20 years.
An association should obtain a transcript of the judgment from the issuing court, and record that judgment in other counties if it appears that the debtor has assets. An association’s attorney can determine if an owner has other assets besides his or her primary residence, and where those assets would be located, through reviewing credit reports or performing asset searches. If other assets are located, a transcript of judgment should be recorded, because recording the judgment will attach the debt to any real estate owned by the owner in that county.
If no other assets can be located, the only way to minimize uncollectible debt is to turn over delinquent accounts to legal counsel as quickly as possible. When an often well meaning Board of Directors decides to hold off on turning over delinquent accounts to legal counsel, it puts the association at a disadvantage when the account is finally turned over. We recommend that associations turn over delinquent accounts to legal counsel as quickly as possible, due to the fact that doing so often sets the tone in the community and sends a message that there is a penalty for non-payment.
If you are a community desiring to turn over delinquent accounts to your attorney, but feel you lack the financial resources to do so, please contact Altitude Community Law to discuss our risk sharing fee structure. This fee structure was designed specifically to help associations who have met with financial difficulty but still want to be aggressive in collecting delinquent assessments.