Community Associations: The Importance of Establishing a Collections Policy for Your Community
For any Community Association, an essential component that the Board of Directors must look to establish is a collections policy that will help support the community in being financially healthy and responsible. As many Associations look forward following the recession of the past few years, now is a good time for the Association’s current Board to ensure that the Community has a well-rooted policy that fully encompasses the needs of the community. After all, even if only a small percentage of homeowners are not maintaining their assessments, the rest of the community will suffer and the Board has a fiduciary duty to keep the Association’s best interests in mind. It is also important to consider the personality of your Association as not all communities are the same and some Boards will want to be more aggressive than others. If you are uncertain as to what may be the best process for your community, consulting with a qualified Association attorney will assist in making your decisions. Regardless, once your collections policy is established it is extremely important to apply your policy uniformly and to avoid deviating from it to avoid claims that the Board and Association are “targeting” certain homeowners or playing “favorites” with neighbors or friends.
As mentioned earlier, the Board has a fiduciary duty to act in a reasonable and prudent manner in order to assure that the Association’s best interests are maintained and that the Association’s governing documents are being properly enforced. This will call for the use of sound business judgment and although it may appear obvious at times, the reality is that in some situations the lines may become somewhat blurred due to various factors. These types of situations are when a well-established collections policy will come in handy since your Association should already have a protocol on what the best next step will be for the Board to take. For example, if a property located in your Association becomes delinquent in their assessments and it appears that the property is vacant or has been abandoned by the owner(s), the Board should exercise sound judgment and do their best to mitigate the situation. Under Florida Statutes, a claim of lien may be filed in the official records of the applicable county and the Association may file a lawsuit to foreclose the claim of lien if the owners fail to bring their account current. The cost of foreclosing for an Association will typically cost a few thousand dollars if the case is uncontested, however, once the foreclosure case reaches its conclusion the property will go to public sale and the Association may either (A) take title to the property whereby they are able to rent the property out to recover the unpaid balance on the account; or (B) a third party may purchase the property at the public sale and the Association will be paid in full shortly thereafter. If an Association acts relatively quickly when there is a delinquent property, the entire process should not take too long and the Association can mitigate its damages and eventually turn the delinquent account into a positive situation.
As one can see, a solid collections policy is the foundation for keeping your Association organized and fiscally responsible. Should your Association need further assistance with establishing their collections policy, or have any questions in general as to Association legal issues, please contact our office to speak to a qualified association attorney.