New Neighborhoods–Owner Lawsuits for Collections and Modifying Maintenance Allocations

New Neighborhoods

By Gary A. Poliakoff and Ryan Poliakoff

Owner Lawsuits for Collections and Modifying Maintenance Allocations

Dear Poliakoffs,

I read your columns in The Palm Beach Post and purchased a copy of your book, New Neighborhoods, about a year ago.  Very informative.

My question is whether an individual condo owner, or a group of condo owners, can file a lawsuit against owners who are not paying their association dues.  The association has pursued foreclosure or lien action in some cases, but that is a very prolonged and seemingly ineffective process.

The point is that it can be quantified that the non-payers are causing individual and collective financial harm to us for which there should be some redress.  Signed, T.P.

Dear T.P.,

In our opinion, there is no more serious crisis facing shared ownership communities today than the large number of unit owners who are not paying their share of the common expenses.  The Condominium Act mandates that the board, when it promulgates the annual budget, does so on a balanced basis.  That is, the budget must cover all past due, current and future obligations, plus mandatory statutory reserves.  When a unit owner or first mortgagee fails to pay the full share of a unit’s obligation, the shortfall has to be picked up by the remaining unit owners, mainly those who are making their payments on a timely basis.  This aspect is sometimes very hard for delinquent owners to understand.  There is no metaphysical “association” that is being harmed by their failure to pay maintenance—the harm goes directly to their neighbors in the form of even higher maintenance costs.  Essentially, if one of your neighbors is choosing not to pay their maintenance bill, you, and all of the other owners in the building, are loaning them money.  And frankly, it’s not a loan with particularly favorable terms.  Today, a significant line-item in most association budgets is an item for “bad debt” to cover monies that are not collected from unit owners.  This “bad debt” then has to be made up by the paying owners.

As a direct result of the ongoing economic crisis, thousands of shared ownership communities have cut back or discontinued routine maintenance programs, maintenance of reserves, full insurance coverage for casualties and liabilities, and necessary capital projects such as roof repairs, pavement resurfacing and building repainting.  At some point in time, someone is going to have to to pay the piper.  As such, the boards of community associations, as fiduciaries of the unit owners, have an obligation to take all necessary actions legally permitted to collect assessments from non-paying unit owners.

That said, it’s not always that simple to collect.  The law allows the association to place a lien on the delinquent property, but a lien in and of itself has no real force to compel payment.  To make a lien effective the board has to authorize foreclosure—instruct a lawyer to take possession of the property to repay the lien.  Many boards are reticent to foreclose on unit owners, for a multitude of reasons, including the costs of the foreclosure action, the superiority of bank mortgages, and a simple social disinclination to take away a neighbor’s home.  And while this sentiment is certainly understandable, there’s no question that aggressively pursuing foreclosures against delinquent unit owners is about the only effective tool to enhance collections in shared ownership communities.

While we have not heard of anyone doing it to this point, we see no reason why a unit owner or group of unit owners cannot seek to collect the monies owned the association by delinquent unit owners.  We’d suggest that those unit owners who want to take action against delinquent owners obtain an assignment from the association of its collection rights and give it a shot.  Sitting back and allowing everyone’s home values to plummet is certainly not the answer.

Dear Poliakoffs,

I live in a condo where the original 1972 documents state that assessments will be made based upon percent of ownership.

I am currently the secretary/treasurer of our association and there has been some debate over rounding off these amounts to the nearest dollar.

At previous board and annual meetings it was voted and agreed by a majority that we should round these maintenance figures off to the nearest dollar. Are we within guidelines by doing so?

Your assistance in resolving this issue would be greatly appreciated.  Signed, L.M.

Dear L.M.,

While the steps your board has taken sound facially reasonable, the law is clear–you cannot change the percentage of ownership of the common areas and the manner of sharing in the common expenses in any way without the written consent of 100% of the unit owners and all lien holders of record.

Gary A. Poliakoff and Ryan Poliakoff are co-authors of New Neighborhoods—The Consumer’s Guide to Condominium, Co-Op and HOA Living.  Gary Poliakoff is a founding principal of Becker & Poliakoff, P.A., and Ryan Poliakoff is the Vice President of Management at AKAM On-Site.  Email questions to condocolumn@becker-poliakoff.com.  Please be sure to include your hometown.

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One Response to New Neighborhoods–Owner Lawsuits for Collections and Modifying Maintenance Allocations

  1. banterbabe says:

    Hello,
    Thank you for an excellent site. Itis hugely helpful and so clearly written,
    Re Apr 2011 Selective Enforcement of rules did not adress the selective enforcemwnt of one ruke over another. I had read in a HOA book ( DUdley?), that enforcement of one rule over another can void the entirety of the HOA rules
    Case in point my renters have taken it upon themselves to get a dog ( not allowed) My position is that I don’t care byt it is not allowed by HOA. I am now informed that they are in violation. The problem for me is that the HOA has not allowed truscks in the driveway and for eight years has turned a blind eye to a truck ina neighbor’s driveway Sits out there every night and one tinme there was a complaint and the person wrote that the HOA president said it was OK and it was left alone. In this very small 40 unit HOA, the next door neighbors leased their unti for two years wihtout an application being sent to the mgmt company and they had a large dog. Nothing was ever done to them. My tenants have kids .. and this neighbor hood does not like kids and so they have complained that my unit has violations,

    Can I take the HOA before the small claims court or cna I take the case to a dsicrimination group as I am I tired of being discrininated against…just because they don’t like kids

    I can not see how the HOA can not enforece some rules and choose to enforece other rules. Pick and choose just does not work. or should not work.

    Again, that you for the site. It is great.

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