The collection of assessments is central to the viability of any community association as assessment revenue is typically an association’s sole or primary source of income. The operating premise of most associations is that an annual budget is prepared based on the association’s projected expenses for the year, including contributions to a reserve fund, and the association levies assessments in the amount required to pay for the projected expenses. Even in today’s economy, with proper collection practices, an association can decrease exposure to 1) delinquent assessments, and 2) writing off assessments to bad debt in case of foreclosure or bankruptcy.
The board of directors must closely abide by their fiduciary obligation to the homeowners by adopting an aggressive and consistent collection policy and strategy. In addition, in collecting association assessments, all boards of directors should be advised of possible liability under the Fair Debt Collection Practices Act. Empty threats of litigation, wrongful foreclosure, legal liability, or overly-aggressive activity may violate the Act and subject the association to substantial financial liability.
Some legislative issues at all levels of government are driven by the economy, which may result in new laws and regulations specific to community associations, including condominiums, planned communities and cooperatives, regarding the process of collecting assessments. Fannie Mae and Freddie Mac have become far more restrictive in their underwriting policies both in initial financing and refinancing of condominium units.
Homeowners elect board members to oversee the operations and success of their community. Therefore, board members should familiarize themselves with their all legislation and regulations specific to associations. At times, it may even be necessary for the board to become actively involved in the legislative process by contacting elected officials to express support or opposition to certain proposed bills. Additionally, associations and management companies should seek legal advice if there is a question as to what proper course of action an association should take should new laws be confusing or unclear.
Rachel J. Richmond
Principal Management Group of Houston