Dealing with the Collection Process

 

In New Jersey, a Condominium Unit/ Homeowner’s obligation to fully and timely comply with Association fee and assessment obligations is “unconditional”. There is no right whatsoever to withhold the payment of fees assessed by an Association. As nonprofit collectives of Homeowners the Association’s collections of fees assessed to its members is critical. Courts in NJ, have analogized the collection of fees and assessments as the “life blood” of an Association. Community Associations operate on a stated budget, which projects each member’s compliance with their fee and assessment obligations. The failure of a member of the Association to fully and timely comply with his/her assessment obligations has a detrimental impact upon the Association’s ability to administer, govern, and maintain the Community. A Unit Owner’s refusal or inability to pay falls upon the shoulders of the other compliant members of the Community. Although Communities throughout NJ are experiencing an unprecedented increase in Unit Owner delinquencies based upon declining fair market value, Governing Boards are duty bound to collect

    

Property Owner's Rights & Priveleges

Collection Process

      

fees and assessments levied to each individual member of the Association.

 

In these economic times, it is more crucial than ever for Boards to be vigilant and proactive in the collection of fees assessed to members of the Community. It is vital that Governing Boards adopt and uniformly follow a collection protocol, which sets forth each members obligation to timely, and fully comply with their fee and assessment obligations. That policy should include but not be limited to the following: a clear statement as to when the assessment is due; the assessment of a late fee if not paid by a due date; the issuance of late notices by Management in an effort to gain compliance; the time when the Unit Owner’s account is turned over to Association counsel for handling; the actions to be take by Association Counsel given the Unit Owner’s continued noncompliance; and how funds received by the Association from a noncompliant Homeowner will be applied.

 

The Board’s adoption of a Resolution setting forth a policy for the Collection of delinquent assessments and enforcement procedures should be recorded in the County Clerk’s office and can thereafter be relied upon by the Association, it’s Attorney and the Court in the event a Unit Owner contests the Association’s collection efforts. Giaimo & Associates has provided assistance to Governing Boards in preparing collection policies specifically tailored to meet a Community’s needs.

 

Giaimo & Associates has been recognized throughout New Jersey as having expertise in providing swift, and cost effective collection services to Community Associations. Our firm has collected millions of dollars in unpaid fees and assessments. We know the collection process and take great pride in gaining a Homeowner’s compliance with his/her financial obligations to your Community. We have been actively pursuing Community Association collections for over 25 years. We are aggressive, responsive, and dedicated to this aspect of Community Association Law. However, we are not just satisfied in collecting unpaid fees and assessments. We strive to and have had great success in obtaining for the Communities we represent full reimbursement of the Association’s Attorney’s fees and cost incurred incident to collection. Our firm is responsible for the leading Case Law authority in NJ, which holds that Community Associations are entitled to be reimbursed for their Attorney’s fees and cost incurred incident to seeking to compel a Unit Owner to comply with their fee and assessment obligations. Our success is evidenced by the thousands of Judgments, that we have secured and docketed for our Communities, which include an award of Attorney’s fees and cost incurred by the Association.

 

Collection Letters

 

After the Unit Owner has failed to respond to repeated requests from Management for payment of fees the Unit Owner’s account is forwarded to Association Counsel for handling. Counsel typically issues a formal written demand to the Unit Owner requesting payment in full of the Unit Owner’s account. The authority for the Association’s ability to demand payment should set forth in the written demand. The Unit Owner should be advised as to a date by which compliance is requested and the potential actions to be taken by the Association in the event of continued noncompliance. The letter issued by Counsel seeks communication from the Unit Owner. Communication is quite often the key to successful, expedient and cost effective collection efforts for BOTH the Unit Owner and the Community Association. In light of today’s financial struggles encountered by many Unit Owners, Governing Boards are receptive to placing Unit Owners on Board approved Payment Plans, which are substantiated by virtue of the Unit Owner’s financial situation.

 

Payment Plans

 

Governing Boards by statue are to exercise their powers and to discharge their functions in a manner that protects and furthers the general welfare of the residents of the Community. As such, Boards have the power to place Unit Owners upon Payment Plans in order to allow those owners to pay off their arrears. The plans should be memorialized in writing, quantify the dollar amount to be amortized over time, and spell out the actions required of the Association in the event of full compliance and clearly indicate the actions to be taken by the Association in the event of default.

 

Acceleration

 

The overwhelming majority of Governing Documents for Communities allow a Unit Owner to pay their Association’s annual assessment in monthly installments. Those same documents further allow the Association through its Governing Board to revoke the privilege to make monthly payments in the event of Unit Owner default. When dealing with an Owner who is in arrears, an effective remedy to gain compliance is to accelerate that Unit Owner’s fee and assessment obligations for the balance of the Association’s operating year. The Association remedy of “Acceleration” requires written notice to the Unit Owner confirming that the Unit Owner’s account for the balance of that years assessments has been accelerated.

 

Liens

 

Condominium and Homeowner Associations can secure their entitlement to receive unpaid fees and assessments by virtue of recorded Claims of Lien. The Lien is recorded in the office of the County Clerk where the property is located and serves as notice as to unpaid fees, assessments, and other charges. The recordation of the Lien acts as an encumbrance on title. Prospective purchasers of the property and/or prospective mortgage lenders will require that the Lien be discharged of record as a condition to acquiring the property or advancing monies. In order to discharge the Lien the Association will typically require payment in full. Some years ago, the NJ State Legislature, amended the NJ Condominium Act to respond to Community Association concerns resulting from foreclosure actions prosecuted by lenders against Condominium Units. If a Condominium Association has recorded its Claim of Lien against a Unit, which is ultimately foreclosed upon by a lender, that lender is responsible to remit six months of fees to the Association provided the Association’s Lien is recorded prior in time to the commencement of the lender’s foreclosure. It is therefore critical that Governing Boards and Managing Agents remain focused and vigilant as to Unit Owner delinquencies and to record Claims of Lien when warranted.

 

Money Judgment

 

Although Community Associations are permitted to foreclose their recorded Claims of Lien, given the number of pending foreclosures currently in NJ, and the time period required to bring a foreclosure action to conclusion, the most cost-effective and expedient approach for a Community to pursue in order recover monies which are due and owing from a Unit Owner is to file civil action lawsuit. A lawsuit is initiated by filing a Complaint in the Superior Court of New Jersey. Once the complaint has been filed, it is to be served along with a Summons upon the title owner to the Unit. The Unit Owner has 35 days from being served to file an answer to the Association’s Complaint. Most Unit Owners disregard and completely ignore being served with the Summons a Complaint. Once the 35-day period has expired and no Answer has been filed, Counsel for the Association applies to the Court for the entry of default against the Unit Owner.

 

Thereafter, Counsel prepares and submits the requisite pleadings seeking the entry of Judgment against the title Owner and in favor of the Association. The pleadings to be submitted include a certification (typically signed by the Association’s Property Managing Agent) attesting to the amount which is due and owing to the Association; a certification that the title Owner is not in the active United States Military Service; a certification submitted by the Association’s Attorney setting forth the Attorney’s fees and cost incurred by the Association incident to the Unit Owner’s arrearage and a proposed form of Judgment. Applications for Judgment are typically reviewed and disposed of by the Court within 15/30 days. Once the Judgment has been awarded to the Association, it is forwarded to the Superior Court Clerk’s Office in Trenton for Docketing. Once the Judgment has been Docketed, it acts as a Statewide Lien against any other real estate owned in New Jersey by the title Unit Owner. The Judgment is valid for a period of 20 years and accrues interest at the Judgment rate, which fluctuates from year to year.

 

Once the Judgment has been Docketed, the task of Association Counsel is to execute upon the Judgment by locating assets belonging to the title Unit Owner which are subject to Levy. Execution upon the Judgment can take various forms including, but not limited to: execution upon wages; execution upon bank accounts (checking and/or savings); a rent Levy upon rents payable to the Unit Owner. In order to locate assets, which are subject to Levy, the Association’s Attorney can perform Statewide searches and/or secure a Court Order commanding the Unit Owner to appear and testify under oath as to the nature and location of defendant’s assets as well as employment information. Should the unit owner not comply with the Courts order Association Counsel can petition the Court for issuance of a Civil Bench Warrant. The Warrant along with an Order for Arrest, once issued by the Court, is then served by the County Sheriff upon the noncompliant Unit Owner. The Unit Owner is arrested and is taken to the Superior Court. The Sheriff’s Office then contacts Association Counsel and requests that Counsel appear in Court to depose the Unit Owner and allow Counsel to ascertain and confirm the Unit Owner’s current assets and employment situation.

 

Foreclosures

 

Community Associations in an effort to satisfy a Homeowner’s arrearage are permitted to foreclose their Claims of Lien previously recorded against the Unit Owner’s property. The object of a foreclosure action is to secure a final Judgment in foreclosure and Writ of Execution issued by the Superior Court. Issuance of the Writ of Execution allows Association Counsel to request that the County Sheriff’s Office comply with the Writ by scheduling and conducting a Sheriff Sale of the property which is the subject of the Final Judgment in Foreclosure. At sale, the property is sold subject to prior recorded mortgages and any other Liens or encumbrances perfected prior to the filing of the Association’s Complaint in Foreclosure. Given that most Condominium Units are subject to first recorded mortgage liens and taking into consideration that fair market value of units across the State have decreased dramatically very few Community Associations are resorting to foreclosure as a remedy.

 

Bankruptcy

 

Over the last several years, there has been a significant increase in the number of individuals who have sought Bankruptcy relief. Unit and Homeowners are permitted to seek the protections afforded by the United States Bankruptcy Code. This protection is commenced upon the filing of a petition in Bankruptcy. The date the petition is filed is referred to as the “Petition Filing Date”. Unit Owners, like all other individuals, can apply for relief under either, Chapter 7 or Chapter 13 of the United States Bankruptcy Code. Once the petition is filed with the Bankruptcy Court, all creditors including Condominium and Homeowners Associations are “stayed” from continuing Collection efforts. In a Chapter 7 petition the Unit Owner/Debtor seeks to be relieved from the obligation to pay all fees and assessments due and owing to the Association up until the day the Unit Owner filed his/her petition. If ultimately granted a “discharge” by the Bankruptcy Court all fees, which were owing to the Association, are discharged and must be removed from the Unit Owner’s account maintained by the Association. In a Chapter 7 setting, although the Unit Owner’s prepetition debt may be ultimately discharged, the Unit Owner remains responsible to pay all Association assessments, which have been levied from and after the date, that the Chapter 7 Petition was filed. This is referred to as the Unit Owner/Debtor’s “Post Petition” obligation.

 

If the Petition filed by the Unit Owner is in the nature of a Chapter 13, the Unit Owner is seeking permission from the Bankruptcy Court to pay off the Unit Owner’s “Prepetition” debt owing to the Association pursuant to a payment plan to be approved by the Court and which typically extends over 48 or 60 months. Once the Association receives notice that a petition in Bankruptcy has been filed, it should file with the Court a Notice of Appearance as well as a “Proof of Claim” which certifies the Unit Owner’s debt to the Association as of the date of the filing of the petition in Bankruptcy. The amount set forth in the Association’s Proof of Claim should be included in the debtor’s proposed Chapter 13 payment plan. If the Court approves the plan, the debtor will make periodic payments to a Trustee appointed by the Court. Thereafter, the Trustee will periodically disburse payments to creditors including in the payment plan, which should also include the Association. Recently, there has been an attempt by Attorneys representing Condominium Unit Owners to “modify” claims filed by Associations in Chapter 13 proceedings. Attorneys representing these debtors have recently attempted to “strip off” the Association’s claim in an effort to reduce the Unit Owner’s obligation to the Association to zero. In a recent decision issued by the United States Bankruptcy Court, District of New Jersey, the Court has held that although a Unit Owner in a Chapter 13 Petition can apply to “modify” the Association’s Proof of Claim, that modification will be limited to the amount set forth in the Association’s last recorded Claim of Lien filed before the petition filing date. Associations and their Property Managing Agents are therefore best served by being vigilant in updating Association’s Claims of Lien when dealing with a Unit Owner. This is an evolving issue in the Bankruptcy Court.