ASSESSMENT DELINQUENCIES: FOUR METHODS OF RESPONSE
Associations in California have four basic options in dealing with delinquent assessments: Inaction, small claims court, non-judicial foreclosure, or judicial foreclosure.
Inaction: The drawbacks of inaction are self-evident. Until the association pursues the debt, most often it will not be collected. Inaction may be not only unfair to the other members who pay their fair share, but could also be a breach of the board’s duties.
Small claims court: This method involves no attorneys, and is quick. However, the association can only pursue claims of $2,500 to $5,000 twice a year. After that, it is limited to a maximum of $2,500 per claim. Small claims court can be unpredictable, and often the case is not decided by a judge but by a ‘pro tem’ volunteer attorney who may know nothing about common interest development law. The results are not appealable if small claims court gives the plaintiff association a bad decision, but the defendant debtor can appeal.
Non-judicial foreclosure: This method involves no attorneys. The association takes away the debtor’s property, without court supervision. The foreclosure process involves various notices to the owner and waiting periods, and concludes with the association owning the property. The Association cannot pursue any deficit if the property does not have enough equity to cover the debt.
Judicial foreclosure: This method involves filing a lawsuit. In this lawsuit, the association pursues both ownership of the property (judicial foreclosure) and an award of money damages.
With such powerful reasons to pursue judicial foreclosure, why is this not the primary method of choice by California’s 45,000 common interest developments? There are two reasons, and each is addressed by the RHOcollect program.
The first is the fear of unlimited attorney fees, and the second is the normal law firm practice of billing on an ongoing basis for services.
The RHOcollect program mitigates the major concerns which inhibit associations from pursuing the most advantageous remedy.
What about those cases where the homeowner retains counsel and countersues? Does that prove the judicial approach is more expensive? No, because those members would have retained counsel to sue to attempt to stop the foreclosure anyway’ and normally in that scenario they sue not only the association but the manager and the foreclosure company.
When attorney fees are deferred and can be kept controlled, judicial foreclosure is the clear choice.
The process begins most efficiently through use of RHOcollect.com, a web site devoted to the management of your collection matters. New delinquency matters are quickly and easily uploaded through the web site, and are immediately electronically forwarded to the designated Collection Manager supervising your association’s matters.
Once the matter is referred to Richardson Harman Ober PC for handling, authorized persons in the association (often the manager and one or two directors) may at any time check the progress of any collection matter, and through a simple process retrieve a status report on each and every open file. Copies of any document created during the collection process are easily retrieved and printed by any authorized user. The effect is that the client has ’24/7′ access to its file.
When a matter reaches the point of judgment or foreclosure motion, the association has the benefit of Richardson Harman Ober PC attorney advice on the association’s options.
When the matter results in payment to the association, the funds are placed in the firm client trust account. No funds are disbursed until the client has in writing authorized the release of the association funds, as well as Richardson Harman Ober PC fees. Of course, the late fees and interest are the association’s, not the law firms.
Myth #1. ‘It takes longer’. This is not true. Most matters are uncontested, and the uncontested judicial foreclosure takes about the same time as the normal non-judicial foreclosure process. In fact, once the lawsuit papers are served, the delinquent owner only has 30 days to respond, or default judgment papers can be filed.
Myth #2. ‘Far too expensive’. Again, not necessarily true, and certainly not true with RHOcollect. Some law firms do treat assessment collection cases as if they were normal business lawsuits, and ‘run the meter’. If the law firm is not extremely efficient in its handling of the files, its fees will be more. However, if the law firm works on high efficiency, it can charge much less for the work. Further, if, as with RHOcollect, most of the fees are task-based, the cost for most of the tasks are capped by the nature of the fixed task-based fee.
Myth #3. ‘We can’t afford to pursue these claims’. This is a myth. Judicial foreclosure by a highly efficient law firm should cost about the same as a non-judicial matter.
Myth #4. ‘We will have to pay each month’. Not true. With RHOcollect, the fees are deferred to when the owner pays, or when a judgment is obtained from the court (whichever is first).
Myth #5. ‘I cannot get status reports when I need them’. Perhaps this is true with some assessment collection companies. Using RHOcollect.com, status reports are constantly available — and can be created by the client or manager with about three mouse clicks. The status reports can then be printed, or simply e-mailed to the Board.
Try Richardson Harman Ober PC and RHOcollect, and see for yourself the advantages.
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