Collections – Should the Association Become a Landlord or Wait for the Bank to Foreclosure?
There are so many varying points of view when it comes to whether an Association should sit back and wait for the bank foreclosure to run its course, or whether the Association should be proactive in its collections activities, irrespective if there is a bank pursuing its remedies. Certain factors and realities should be considered in the Board’s analysis:
- The banks generally do not want title to condominium units or individual homes;
- The banks generally continue to be buried under a Mt. Everest size problem of mountains of misplaced papers and irresponsible lawyering, preventing them from efficiently pursuing their foreclosure matters of condominium units and individual homes;
- Condominium and Homeowner Associations, depending on their agreements with legal counsel, should have nothing to lose in actively pursuing its collection activity;
- If the condominium or home rental market is good for the Association (rental rates are two or three times maintenance), the potential for quick recovery of maintenance arrears exist if the condominium or homeowner association become landlords; and
- Having some income from a unit is almost always better than having no income at all.
This article is not intended to explain any recent cases or to provide a one-shot solution for all associations. It is intended to inform those interested of the possibilities of generating revenue for the condominium and homeowner association and the importance of the relationship with legal counsel.
Beginning with the two accepted facts that banks generally do not want title to condominium units and banks are still buried under a mountain of misplaced paper and improper lawyer practices, most bank foreclosure actions are taking many more months (or years) than an efficient condominium foreclosure action would take. Condominium and homeowner association foreclosure actions are not subject to any right for modification of amounts owed by the owners, so the delay tactics of unit owners usually do not work. Furthermore, the Florida Condominium Act specifies the few defenses available to unit owners in defending their foreclosure actions, so the creative defenses of losing a job, bad economy, water leaks, loud neighbors, pool being closed, lousy management, etc., usually do not work and will not delay a condominium or homeowner foreclosure action. Though this recommendation does not apply to all associations, in general we recommend to push 100% on all collection actions, irrespective of the bank foreclosure activity, so long as your agreement with legal counsel provides that if the attorney cannot collect from the bank or the unit owner, or if the attorney does not provide title to the unit to the association, then the attorney waives the legal fee. By doing this, the attorney is working side by side, and not against, the condominium association. In general having a law firm with the same incentives as the condominium association, and not contrary incentives, the association should almost always be in a better position getting title to units and renting them, than just merely sitting back and waiting for the bank to ask. Of course you do not want to push an association foreclosure case if the bank already has a sale date in its’ foreclosure action. However, if you have units that are $10,000 to $30,000 (or more) behind, or if there is no constant activity on the collection matters in your association, you should be analyzing your collection procedures. Furthermore, if your legal counsel recommends to stop all activities, or otherwise does not push collection matters if a bank is pursuing foreclosure, this may result in a lost opportunity to generate many months of rental income prior to the bank taking title (if it ever does). Furthermore, if your legal counsel is merely sitting back, generating a bunch of useless and unproductive fees, and waiting for a short sale to occur, you should be scratching your heads and wondering who your attorney is working for!
There will be instances where the condominium or homeowner association is aware that the property being foreclosed on is a disaster and therefore not worth getting title to. In those cases, the condominium or homeowner association should seek a summary judgment in the bank foreclosure case to force the bank to take title. This equitable remedy is available to the association since the association is usually a named defendant in the bank foreclosure.
Some condominium and homeowner associations also look for the solutions provided by receivable factoring companies or other companies that provide loans in return for controlling the collection activities of the associations. In my experience few of those relationships work, and usually result in interest and fees that eliminate any benefit to the association. Furthermore, depending on the contract presented by the company who wants to control the collection activity of the association, it is arguable that such relationship could be an illegal delegation of authority that is usually exclusively reserved to the association Board of Directors. It is my opinion that the remedies available pursuant to the Florida Condominium Act (Florida Statute Chapter 718) as well as the Florida Homeowner Association Act (Florida Statute Chapter 720), are more than sufficient and provide real relief to the association.
The topic covered in this article requires a much more lengthy conversation to address all possibilities and factors in an association’s collection practices, but analysis of your procedures should be performed if you have extremely high receivables.
Mr. Andrew Cuevas, Esq., is the President of Cuevas, Garcia & Torres, P.A., and oversees its Community Association Law Division of the firm. If you have any questions regarding this article or any other questions, you can contact Mr. Cuevas at (305) 461-9500 or at [email protected]. If you are interested in reading previous newsletters issued by the firm, please visit www.cuevaslaw.com, select the icon for News Room, then choose Newsletter, and thereafter select the category of Community Association News.
The Law Office of Cuevas, Garcia & Torres, P.A. is providing this newsletter as a brief summary of certain aspects of condominium and/or homeowner association law. The information provided herein is for informational purposes only and should not be construed as legal advice. The publication of this news letter does not create any attorney-client relationship between the reader and Cuevas, Garcia & Torres, P.A. The hiring of an attorney is a decision that should not be based solely on advertisements or this newsletter. Before you decide, ask us to send you free written information about our qualifications and experience.