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Trustee Sales&

Bankruptcy

Secrets to Collection of Delinquent Assessments

Enforcement of CC&Rs

Secrets to Collection of Delinquent Assessments

1. Obtain Information On Owners Upfront Create a form to obtain the following information

from homeowners at the close of escrow: Bank information Place of employment Mortgage company Mailing address

Update and retain an owner’s information: Keeping copies of an owner’s checks Noting place of employment Information regarding potential renters 

2. Accurate Bookkeeping Accounting records should be: Accurate Easily available Reflect current charges and payments

At anytime, particularly in litigation, it is very important for the association to be able to provide the homeowner or court with the status of account(s).

3. Collection Policies Collection policies in place allow: Quick notification regarding delinquency policy and Intended course of action Encourage prompt payment

 

4. Late Fees Late fees should: Be uniformly and strictly imposed Within the limits of the law

For planned communities, late fees cannot exceed $15 or 10% of the assessment, whichever is greater.

 

5. Communication with Owners

The association should use open and continuous communication with owners (i.e. newsletters and demand letters) regarding the need for timely payment of assessments and the procedures the association will follow in the event of non-payment of assessments. 

6. Timely Action

Timeliness is the key to successful collections!

60-90 days past due record a notice of lien on the lot/unit

Do Not Delay - provide the attorney all pertinent and complete information on file: name of owner, address, breakdown of charges previous correspondence/owner and association

After a file is forwarded to the attorney forward all correspondence to the attorney to handle consult the attorney for payoff amounts 

 

7. Due Diligence / Credit Evaluations Prior to pursuing collection, run due diligence

checks: Ownership records Trustee Sale search Potential Bankruptcy filings Recorded liens Run an address search for new mailing addresses

Make an informed decision: The association’s attorney should run a credit check to evaluate the value of and risks of collection.  

8. Understand Available Legal Remedies Justice court action vs. foreclosure

Utilizing the association’s legal remedies is often the most successful tool for the association to collect delinquencies.

 

Personal Judgment Against the Owner Justice Court Association attorney files a lawsuit against the

owner and obtains a judgment against the delinquent owner personally

With the judgment, the association can: Garnish the owner’s wages, bank accounts or Rent payments or Levy and execute on other real or personal property

 Benefits to obtaining a

personal judgment in

Justice Court

Fast - usually four to six months to obtain a judgment

Cost efficient -

approximately $700 - $1,000 in attorneys’ fees and court costs

 

Disadvantages to obtaining a personal

judgment inJustice Court

The judgment may not be collectible if the individual has no assets.

If bankruptcy filed: debtor can be discharged from the entire debt, and the proceedings halted due to the automatic stay of the bankruptcy.

 

Foreclose an Assessment Lien on the Lot / UnitSuperior Court Requirements to Foreclose: Assessments one year delinquent or $1,200+ delinquent assessments (whichever occurs first)

Under this option: Association records a lien on the lot/unit and The attorney files a lawsuit to foreclose the lien Judgment obtained against the owner which orders a sheriff’s sale of the lot and A deficiency judgment against the owner

Benefits to foreclosure of an assessment lienSuperior Court The delinquent owner can be evicted after 30 days

or 6 months

The delinquent owner may attempt to settle the lawsuit

If the property is sold at the sheriff’s sale for an amount that exceeds the judgment, the association will recover the full amount owed to the association.  

Disadvantages to foreclosure of an assessment lien–Superior Court Estimated legal fees and court costs $1,500.00 to

$2,500.00

Approximately 6 months to 1 year

Owner files for bankruptcy, the foreclosure or sheriff’s sale will be halted

Owner stops paying the mortgage, the first deed of trust could foreclose before the association and wipe out the association’s lien

Owner pays within 30 days or 6 months after the sheriff’s sale, he/she can redeem the property  

 

Our firm strongly suggests

Prior to instituting legal action make an informed decision: Research the credit history Research status of the first deed of trust Research financial condition of delinquent owners 

 Enforcement of CC&Rs Courtesy Reminder Letter

Formal Violation Letter

Under Arizona law, after notice (the violation letter) and an opportunity to be heard an association or board of directors may impose reasonable monetary penalties on members for violations of the declaration, bylaws and rules and regulations of the association. 

Enforce payment of fines:

1. Filing a lawsuit against the owner 2. Obtaining a judgment against the owner 3. Recording the judgment with the county

Recorder’s Office.

“Self-help”  

Litigation  

  Owner responds after notification:• By certified mail to the association • Within ten (10) business days after notice• Association may not proceed with action to

enforce

Association responds in writing within 10 business days with:

1. The provision violated; 2. Date of the violation or date was observed; 3. First and last name of the person(s) who observed the violation; and 4. Process to contest the notice.

Association may proceed   

  Deed Enforcement, Fine and Notification Policies:

• Adopt a deed enforcement policy • Notify residents • Outline the steps the association will take to

address a violation • Reminders to the owners  

Trustee SalesIf an owner becomes delinquent with his mortgage or

deed of trust company, the mortgage or deed of trust company may initiate foreclosure proceedings

on the owner’s property by noticing a Trustee’s Sale.

Secure the association’s interests

A lien places the Trustee on notice of the association’s interests:

Association will receive notice of the Trustee’s sale

Association will receive notice of excess proceeds, if any

Notice of Trustee’s Sale

A Notice of Trustee’s Sale is: Recorded with the county recorder’s office Posted at the property being sold

1. Notice, sale location, contact information 2. Description and address of the property 3. Name of the beneficiary - e.g. mortgage company

or deed of trust4. The recording number of the mortgage or deed of

trust 5. The principal balance owed6. The Trust or - e.g. the owner of the lot7. The date of the Trustee’s Sale.

 

  

The Trustee The mortgage or deed of trust company assigns a

Trustee to manage the affairs

The Trustee may be contacted for updated information

 

  

Events that may occur regarding a Trustee’s Sale

Postponement of a Trustee’s Sale

Cancellation

Revert back to the beneficiary

Sale

After the Trustee’s Sale New Owner

Former Owner

 

Events that require close monitoring

Owners file for bankruptcy, transfer ownership (sale) or intend to sell the property

If the property is sold at the Trustee’s Sale and excess proceeds are generated

If the property is sold at the Trustee’s Sale and excess proceeds are generated, but are deposited with the County Treasurer’s Office 

 

BankruptcyWhen a homeowner files a bankruptcy (and lists an association as a creditor in the bankruptcy), there is an automatic stay in place, which prohibits the association from proceeding forward with collection against the owner or face strict and costly penalties.

Owner’s file should be clearly flagged as a bankruptcy file, so that no actions are taken in violation of the stay.

  Two types of bankruptcies: Chapter 7 Chapter 13

Chapter 7 Bankruptcy A Chapter 7 Bankruptcy is generally, but not

always, a no asset bankruptcy

If owner owes delinquent assessments, association should

file Notice of Appearance

Monitor status  

Chapter 13 Bankruptcy Called a “wage earners” bankruptcy

Association should file a Notice of Appearance and a Proof of Claim

Debtor files a proposed plan in which to pay creditors back

Responsibility for Post-bankruptcy Assessments A homeowner is responsible for all assessments, late fees and other charges, including bankruptcy related attorneys’ fees after the date of filing.

Lift of StayIf the owner is not paying post-petition assessments and not responding to post-petition demand letters, the association has the opportunity to file a motion to the Court requesting a relief of stay.  

Date of FilingThe date that triggers the automatic stay

Date of Discharge Chapter 7The date the Court grants the debtor a personal discharge of all debt owed as of the date filed for bankruptcy protection.

Date of Discharge Chapter 13The date the Court grants the debtor a discharge of all debt owed and not paid pursuant to the Bankruptcy Plan, as of the date filed for bankruptcy protection.

Date of Termination or Closing of CaseThe date that the bankruptcy case has been closed or terminated and the automatic stay is no longer in effect

Property Sold by Owner During BankruptcyTerm All amounts are due and owing! A payoff should include pre-petition debt and post-petition debt due to the association

Dismissal of Bankruptcy When a case is dismissed, it’s as if it were never filed 

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