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Collection Laws in Every State, How The State and Federal Government Regulates Collections

Collection Laws in Every State, How The State and Federal Government Regulates Collections

  • Posted: May 16, 2022
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Collection Laws By State

While each state must follow the FDCPA, most have additional laws that regulate how debt collectors interact with consumers. Use the map below to learn how your state regulates these laws.

Don’t see your state? Axela Technologies is licensed to do collections in every state. We are taking care to build out a comprehensive guide outlining collection laws for each state. Keep watching this space!

 

The Fair Debt Collection Practices Act

Axela Technologies provides no cost and no risk collections for community associations using best practice collections strategies, advanced proprietary technology, and highly trained customer service representatives. We are licensed in across the United States and compliant with the Fair Debt Collections Practices Act (FDCPA).

The FDCPA is a federal law that prevents debt collectors from harassing or misleading consumers. It covers debt collection for mortgages, credit cards, personal loans, medical debt and other types of debt for personal use. Many states have their own fair debt collection laws as well. Some of these laws mirror the FDCPA. However, some offer more protection to consumers by, for example, covering creditors as well as collectors, specifying additional types of behavior that violate state law, or providing for additional types of damages. Below you can learn about the fair debt collection laws in various states.

HOA and Condo Delinquency Collection For Community Associations.

We are a specialized collections service which means a great deal in the community association industry. Understanding the nuances of how people fall behind in their maintenance fee payments and how to resolve their issues is a science and an art. At Axela Technologies we have what it takes to “move the needle” and recover 100% of what is owed to the association and the best part is that we are totally merit based. IF WE DON’T RECOVER YOUR MONEY WE DON’T GET PAID. A pretty simple concept but a bold promise at the same time.

Our proprietary software is second to none and we have the ability to keep the management and board of directors informed in real time 24/7. Our system never sleeps. The technology is fantastic and is only equaled by the people who will service your delinquent members and work with them to resolve their delinquency issues.

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Delinquencies are starting to pick up so, Comply with Changing State Association Collections Laws Using Axela Technologies

Delinquencies are starting to pick up so, Comply with Changing State Association Collections Laws Using Axela Technologies

  • Posted: Apr 26, 2022
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Easily Comply with Changing State Association Collections Laws Using Axela Technologies

Are your community association’s collections in compliance with changing regulations?

Community association collections laws are changing. For many years, condominium associations and homeowners’ associations (HOAs) had a lot of freedom when it came to handling unpaid assessments. Community associations were able to pursue home and unit owners who fell behind in a variety of ways, because few state regulations interfered with the association’s right to collect overdue assessments. They were largely free to levy late fees, interest, collection costs, and legal fees against the delinquent home or condo owner. Condominium and HOA management firms, when acting as agents for their association clients, were similarly able to offer a collections process as part of their routine service offerings for their clients. This could include issuing warning letters, demand letters, and other collection notices, or even recording liens.

To say those days are over is an understatement. Although there are no federal regulations in place, many states now have condominium or HOA association collections laws that are designed to protect delinquent home and condo owners. While this type of consumer protection is really important, it’s created an unintentional side effect: community associations are more regulated and challenged than ever before when it comes to collecting the fees and assessments that are the lifeblood of their association.

Compliance 1

Community Association Collections Laws Vary by State

Make no mistake, these state laws must be obeyed and the consequences for violating them can be severe. Some states, like Florida, now require additional notices to be sent for certain types of collection activities, delaying the whole process. Other states, such as Texas, have such rigid requirements that many association management companies would rather pay a small fortune for an attorney than seek out cost-effective collections options, believing this is their best option to avoid risk.

Then you have states like Maryland where community association management firms are actually expected to acquire and maintain collection agency licenses in order to send out bills on behalf of their association clients. This is a huge burden being to place on management companies and creates yet another layer of risk. Maintaining a collection agency license requires extensive knowledge and practice of the current community association collection laws regarding the collection of delinquent fees from HOA and condominium unit owners–management companies should not be expected to shoulder that responsibility.

Compliance 2

Choose an Industry-Specific Collections Partner

Axela Technologies is licensed and insured in every state that we service.  Maintaining that knowledge of association collections law is a sacred duty that we take to heart so we can best serve the industry. We even offer indemnification to the associations and association management firms that retain our services to collect from their delinquent homeowners. This concept is so important, it merits serious consideration for any association management firm that wants to focus on delivering service excellence to its association clients without risking being sued for violating a state collection law.

Keeping up with the law changes in your state can be tedious and difficult. Let a specialized HOA and condo association collections agency handle that worry for you. Talk to one of our condominium and HOA delinquency collection experts to learn how best to collect those overdue fees and assessments while keeping your association management business and your association clients safe from the risk of handling collections without a license.

Compliance 3

 

Get your free collections analysis today and start working with one of our many HOA and condominium association collections experts.

Axela Technologies handles all collections on a merit-based system. We’ll help you make sure you aren’t putting your association at risk by violating federal or state consumer protection laws for your condominium or HOA.

 

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6 HOA Violations & How to Avoid Them

6 HOA Violations & How to Avoid Them

  • Posted: Apr 22, 2022
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6 HOA Violations & How to Avoid Them

by Holly Bunch on Apr 19, 2022 1:00:00 PM

A Homeowners Association (HOA) is a private body made up of members of society who own property within a common area, led by an elected board of volunteers. The association’s main objective is to grow and add value to the property by protecting communal regions and setting rules and regulations.

Different organizations have rules that members must adhere to regarding architectural amusements like fences, swimming pools, entrances, exterior home designs, and HOA.

The HOA makes homeowners and buyers appreciate their surroundings and ensures that lawns are cut and home exteriors remain attractive. Although some rules and regulations may seem challenging, members who comply with them reap significant rewards from the association.

 

HOA Violations and How to Avoid Them

HOA violations are practices that go contrary to the set covenants, conditions, and restrictions (CC&Rs) set by the association. They include:

  • Landscaping

Having unkempt, overgrown, and heavily weeded lawns would be a crime for any property owner. They also consider using trees taller than the recommended height and color for fencing an offense.

You can avoid landscaping violations by following the set rules, such as maintaining well-kept and clean lawns and ensuring the fence trees are within the required height, such as 5 feet maximum. In addition, use drip irrigation and controlled sprinklers on lawns and along sidewalks.

  • Noise

It is considered a crime for group members to play loud music between the evening and early morning. Additionally, it is against the HOA rules and regulations for members to hold social gatherings between the restricted hours or even have guests in parking areas, playing deafening music and making loud noises during odd hours.

Like many cities and counties, the HOA adheres to noise ordinances enacted for the benefit of its members. Property owners should constantly refer to the rules on noise pollution management to ensure that they give their neighbors and the general community peaceful nights and calm mornings.

  • Vehicles and Parking

Residents will break HOA rules by parking non-permitted vessels on the streets or driveways, such as boats or commercial autos. Driving outside of designated locations or exceeding the speed limit in congested regions is also deemed a crime.

Members must follow established area speed restrictions, parking rules in defined zones, and the types of vessels permitted to park on the land and along the streets.

  • Pets

Residents love pets, and some consider them family. Therefore, the HOA has rules on the types of pets and areas where pets can and can’t walk, leash dogs, or pick up pets. Every resident must not violate the pet restrictions and rules. Otherwise, the HOA and neighbors may not be remorseful for such offenses.

Members need to know the number of pets per homestead, the good breeds and weights, and the law on picking up after the pets.

  • Undisclosed Rentals

Renting or leasing out different places on the property to get extra money may violate the association’s bylaws. State, federal, and sometimes local regulations govern and supersede HOA operations. With this in mind, they establish regulatory standards with other organizations, such as housing insurance companies.

Insurance companies determine the occupant-to-rented property ratio. As a result, property owners need to acquire written permission from the HOA before subletting their properties.

  • Trash

Poor waste management and careless placement of trash and dust bins on the property are considered violations. It is an HOA offense to leave the receptacle bins outside during non-collection hours, in front of people’s homes, or inconspicuous spots. They detract from the value of a property. 

 

When home and unit owners don’t pay their association fees and dues, the Board is challenged with handling the collection of those delinquent funds.

When home and unit owners don’t pay their association fees and dues, the Board is challenged with handling the collection of those delinquent funds.

  • Posted: Mar 23, 2022
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Self-Managed condominium associations and HOAs are governed by well-meaning volunteer leaders who keep a close eye on the association’s finances. When home and unit owners don’t pay their association fees and dues, the Board is challenged with handling the collection of those delinquent funds. Running a tight ship often leads to no available cash for unforeseen problems. Hiring an attorney to handle a collection matter is expensive and just doesn’t make sense. Axela Technologies collection solution offers the self-managed association Board a collection solution at no cost or risk to the association. Licensed and insured collection services from Axela Technologies lets the self-managed association keep their budget intact while collecting the delinquent funds they are owed and need to run the association. That’s just smart!

Attorneys can be very useful to self-managed condominium associations and HOAs when they need legal assistance. However, using an attorney when a homeowner has fallen behind in their dues and assessments is not a frugal choice. Whether successful or not at resolving the problem, the attorney will require payment. After all, they are providing legal services at a billable hourly rate. Smart self-managed condominium and HOA Boards know that they have a collection problem, not a legal problem. Employing Axela Technologies to solve the collection problem makes sense. Unlike an attorney, there are no hourly fees and the low reasonable fees that are charged by the collection agency are passed through to the delinquent homeowner, where they belong. After all, it was their failure to produce timely payment of their fees and assessments that put the association in this predicament to begin with. It wouldn’t be fair to force the good-paying home and unit owners within the self-managed association to foot the bill for the association to collect the monies it is owed.

Using an outsourced collection agency like Axela Technologies is in the best interest of all involved. Forward thinking Board members of self-managed condominium associations and HOAs know that spending as little money as possible is in the best interests of all association members. That is one of the reasons they chose to self-manage in the first place. Axela Technologies provides a perfect solution to a potentially expensive problem. The collection fees passed through to homeowners from Axela are far less than those of an expensive attorney who charges by the hour. Not only does the self-managed association save money, their homeowners also benefit from a less expensive solution to correcting their indebtedness.

Axela Technologies handles all collections on a merit-based system. Visit our website at https://www.axela-tech.com today and ask to speak to one of our delinquency collection experts.

Fishy Legal Tactics HOA Attorneys Have Used for Collections by Mitch Drimmer

Fishy Legal Tactics HOA Attorneys Have Used for Collections by Mitch Drimmer

  • Posted: Feb 05, 2022
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Fishy Legal Tactics HOA Attorneys Have Used for Collections

Mitch Drimmer  / Axela Tech

 

Thinking outside the box can be great, especially in the homeowners association and condo association industry. It’s what makes our signature collections process here at Axela so successful.

But out-of-the-box thinking can be used against you, too. Attorneys are always looking for new ways to make the most money, even HOA attorneys. Time and again we’ve seen the tricks they use claiming to try to collect for your association, but really they’re just lining their own pockets. So often, using an HOA attorney ends with the association losing the money owed to them, and having to pay on top of that to cover lengthy legal efforts that didn’t succeed anyway.

Every time we hear stories about the crazy lengths some lawyers will go to when collecting for HOAs or condos, we start to think maybe the box is there for a reason.

Unjust Enrichment Someone Expense Someone Else

Unjust Enrichment

A while back we talked about a community in a sticky collections situation. One of their unit owners had passed away, leaving a mortgage-free title to an heir. But, it came with a $13,000 tax certificate (which had been sold to an investor) and $17,000 owed to the association, as well as a tax-deed sale that had already been set. The perfect storm for the association to lose out on a hefty chunk of change. Now Axela was able to draft a clever plan to avoid that and had to act quickly to make it work, but if we hadn’t been called in, here’s what would have happened:

The HOA’s attorney wanted to let the unit go to the tax-deed sale and then file a suit for something called “unjust enrichment.” This is a claim basically stating that someone (in this instance, the investor who’d purchased the tax certificate) was paid at the expense of someone else (the association).

This is a risky play for a lot of reasons: first, if the tax sale goes through, the money owed to the association is ‘wiped out,’ meaning there is no chance of recovering money from the sale or from the owner after the fact. Additionally, if the judge found that the investor was not unjustly enriched (which is the likely outcome) their tax lien would have been rightly prioritized over association fees.

So the idea of unjust enrichment was a wild reach that was almost certainly going to be unsuccessful in recovering for the association. But it would have been a definite way to tack on a ton of hours in legal fees for the attorney, wouldn’t it?

Fishy Lawsuits Questionable HOA Attorneys

Sneaking In New Rules

Fishy lawsuits aren’t the only questionable trick attorneys have up their sleeves. One client we worked with had an attorney attempt to completely ignore state statutes by advising the Board to modify the community’s governing documents to contradict state laws. This was complicated and unethical for several reasons, like the fact that governing documents don’t overrule state statutes (something an HOA attorney would be WELL aware of!) so the attorney’s time and counsel which they charged the association for were totally unnecessary.

To add insult to injury, these changes were made to try to force the bank to take responsibility for debt owed to the association, creating a lengthy legal battle as part of this ridiculous plan. Again, we’re seeing a trend of attorneys being paid but the association not recovering their lost income – in fact, the community often winds up owing the attorney more for their efforts and having to write off the bad debt from the delinquent assessments. Talk about throwing good money after bad!

Attorneys Being paid associations not recovering

Just Because it’s Legal Doesn’t Make it Ethical

Clearly, all HOA attorneys are not the same, and we hope that your community association’s attorney is an upstanding and ethical partner for your community. You need your attorney to be available to advise you on decisions the Board makes to help prevent future lawsuits and to deal with any that do come.

But your attorney is just one of the tools in your community association’s toolbox. Just as you wouldn’t use your HOA attorney (and pay their high fees) to perform management tasks, you also shouldn’t be hiring your attorney to perform collections. The attorney’s only recourse is to take the issue to the courts. That means pursuing foreclosure, or, if that’s not likely to be successful, trying some legal scheme like these that will get the attorney paid for their time, but is unlikely to end with money in the association’s pocket.

The Attorney's Recourse To The Courts

Treating People Like People

Thinking outside the box can be great, but the more we hear about the crazy legal hoops attorneys find to jump through that only seem to take advantage of the association, the more we think that they need the box.

There’s at least one ethical, merit-based way that has a 95% success rate when it comes to collecting debts owed to associations: Axela. Our proprietary technology and process empowers defaulted homeowners to set up payment plans they can actually pay off, rather than harassing them for lump sums of money they’ll never be able to repay, or putting them out of their home in a foreclosure.

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Florida Statute Could Strike Down Delayed Collections For HOAs Post-Foreclosure by Axela

Florida Statute Could Strike Down Delayed Collections For HOAs Post-Foreclosure by Axela

  • Posted: Feb 03, 2022
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We know that this headline reads like a Florida-specific issue, but Florida is often used as a guideline for other state laws and courts. For this reason, we think it’s important for homeowners and condo associations in other states to take note.

In Accardi v. Regions Bank, Florida’s 4th District Court of Appeals reversed a lower court ruling that awarded the bank a deficiency judgment and remanded the circuit court to enter an amended final judgment to include attorney’s fees and taxable costs only. The bank was not able to recover its deficiency judgment.

This happened because of a Florida Statute that states “Actions other than the recovery of real property shall be commenced as follows … within one year” (of a certificate of title being issued or acceptance of a deed in lieu of foreclosure, that is):

“An action to enforce a claim of a deficiency related to a note secured by a mortgage against a residential property that is a one-family to four-family dwelling unit. The limitations period shall commence on the day after the certificate is issued by the clerk of court or the day after the mortgagee accepts a deed in lieu of foreclosure.”

That’s a lot of legal jargon that most simply translates to say that there is a one-year statute of limitations period for which a claim for a deficiency may be acted upon (not to be confused with the timeframe for enforcing a deficiency judgment that has already been entered) in order to avoid the deficiency claim from becoming time-barred.

This Accardi v. Regions Bank ruling got us all thinking. Clearly, it reflects a problem for banks and lenders who have had to foreclose and were left with a sale that did not satisfy the judgment amount at foreclosure, but that isn’t really the takeaway here. The takeaway is that, in theory, this same statute could potentially be used to prevent delayed collections for HOAs and condo associations when attempting to recover assessments post-foreclosure.

Is your community association trying to recover outstanding debt post-foreclosure? You should be.

If the association was the foreclosing party, and they recovered less than the amount owed as a result of the sale of the property, then that would give rise to pursuing a claim for a deficiency. So it would be very worthwhile to enforce a claim for a deficiency within a year of the certificate of title being issued.

Again, this statute of limitations is specific to Florida, so if your own state already has statutes that have different time restrictions, you need to follow those to the letter of the law. But doing this seemingly small task in the right time frame could be the difference between getting your deserved monies owed or leaving it all on the table due to a dickered-out semantic technicality.

Similarly, if an association has debt that is uncollectable from a subsequent owner due to superior lien foreclosure or tax sale, the association should act quickly to enforce its collection rights on this debt. While the fact pattern under this scenario is different from pursuing a deficiency claim created by virtue of the association’s own foreclosure sale, it would be wise to take action to collect on this debt sooner rather than later, to avoid any potential argument that would suggest it is a deficiency and that it is time-barred.

Collections delayed are collections denied.

No HOA or Condo association should stop trying to collect the money it is owed to them until said debt has been declared uncollectible by a collection professional, and that may not be your community association attorney. Don’t leave money on the table and don’t accept HOA and condo delinquency write-offs. Let a professional Condo and HOA collection company recover the money that is owed to your community association.

Axela Technologies, the nation’s leading collection company for community associations, does know the laws nationwide and we suggest that pursuing that debt at no cost and no risk is a good strategy. A great strategy, you must send the file to collections before it is too late. Perhaps a court will say that beyond one year is too late.
Don’t write off debt that could have been recovered. Call us for a free review and collection analysis. Not only can we collect from debtors who have been foreclosed on, but we can also collect from homeowners who are behind on their assessments, all at no cost to the association.

 

 Community Focused

  Collection Services for Condos, HOAs and their Service Providers

Find us on SFPMA Learn more about the services we provide.

 

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Shifting the Emotional Burden of Condo and HOA Delinquency by Axela Tech.

Shifting the Emotional Burden of Condo and HOA Delinquency by Axela Tech.

  • Posted: Jan 25, 2022
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Shifting the Emotional Burden of Condo and HOA Delinquency

by Bob Gourley / Axela Technologies

As an HOA delinquency collections professional, I frequently handle collection issues involving home and unit owners who have fallen behind in the timely payment of their association. So I know all too well the very real emotional cost paid by both debtor and collector. Timely payment and collection of common fees and assessments is as basic a business transaction as there is. However, because real human beings are involved, the transaction is often wrought with human emotion. Many times, those emotions range from tragic to hostile. Using a specialized debt collection agency for your condo or HOA delinquency problems isn’t just practical, it could be a lifesaver!

 

Pay Close Attention to the Person Behind the Debt Curtain

Unfortunately, regardless of how a condominium or HOA is managed—professionally or by the association itself—HOA delinquency cannot go unchallenged. If common fees and assessments aren’t collected in a timely fashion, the association suffers. Monies that were budgeted for association expenses aren’t available and, in some extreme cases, the good-paying owners in the community could be forced to cover the delinquencies through increased dues or assessments. This is an unfair situation that can cause serious distress in your community.

Shifting the Emotional Burden of Condo and HOA Delinquency

 

That said, consider this: when a homeowner hasn’t paid their association dues for multiple months, there are typically underlying circumstances and turmoil. Money is tight for whatever reason and the homeowner has decided that the association can wait for their money. Studies have shown that people experiencing financial hardships are far more prone to physical and emotional illness. Approaching someone who is experiencing financial hardship is challenging and should be handled by someone trained in doing so, as the conversation will likely be unpleasant.

Shifting the Emotional Burden of Condo and HOA Delinquency

 

Preparing for a Difficult Conversation

Should a delinquent homeowner decide to call the association or management firm to discuss their delinquency and address how they will repay the association, it will almost certainly be a lengthy call. It typically starts pleasant enough but quickly devolves into a discussion of non-association business items and explanations (or excuses) of why the fees cannot be paid at this time. The debtor will often play to the empathy of the person receiving the call, expecting that their story will convince the call recipient of their goodness and their intent to pay eventually when things get better for them. But the association is a business, and no amount of empathy can erase the fact that the money they owe is very much needed to keep the community healthy and successful. Homeowners often fail to remember that they don’t just live in a house that they call home, they live in a collection of homes that rely on one another to thrive, and any dollars lost can cause real struggle.

Shifting the Emotional Burden of Condo & HOA Delinquency

Once they are reminded of that, the call tends to escalate into anger because the debtor isn’t getting the leniency they hoped for or want. If you have ever received a call like this, you know exactly what I am talking about. These calls often end with little to no positive outcome.

In fact, there is usually a negative outcome. The debtor is upset because the call didn’t go their way. They still owe the money and they are now convinced that the association doesn’t care about them. The call recipient is typically upset because they have spent a great deal of time hearing the sad tale of woe and then being subjected to the debtor’s anger when things didn’t go their way. I have heard tales of people listening to the debtor for 25 to 30 minutes and then needing just as long to recover from the sad and hurtful phone call before being able to get back on task. This is a great emotional expense, but it can also be a great financial expense for time lost to an unproductive activity.

 

Hand Off the Emotional Burden

Using a specialized and fully licensed condo and HOA delinquency collection service such as Axela Technologies makes perfect sense in this situation. The association or management firm simply places the delinquent home or condo owner into our collections system as needed. At no cost or risk to the association, Axela Technologies’ highly-trained debt collection professionals take that burden off the association or association management firm. Since working with delinquent owners is all we do, you can bet we are equipped to handle the emotional cost of delinquency to the owner as well as the association. Since our service is merit-based, there is no extra financial burden on the good-paying owners. We take a negative and turn it into a positive.

Get in touch with Axela Technologies and avoid the emotional cost of delinquency for your association and your association members. Axela Technologies handles all collections on a merit-based system. Visit our website at https://www.axela-tech.com today to get in touch with one of our collections experts.

 

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Can my HOA Collect if the Homeowner Declares Bankruptcy? by Axela Tech.

Can my HOA Collect if the Homeowner Declares Bankruptcy? by Axela Tech.

  • Posted: Jan 14, 2022
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Can my HOA Collect if the Homeowner Declares Bankruptcy?

by Axela Tech. / Mitch Drimmer

Bankruptcy is one of the most perplexing issues community association managers must deal with. It is the most complicated issue involved in condo and HOA collections. So YES, a condo or HOA CAN collect if a homeowner declares bankruptcy. But you must know what you are doing and how to do it.

What Is Bankruptcy?

Bankruptcy is generally taken to mean that someone is out of money. But the actual meaning, and the legal proceeding of bankruptcy, are a little more complicated. Declaring bankruptcy isn’t as simple as someone saying, “Sorry, I have no more money left,” it’s a legally determined state of being unable to pay off debts owed.

The goal of filing for and declaring bankruptcy is to create a more positive economic situation for everyone. By declaring bankruptcy, the person in debt pays off a portion of the owed debts, and the remainder is discharged, giving both sides an opportunity to benefit from a bad situation.

Certain types of debts generally can’t be discharged through bankruptcy, such as child support, alimony, student loans, and some tax obligations. However, money owed to condos and HOAs is considered consumer debt and is dischargeable when a homeowner declares bankruptcy.

money owed to condos and HOAs is considered consumer debt and is dischargeable when a homeowner declares bankruptcy

What Happens When a Homeowner Declares Bankruptcy?

Bankruptcy cases are handled by federal courts, and federal law defines six different types. The two most common types used by individuals are Chapter 7 and Chapter 13, named after the sections of the federal bankruptcy code where they are described.

Chapter 7 bankruptcy, the type most individuals file, is also referred to as a straight bankruptcy or liquidation. A trustee appointed by the court can sell some of the homeowner’s property and use the proceeds to partially repay creditors, after which their debts are considered discharged. Some types of property can be exempt from liquidation, subject to certain limits. Those include vehicles, clothing, household goods, tools of the trade, pensions, and a portion of home equity. Homeowners list the property they are claiming as exempt when you file for bankruptcy.

Chapter 13 bankruptcy, on the other hand, results in a court-approved plan for the delinquent homeowner to repay all or part of their debts over a period of three to five years. Some of their debts may also be discharged. Because it does not require liquidating assets, a Chapter 13 bankruptcy can allow a homeowner to keep their home, as long as they continue to make the agreed-upon payments. Chapter 13 bankruptcy is the most common kind of bankruptcy filing by homeowners attempting to save their homes from foreclosure.

Chapter 13 bankruptcy is the most common kind of bankruptcy filing by homeowners attempting to save their home from foreclosure.

Collecting After Bankruptcy is Filed

In community associations, the registered agent (generally your manager or board president) will receive a notice that an owner has filed for bankruptcy and action must be taken. HOA and condo collections are serious business and if the association does not respond appropriately, you may not be in line to recover any delinquent assessments when the case is discharged by the bankruptcy court.

It’s incredibly important to remember that once you get notice of a bankruptcy filing, the management company CANNOT contact the owner to request payments. If you have sent the file to a collection agency or attorney, you need to notify them so that they too can stop all collections activity.

The association’s attorney will need to respond to the notice of bankruptcy with a ledger of all amounts due to the association. This is called a “pre-petition” ledger and it covers everything that was owed from the time the property owner went delinquent until the time he/she petitioned the court for protection under the bankruptcy laws. This ledger of delinquent condo or HOA dues is sometimes referred to as a ledger “in rem.”

It’s incredibly important to remember that once you get notice of a bankruptcy filing, the management company CANNOT contact the owner to request payments.

Next, the association needs to start a new ledger which should be called the “post-petition” ledger which covers what is owed from the time the owner filed for bankruptcy going forward. The post-petition ledger has nothing to do with the bankruptcy proceedings and the delinquent owner should be paying their assessments as usual after the initial bankruptcy filing.

Many believe being in bankruptcy means nothing needs to be paid, but that is not accurate. If the association is not receiving post-petition payments, then when the bankruptcy is discharged, they need to immediately start collections activity.

If a homeowner declares bankruptcy and fails to pay the post-petition amounts (assessments and other debts owed to the association) the association can ask the bankruptcy court to lift the automatic stay and allow collection efforts to resume. If successful, the condo or HOA can continue pursuing the debt.

the delinquent owner should be paying their assessments as usual after the initial bankruptcy filing.

Monitoring After a Homeowner Declares Bankruptcy

Monitoring a bankruptcy is critically important. Axela Technologies does this for all files that are placed with us, whether they are already in bankruptcy or file during collections activity.

Often it happens that a bankruptcy has been discharged and the community association does not even know about it, so the debt keeps on piling up with no resolution in sight. Axela Technologies uses PACER which is a database of all bankruptcy cases in the United States. When a case is discharged, the association should know about it and Axela will move the file forward if the owner has not paid their post-petition amounts or does not adhere to the court’s settlement agreement.

Bankruptcy is there to help and protect people, but there are those who will game the system and will postpone payment or just completely default. These are files that need to be addressed and worked on without delay. Call Axela for a no-obligation review of our collection process and technology. Let us show you how the future collects!

 

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Community Association Collections 101: What Happens When An Owner Files For Bankruptcy? by Axela’s / Mitch Drimmer

Community Association Collections 101: What Happens When An Owner Files For Bankruptcy? by Axela’s / Mitch Drimmer

  • Posted: Dec 10, 2021
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It seems as if bankruptcy will be the next big subject, this article is a step by step process for community associations

Community Association Collections 101:

What Happens When An Owner Files For Bankruptcy?

by Mitch Drimmer

Bankruptcy NoticeThe collections process isn’t a fun one, and depending on what causes delinquency, it can get complicated. A homeowner who falls behind on just their association payments is one thing, but someone who’s so behind on all of their financials that they have to declare bankruptcy is a very different story. We’re asked all the time about what happens when a condo or HOA has to deal with homeowner bankruptcy. If your association is dealing with a bankrupt homeowner who is not paying their post-bankruptcy amounts, there are decisions to be made and steps that can be taken. Let’s review what must happen and how the community association can best navigate this situation.

 

 

Two LedgersWhat Happens When Bankruptcy is Filed?

Filing for bankruptcy isn’t a quick process. When a person, known as the “petitioner,” files for bankruptcy, they must file a list of their creditors with the bankruptcy court (which is a federal court). The creditors will be noticed with a “bankruptcy notification” and will be given a time frame by which to respond, usually under two months. Government claims can be submitted up to six months after the petition date (it’s good to be the government.)

There is no requirement that the response (or proof of claim) from the creditor must be submitted to the court via an attorney, which is good for you–the less an association is required to spend on costly attorney fees, the better. This proof of claim can be submitted by the association directly, the management company, or by a collections partner like Axela. Just be sure that everything that is legally owed to the association is included on that proof of claim–this should include assessments, late fees, late interest, fines and violations, special assessments, and any other sundry items that have been charged to the property. Be sure to double-check the ledger because it is expensive to get a second bite at that apple if you find you want to amend your claim with the court.

From there, the bankruptcy court will hold a “341 meeting,” which is a meeting between the debtor and the creditors but it is not mandatory for any creditor to attend. Then comes the really complicated part.

 

Types of Bankruptcy

It is important to know what type of homeowner bankruptcy you are dealing with as this knowledge will direct your business decisions going forward. When a property goes bankrupt in a community association, the community needs to prepare two ledgers: a pre-petition ledger and a post-petition ledger. You cannot add the post-petition amounts to the bankruptcy claim because next month’s bills are not this month’s debts. Regardless of which kind of bankruptcy they have filed, the petitioner has an obligation to pay the post-petition amounts during the bankruptcy. If the delinquent owner is NOT paying their post-petition debts, the association needs to make a decision and take action immediately, and the type of bankruptcy will determine which steps to take

 

Chapter 7

Complete wipeoutChapter 7 bankruptcy, also known as “no-asset” bankruptcy, is a complete wipeout. This means that no money will be recovered from the pre-petition amounts.  A Chapter 7 bankruptcy case can take as little as six months to complete because there is no settlement to be made. Creditors can claim to the court that there are assets being hidden but, in most cases, it is all over fairly quickly. If the delinquent owner is not paying the post-petition amounts, then the association can wait until the case is discharged and then move forward with collections activity. If the owner has been paying their post-petition amounts, then the issue is resolved albeit the association has taken a hit.

 

 

Chapter 13

Wage Earner;s PlanChapter 13 bankruptcy is known as a “wage earners plan” and is a workout where the court will make a settlement and oversee it until the payment plan has been completed. This is when the association needs to make a business decision.

In a Chapter 13 bankruptcy case, the pre-petition debts will not be discharged for 3-5 years, and the petitioner remains in bankruptcy. If they are not paying the post-petition amounts, the association cannot submit the delinquency for collections or to an attorney for foreclosure. The only course of action is for the association to ask the court for an “injunctive stay of relief” which is essentially asking the court to allow the association to move forward with collections and or foreclosure efforts.

 

So What Needs to Be Done?

If a unit owner files for Chapter 13 bankruptcy and is not paying their current assessments, it is not a stretch to believe that most likely they will never pay. It is unfair that the association needs to wait three to five years until the pre-petition debts are paid, the delinquent owner is discharged from bankruptcy, and the association can finally move forward. As we mentioned above, if a delinquent owner has filed for Chapter 13 bankruptcy and is not paying their current assessments, the association should file with the court a motion for injunctive relief. During the gap period, section 1519(a) of the Bankruptcy Code states that a bankruptcy court has the power to grant provisional injunctive relief and certain other forms of relief where “relief is urgently needed to protect the assets of the debtor or the interests of the creditors.” Additionally, an order staying execution against the debtor can also be granted. If a property owner is not paying their assessments, then the case can be made that a stay order is required to protect the assets (the property).

 

How to Handle Homeowner Bankruptcy in Your Association

The same way you’d handle any other bankruptcy situation in your association: call a professional. Homeowner bankruptcy in your association can be managed and worked through, but it takes a lot of knowledge and a lot of time. Many times, when a management company or a board of directors is reviewing delinquencies, the units that are delinquent and are also in bankruptcy get glossed over. There is a feeling that once a delinquent owner files for bankruptcy, the association has no options other than to wait until the bankruptcy is discharged. This is not the case as there are options and every case is unique. Axela Technologies has the experience, knowledge, and experience to deal with all these contingencies. Call us today for a no-cost, no-obligation analysis, and review of your delinquencies.

Mitch Drimmer Axela Technologies

Mitch Drimmer
President of Business Development
Axela Technologies

Connect with Mitch on LinkedIn

About the Author

Mitch Drimmer is a respected thought leader in his field and has led numerous continuing education classes in collections, His articles have been published in key trade journals and newspapers, and he is a speaker at educational seminars.

As the President of Business Development for Axela Technologies, Drimmer works with community associations and their management companies to introduce innovative strategies to collect delinquent maintenance fees.

Throughout his career, Drimmer has worked with community associations to help them see their way through tough times, especially during the real estate crash. He is a passionate advocate for community associations and has participated in the legislative process over the years trying to bring fair and equitable legislation that serves community associations.

Drimmer earned a Bachelor of Arts in History from Hunter College in New York City, and has worked in the community association collections space since 2007.

 

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