Trauma Evictions Collections of Assessments and Other Sordid Tales
Assessment Collection for Community Associations
I. Obligation to collect assessments
While few take pleasure in pursuing their neighbors, friends, colleagues, etc. for the collection of assessments, associations and their duly elected board members are charged with the duty of doing just that. By volunteering to become a board member of your condominium, townhome, recreation and/or homeowner association, you are submitting yourself to be held to a high legal standard; the standard of being a fiduciary. Those individuals who fill fiduciary capacities, attorneys, accountants and yes, association board members, are charged with the highest, most stringent obligations under the law.
A fiduciary must always put the interest of his or her constituency above his or her own interests and must always make decisions based upon what he or she believes is in the best interest of the community as a whole, not just a select few. Playing favorites is not an option. To that end, fulfilling duties in a fiduciary capacity requires difficult and sometimes uncomfortable or unpopular decisions. One such decision charged to all board members of common interest communities in the State of Illinois is how and when to pursue a delinquent owner for past due assessments. The balance of the community, those owners who pay their assessments in a timely fashion, must have the trust and faith in their board members that the association is not asking them to carry the load for those who choose not to pay. Thankfully, in the State of Illinois, associations have several options for the collection of assessments. It is my opinion that one such option, the provisions of the Forcible Entry and Detainer Act, is superior to the alternatives.
II. Options for collection
A. Forcible Entry and Detainer
The Illinois General Assembly has bestowed a gift upon community associations in Illinois by making the Forcible Entry and Detainer Act, known on the street as the “eviction statute” automatically applicable to all condominium associations and to all townhome, homeowner and common interest communities that elect to use its provisions. Associations using the Forcible Act to collect assessments must initiate collection by the service of a 30-day demand letter. The 30-day demand letter must be sent to the owner at the unit, or to the owner’s off-site address, if such an address has been provided. The demand must be sent via certified mail. The delinquent owner has 30 days from the date of the letter within which to become current on the account. If the owner becomes current within the 30 days, no further action can be taken. However, if the owner fails to pay any amount or if the owner makes a partial payment within 30 days, the Association is vested with the authority to file suit against the owner in an attempt to collect all past due amounts.
If suit is filed under the Forcible Act the association will be asking a court to award it all past due assessments, attorney’s fees and court costs. Additionally, the association will be asking a court to award it possession of the owner’s unit. Yes, an owner can be evicted for failing to pay assessments. If an owner does not pay his or her share of the assessments and if the association is awarded possession of the unit, the owner will have not less than 60 additional days to bring the account current. After this 60 days has expired and if the owner has not paid the account in full, the association is authorized to schedule an eviction with the county sheriff. If an eviction is conducted, the owner loses his or her right to live in the unit, but he or she does not lose ownership of the unit. At this point the association can place a renter in the owner’s unit and apply all rental payments toward the owner’s past due balance. Leases with tenants are not unlimited in time and once the arrearage has been cured, the owner has the right to petition the court to seek to regain possession of his or her home.
As you would expect, evictions are relatively rare in relation to the total number of cases filed to collect past due assessments. The possibility of losing the right to live in the owner’s home provides a great incentive to pay the account in full. While entertaining the possibility of evicting one’s neighbor makes most people uncomfortable, in my opinion, this mechanism is the best tool to collect past due assessments and should be considered for use by all associations.
B. Assessment Lien Foreclosure
The obligation to pay assessments is not only the personal obligation of the unit owner, it is also an obligation that is a covenant burdening the property. As a covenant that binds the individual and the property, associations have liens for assessments upon each parcel in their respective community. Accordingly, while it is not recommended in light of the option of using the Forcible Act procedures described above, an association may foreclose its lien, just like a mortgage lender, in an effort to collect assessments. When compared to the Forcible Act, foreclosing a lien to collect assessments is a substantially more time consuming procedure. As opposed to the forcible proceedings, which are considered expedited proceedings (i.e. courts must handle and resolve them quickly), foreclosure proceedings could last anywhere between 9 months to 2 or 3 years before any resolution is obtained. Should the owner not pay the balance due, the ultimate outcome of a foreclosure action is that the association may end up owning the unit. Does the association want to own units? If so, will the association attempt to sell the unit? Will the association rent it out first and then try to sell it? Will the board be able to sell the unit without owner approval (it won’t if it’s a condominium)?
While the fear of losing ownership of one’s home can work to compel an owner to pay assessments, the process of foreclosing an association’s lien is not the most efficient manner to collect assessments and should only be used in limited situations such as delinquencies relating to vacant land.
C. Small Claims
If evicting an owner under the forcible statute or potentially taking ownership of a home through a foreclosure action makes boards and associations uncomfortable, another option available to collect assessments is to file an action in small claims court. The declaration creates contractual obligations on behalf of the owners and the failure to pay assessments is a breach of the declaration (contract) by the owner, which gives rise to a suit in small claims court. If an association elects to use this method to collect assessments, unlike proceedings filed under the Forcible Act, no 30-day demand letter is required to be sent prior to filing suit.
The real distinction between a small claims suit and a suit filed pursuant to the Forcible Act can be seen upon entry of a judgment. First, in a small claims suit, an association is not entitled to take possession or threaten an owner with taking possession of his or her home should the owner not pay. If a small claims judgment is obtained and if the owner does not voluntarily pay the judgment amount, the association will be required to pursue more traditional post-judgment collection remedies. Such post-judgment collection remedies include wage and bank garnishments, etc.
Unlike a forcible case, where no additional court appearances are required once judgment has been entered, post-judgment collection remedies associated with a small claims case require additional court appearances by the association’s attorney, which means more money is being spent by the association. Further, there is no guarantee that the association will be able to uncover any assets of the owner to be garnished in an effort to satisfy the past due balance (i.e. bank accounts, wages). Lastly, unlike an action filed pursuant to the Forcible Act, which requires the owner to pay not only the judgment amount, but also any additional assessments that have accrued since entry of judgment, a small claims judgment only obligates the owner to pay the amount of the judgment, plus statutory interest on the judgment at 9%. Therefore, the association that uses small claims suits to collect assessments may be put in the position of incurring attorney’s fees and court costs for the post-judgment work that is not collected, which means the association, should it desire to collect these amounts, will be required to start the process over again.
Recording a lien with the county recorder, which establishes that a past due balance exists for past due assessments, etc. is the most passive way for an association to attempt to collect a debt. Recording a lien carries with it no compelling forces such as a small claims money judgment or the possibility of being evicted from one’s home. Therefore, unless the recording of a lien is used in conjunction with one of the other collection methods outlined above, it is a relatively useless endeavor. Recording a lien for past due assessments will only compel an owner to pay in the event the owner either attempts to sell or refinance his or her home.