Is a management collections fee legal on delinquent accounts?

By August 12, 2012Articles, News

Q. Our management company is collecting $250 on each delinquent account as a management collections fee. We are fine with this if they can collect it, but it is often challenged by banks and title companies when the properties are foreclosed and up for sale. Some of these challenges result in delays in closings, which delays the collection of our delinquent assessments. Is this fee legal? – K.T.

A. Florida law is not entirely clear with respect to the collection of management or administrative fees on delinquent accounts, but many community association attorneys do not believe that either Chapter 718 or Chapter 720 authorizes these fees. Those attorneys generally take the position that the $25 late fee authorized by statute is adequate compensation for late payments, but of course that fee is paid to the association and not the management company. There is an effort by legislators to clarify the legality of these fees, so we can expect this issue to appear in a bill in an upcoming session in Tallahassee. Our position is that a smaller administrative fee for collections in the range of $25 to $50 is more reasonable and can be collected with relative ease. There is also the possibility of a law reducing the estoppel fee charged by associations and their management firms to provide information to title agents. We will keep our readers updated on these legislative developments.

Q. I recall a column you wrote months ago about a controversial new law that would limit what banks pay to associations when they foreclose on a delinquent unit. Our community continues to deal with stalled bank foreclosures and we remain concerned about huge losses when these properties ultimately change hands. What is the status of that law? – P.D.

A. As discussed in a prior column, this controversial bill known as HB 319 was passed by the Florida House of Representatives but died in the Florida Senate without a vote. This bill, if it became law, would have imposed an absolute cap of 12 months of assessments or 1 percent of the mortgage debt, whichever was less, with respect to the liability of a foreclosing bank that took title. As a result, both condos and homeowners associations would have been prohibited from collecting the interest, late fees and legal fees incurred in the collections process. These fees and late charges add up to thousands of dollars on accounts that have been delinquent for several years, and associations depend on recovering this revenue and legal expense when a property changes hands. The consensus among community association attorneys is that this bill will be back in the next session of the house and will again be a controversial issue. We do not yet know whether it will be lumped with other condo and HOA laws as it was last year, or whether it will appear in a different fashion, but it will again likely be sponsored by Rep. George Moraitis in the Florida House. If your community is concerned about the financial losses that could result from this future bill, your community leaders should share those concerns with your local representatives in Tallahassee.

Q. There is a unit owner in our condominium who continues to harass board members, both in and out of meetings. He also continues to demand the right to see association documents and records that are not open for inspection to members under Chapter 718. We have sent him letters from our attorney and imposed fines, but nothing seems to work and he continues to disrupt the community. Are you aware of any other measures we can take? – R.M.

A. Your community is taking a common approach, but every so often there is an owner who continues to cross the line and more aggressive action is needed. For owners who refuse to pay a fine, the fine can be successfully collected in small claims court which is a relatively inexpensive process. Any judgment in favor of the association will likely include an award of attorney’s fees. If the association has followed the proper fining procedure outlined in its bylaws and Florida statutes, county judges will generally uphold the fine. The judgment can be enforced against the owner’s assets, which can include a garnishment against bank accounts and wages. Another solution is a change to the association’s bylaws known as a nuisance amendment. At your next membership meeting, the board can ask the members to approve a new provision in the bylaws requiring a nuisance or harassing owner to pay the association’s legal fees incurred to correct the improper conduct. If the owner refused to pay, the legal expenses would become an assessment against that owner’s unit and secured by a lien if proper language was drafted. The association would then have the ability to foreclose on a lien, which will really give the association the upper hand against unruly owners.