Protecting The Financial Well-Being Of Your Association

The financial well-being of any association is based on the proper adoption and collection of assessments. Assessments are the lifeblood of the community and how an association pays for the maintenance and upkeep of the community. Without proper adoption and collection of assessments, communities can fall into disarray and struggle to provide services to their members. This article discusses four key components that every association should consider when adopting and collecting assessments to ensure the community’s financial well-being.

PROPER ADOPTION OF A BUDGET

The first component to ensuring your community’s financial well-being is proper adoption of an annual budget. In adopting an annual budget, the association must follow the statutory requirements for notifying owners of a budget meeting and providing owners with a copy of the proposed budget (See §§718.112(2)(e) and (f), 719.106(1)(e), and 720.303(6), Fla. Stat.) The proposed budget of estimated revenues and expenses must be detailed and show the amounts budgeted by accounts and expense classifications. Associations should also review their governing documents to determine if there are additional noticing or other requirements specific to the association. Of note, the Florida Legislature has enacted legislation for condominium associations that requires budgets adopted on or after December 31, 2024, to fully fund reserve accounts for certain deferred maintenance items (See §§718.112(2), Fla. Stat.). Condominium association boards should speak with their legal counsel to ensure that they are fully informed as to the new requirements and that the annual budget will comply with these new requirements.

NOTIFICATION OF AMOUNTS DUE

The second component to ensuring your community’s financial well-being is sending the owners proper notification of the amounts due, including whether the ongoing assessments are due on an annual, monthly, or quarterly basis. Many associations send out coupon books, statement of accounts, or invoices to alert their owners of the ongoing assessment amounts and due dates and to advise how payment can be made. While these notifications are not a prerequisite to collection of assessments, sending these notifications should eliminate any confusion or argument on the owner’s part that they were unaware of the assessment amounts or the due dates.

If an association sends out statements of account or invoices to its owners, there are statutory requirements as to how these notifications are sent. Effective July 1, 2021, all statement of accounts or invoices must be sent to the owner via first-class US mail or email. In addition, if an association wants to change the method of delivery for statements of accounts or invoices, they must first provide the owners with written notice of the change at least 30 days prior to instituting the change. The notice of change in the method of delivery must be sent by first-class US mail to the owner at their last address as reflected in the association’s records, and if the last address is not the property address, the notice must also be sent to the property address by first-class US mail. Before the association can institute the change, the owners must affirmatively acknowledge, by email or in writing, that they understand the association is changing the method of delivery (See §§718.121(4) (a), (b), and (c); 719.108(3)(b)1, 2, and 3; and 720.3085(3)(c)1, 2 and 3, Fla. Stat.)

COLLECTION OF DELINQUENT ASSESSMENTS

The third component to ensuring your community’s financial health is the timely collection of delinquent assessments. Many associations do not have a clear plan or policy for collection of assessments, which can lead to skyrocketing arrearages. If an association does not have standard operating procedures for collection of delinquent accounts, there’s a good chance that some owners will see this as an opportunity to fall behind on their payments with the intention of “catching up later.” This can have a disastrous impact on the financial health of the association.

To prevent out-of-control delinquencies, the association should adopt a uniform collection policy for delinquent accounts, both to put owners on notice of what will happen if they fail to remit timely payment and to ensure that collections are handled in a fair and uniform manner. The collections policy should include a timeline of the collections process, including when late fees and interest will start to accrue and when an account will be sent to an attorney for collections. The timelines and requirements for collection of delinquent assessments are detailed in the Florida statues.

The first step in the collections process, and a prerequisite for the association’s collection of legal fees, is a notification from the association to the owner advising that the owner is delinquent, i.e., a Notice of Late Assessment. The Notice of Late Assessment provides the owner with 30 days to remit payment for the past due amount before the account is turned over to the attorney. The Notice of Late Assessment must be sent via first-class US mail to the owner’s last address as reflected in the association’s official records, and if the last address is not the property address, the notice must also be sent to the property address by first-class US mail. The notice is deemed delivered upon mailing, and a rebuttable presumption that the notice was mailed as required can be established by a sworn affidavit executed by a board member, officer, or agent of the association or by a licensed manager. Failure to provide the delinquent owner with this Notice of Late Assessment will preclude the association from recovering legal fees incurred in a subsequent collection/ foreclosure action.

The association should speak with legal counsel to confirm that the Notice of Late Assessment it is sending conforms with the statutory requirements to avoid any owner arguments regarding entitlement to legal fees in a subsequent collections action (See §§718.121(5),719.108(3) (c), and 720.3085(3)(d), Fla. Stat.)

In addition to the 30 days provided by the Notice of Late Assessment, once an owner’s account is turned over to the attorney, there are subsequent demand letters that must be sent before a claim of lien is recorded or a foreclosure action is filed. Owners in condominium, cooperative, and homeowners’ associations must be sent a Notice of Intent to Lien demand letter, which provides them with 45 days to remit payment (See §§718.121(6), 719.108(4)(a) and (b), 720.3085(4)(a) and (b), Fla. Stat.) If an owner doesn’t remit payment within the 45-day time-frame, owners in condominium and homeowners’ associations must be sent a Notice of Intent to Foreclose letter, which provides them with another 45 days to remit payment (See §§718.116(6)(b), and 720.3085(5), Fla. Stat.)

These statutory time-frames mean that delinquent owners in a cooperative association will have a minimum of 75 days before the association can proceed with a foreclosure action, and delinquent owners in condominium and homeowners’ associations will have a minimum of 120 days before the association can proceed with a foreclosure. Implementation of a uniform collections policy that initiates collections as soon as an account becomes delinquent will help ensure that collection of delinquencies will proceed without additional delays and corresponding negative impacts to the association’s financial well-being.

REVIEW OF THE GOVERNING DOCUMENTS

The fourth and final component to ensuring your community’s financial well-being is a thorough review of the governing documents. Many governing documents have outdated language regarding a new owner’s liability for past due assessments, particularly when the new owner has taken title via a foreclosure sale. While a new owner’s liability for past due assessments is detailed in the Florida statutes, if the association’s governing documents contain provisions that are more restrictive as to a new owner’s liability for past due assessments than the liability conveyed by Florida statute, the association’s governing documents control.

An example of this is when a third-party purchaser is the winning bidder at a mortgage foreclosure sale. Normally the third-party purchaser would be responsible to pay the association for any past due assessments owed on the property once they took title. However, if the association’s governing documents state that “any purchaser” at the first mortgagee’s foreclosure sale is not liable for past due assessments owed, then the association will be unable to collect these amounts from the new owner. See Pudlit 2 Joint Venture, LLP v. Westwood Gardens Homeowners’ Ass’n, Inc., 169 So.3d 145 (Fla. 4th DCA 2015). The inability to collect from a new owner is often a shock to the association and can be avoided by reviewing and updating the relevant provisions of the governing documents.

Lastly, associations should review the governing documents to confirm that the association is entitled to collect that maximum amount of statutory interest for delinquencies, i.e., 18 percent, and that the governing documents authorize collection of late fees. While interest is authorized by statute, late fees must be authorized by the governing documents (See §§718.121(3), 719.108(a), and 720.3085(3)(a), Fla. Stat.) While these are penalties and can be waived by the association, they can be used as negotiation tools in settling delinquent accounts with owners or to offset amounts that the association cannot otherwise collect.