COLLECTIONS: THE FILING OF A LAWSUIT
After a lien is filed we generally send a delinquent homeowner a lien notification letter advising them that we have filed a lien against their home and that if they fail to remit payment in full we will either proceed with filing a lawsuit or foreclosure. If the homeowner fails to respond to the letter we generally proceed with the filing of a lawsuit because there is usually little or no equity in homes that justifies proceeding with foreclosure and because obtaining a personal judgment is usually faster and less expensive than foreclosure.
Although having a lien in place is necessary to “secure” an association in the event an owner files bankruptcy or a foreclosure action is filed by a mortgage holder, a lien is merely a “cloud upon title,” and is therefore passive. Therefore, we usually also file a lawsuit because having a lien in place does not require the owner to pay unless he or she sells their home, refinances, or files Chapter 13 bankruptcy. In addition, a lien against a property will not assist an association in collecting assessments owed by prior owners.
Finally, if a property is foreclosed upon by the mortgage holder and there are no excess proceeds from the sale, all existing liens are extinguished and the association will not receive any monies owed to it. A lawsuit is usually the best method to collect the monies owed by a prior owner and a current owner who repeatedly fails to pay his/her assessments.
Once a suit has been filed against a current or prior owner, the owner must be personally served with the summons and complaint. After being served, many delinquent owners call us to work out a payment plan. However, the owner may defend the action by filing what is known as a Notice of Intention to Defend (NOI). In that event, an attorney must appear in court with a witness to prove the case.
In most cases, an NOI is not filed by the owner and most judges will grant the association a judgment based upon the facts alleged in the lawsuit without requiring counsel to appear in court. There are some exceptions in some counties and we are occasionally required to go to court to put on what is known as “ex parte” proof of the debt even though the owner has declined to appear in court. As stated above, a court appearance is not always required and many cases are resolved without attending court.
Typically, the time between filing a suit and obtaining a judgment takes about three to four months. However, factors such as evasion of service by the owner(s), delays within the court system, and appeals, among many other factors, can increase that timeframe.
Although the District Court environment has become more and more pro-defendant, in most cases, a lawsuit is the most effective way to recover delinquent assessments. However, each association, especially those with low assessments, should decide how often a lawsuit is filed in order to mitigate the financial consequences of obtaining judgments for less than the amount incurred to pursue the matter.