Order of Battle in foreclosures

As you know, it is the policy of my firm to advance all fees and costs in collections and foreclosure actions. Part of the problem we face is that we have "gone down the rabbit hole," as in Alice in Wonderland. Try as we might, it's nearly impossible to keep up with spending approximately $700 per foreclosure and out-of-pocket costs advanced by the firm to initiate foreclosures against delinquent owners. That poses the question for a number of clients, namely if they provide a cost deposit, can we get there matter faster? The answer is of course, yes. We fund our clients foreclosures out of operating income, and are spending about $5000 a week in the outgoing costs, but we still are finding it hard to keep up. Recently, a client posed an interesting question that I thought I would share with you. Here's the e-mail, followed by my response:

On Wed, Feb 17, 2010 at 9:11 PM, Client name wrote:

Hi Bob,

Thank you for sending us your ledger and allowing us access to the new website. The information has been extremely helpful.

The board would like your recommendations on which units we should pay $700 in costs upfront to expedite the process.

Thanks again for your attention to our concerns. We look forward to continued progress with you.

Sincerely,

Hey (Client) , that is a business judgment; I really don't have the time to analyze each of your delinquencies....I suggest the following as a guide..

Are there rented units? They can all be sued at once and I can have a receiver appointed to collect the rent. I need that info stat.....

Second if there are units in mortgage foreclosure, do I have copies of all complaints? We have found that 60%++ of all foreclosures are brought in bad faith; watch this video (a link to my website, which links to about 30 YouTube videos), in fact watch all my collection videos!!! Maybe we can set aside the foreclosure, allowing a clear path to our own foreclosure...

Any delinquency not in foreclosure is an obvious choice...

As to those in foreclosure go to the Pinellas clerk's web site and see if you can tell how fast or slowly the action is going, and watch my video "foreclosure in a foreclosure", both parts.....

Let me know if I can be of further help...., Bob

Comply with the FDCPA when you collect!!!

Several years ago, the collection of unpaid condominium association assessments was relatively simple. The procedure to collect remained the same, but with values rising by 2% per month or more, condominium associations who had to go through the foreclosure process, which occurred about 40 times (!) less often than they do now, were paid in full even at the sale, due to the rising price environment.

It has come to my attention that in this declining price environment, some management companies are adding certain fees to offset their internal costs of bookkeeping. I understand the problem that Community Association Managers face. In these unprecedented times, the cost of additional bookkeeping puts a strain on their budget, and the company has somewhat of a “no-win” choice: either find a way to isolate the costs of the extra bookkeeping, such as adding an “actual cost” into the 45-day initial demand letter in the homeowner association setting, (as allowed by law, at least for the time being) or force a rise in the basic management fee, thereby punishing the people who pay for the costs incurred by the people who don’t pay.

The problem arises when those management companies, or the attorneys who represent the associations, attempt to collect an additional fee or cost from the delinquent owner through the demand process. In my opinion, that is a violation of the Fair Debt Collections Practices Act (the “Act”). The Act provides that a debtor is only obligated to pay for debts that he/she legally contracts to pay. In the case of a Condominium Association, the legal contract and agreement thereto is the Declaration of Condominium and the Condominium Documents. Additionally, state law may allow imposition of other costs (the “actual costs” for HOAs, as referred to above).

In the condominium setting, however, there is no authority either under state law, the Act, or the documents to segregate a separate cost and impose that cost against debtors. Make no mistake; the issue is not whether the associations and their managers have the legal right to agree, by contract, for the association to pay the management company additional fees to pay for the costs of keeping track of delinquent owners. That is a matter of contract between the association and the management company. It is perfectly legal to charge an association, say $25 per delinquent owner. That is is a cost of the contract shared by all owners. The problem arises because neither the association, nor the management company, nor counsel for the association, can legally require that a unit owner debtor pay those fees.

I have always counseled my clients and their management companies not to ask for those fees when collecting, either in the initial demand sent by the management company or through legal counsel. While this may not create liability for the Associations, I believe it creates extensive potential liability for the lawyers and management companies who do so.

What’s the bottom line? Management companies and lawyers who demand that condominium unit owners pay additional fees and costs other than those allowed by law are exposing themselves to liability, with the result of possibly hundreds or thousands of individual lawsuits being brought against them for an alleged violation of the Act. While there have been some notable class action lawsuits involving the law firm of Katzman and Korr and my former law firm, Becker & Poliakoff, if I was a plaintiff’s lawyer, I would run an ad seeking out people who may have been charged those extra fees and proceed to bring a thousand actions, each on behalf of an individual owner, against entities who violate the law. While I don’t advocate this, and I certainly don’t wish it on any management company or any lawyer, I feel strongly that my clients and their managers should strictly follow legal guidelines for collections. Being aggressive and taking prompt action is one thing; violating federal and state laws is another.

On the other hand, we may be only 1/3 through....

“Credit losses could peak at a level of $3.6 trillion for U.S. institutions,” famous forecaster of doom and gloom Nouriel Roubini said this week, “half of them by banks and broker dealers. If that’s true, it means the U.S. banking system is effectively insolvent, because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”

Total financial write-downs and losses have now surpassed $1 trillion since the start of this crisis in mid-2007. That’s puts us barely a third of the way though this mess, if you follow Roubini’s logic.

Community Association Collections for Dummies

Here is a shortened version of what I prepared for a client, FYI---

When we are asked to file a lien we send it to the debtor Certified mail and regular mail. We send the original to be filed with the clerk of the court the same day. Law requires that we provide 30 days notice to debtor before filing suit.

Usually we get the return receipt back; sometimes there are issues with the debtors address; there is no one answer fits all. We move as fast as we can. We NEVER give less than the 30 day notice.

After we clear up the issue of notice we ask for approval to foreclose. I recommend that he board authorize management to do so as these are critical times in the industry and delay is bad.
After we get authority to foreclose, we filed the complaint with the court, lis pendens and serve the suit on the debtor. We wait until 30 days after service of the suit on the debtor (time for service varies, maybe out of state, avoiding the process server, whatever) before seeking a default from the clerk of the court if they do not answer.

Usually 3/4 of people who have not paid arrange to make payment at this point including all fees and costs, interest, etc.

If they continue to ignore us, we seek summary judgment; that usually takes 10 more days to get filed and a hearing date is set about 30 days later.

Usually 3/4 of the remaining people pay by this time or make arrangements to do so.
At the summary judgment hearing, we ask for sale of the unit on the courthouse steps to satisfy the amounts due. Usually the court sets it 30 days later.

If we go to sale, we bid up to the amount of the judgment; if someone goes higher, the association is paid in full as well as all interest, costs, etc...if not (about 1 in 200) the association takes title to the unit.

If there is a first mortgage it is subject to that mortgage, what most people do not understand is that no payments are required...no taxes, no insurance, only make sure liability insurance in place.

Usually at this point we try to rent it month to month just to recover lost assessments. I hardly ever ask for fees, and rarely ask for costs to be repaid, as by the time of sale I have about $800 in hard money paid out for the benefit of the association. Given the current environment, I am considering to ask to be reimbursed for my out of pocket costs if nothing is realized at the sale...that is done on a case by case basis.