This entry is the second of a three part series of articles about getting the most out of your HOA/Condo collections provider. The article originally appeared in 2010 Issue #2 of Community Resource, a periodic publication of the Central Arizona Chapter of the Community Associations Institute and is reprinted in its entirety here.

PILLAR #2 – COMPLIANCE WITH ALL LAWS & ASSOCIATION GOVERNING DOCUMENTS

A collections provider should comply with all laws and with the association’s governing documents when dealing with homeowners, the association and third parties encountered along the way.

A collections provider should comply with…

• Federal Debt Collections Laws
• Federal Fair Housing Laws
• Laws or Rules regulating attorneys
• State Statutes Regarding Payment and Application of Homeowner Payments of Assessments
• Unauthorized Practice of Law Statutes/Rules
• State Debt Collection Licensing Regulations
• Terms of Vender Contracts, specifically Insurance
• Court Rules
• CC&R Collection Provisions
• The Association’s Written Collections Policy

Boards must require that any association vendor or agent operate and provide service to the association lawfully and in compliance with the governing documents. Turning a blind eye to illegal or unethical collection practices is a recipe for association liability and totally disruptive to the collections process.

These actions are problematic for several reasons:

• Illegal acts or violations of the governing documents and Board policies give delinquent owners a legal defense. Do not misunderstand, illegal or unethical behavior by a collections provider does not somehow cure the homeowner’s delinquency, but these defenses can muddy a judge’s thinking about the debt itself and cause an association to lose a good, viable claim.
• Illegal acts give birth to counterclaims for the delinquent owner. Nothing defeats a collections action better than a counterclaim that alleges an offset in favor of the delinquent owner.
• Violations of the law often have statutory damage provisions. This means that aggrieved owners can claim a damage figure, not because these damages were actually suffered, but because the statute itself calls for the amount of money Here are a couple federal and state laws that mandate a measure of damages:
  • Federal Fair Debt Collections Practices Act
    • $1,000 damages per violation
  • Arizona’s Wrongful Lien Statutes
    • $5,000 damages per violation or actual damages (whichever is higher)

Violations of the law may not be covered by the association’s insurance policy. Many directors’ and officers’ (“D&O”) insurance policies contain language that excludes coverage for a Board’s dishonesty, fraud or willful violation of laws or statutes. Obviously, D&O insurance protection coverage is helpful to cover an association and its Board from allegations of poor decisions and other accusations of wrongdoing. But when a Board hires a collections agent that intentionally ignores the law and the documents, the carrier may not step up to cover and defend against the delinquent owner’s counterclaim. This is very costly for the association in two ways: the wasted insurance premiums; and the damages and defense attorneys’ fees are the association’s full responsibility.

These situations can be avoided with a bit of due diligence. The authority that regulates lawyers, the State Bar, keeps meticulous records of lawyer discipline. The internet has some public information, but calling the State Bar and asking about an attorney’s disciplinary history and whether or not the lawyer is insured for malpractice is a practical tool to guard against this problem. (You can also ask the attorney about malpractice insurance.) Likewise, the state banking department keeps records of past wrongdoing related to licensed debt collectors and that information is a phone call away.

This entry is the first of a three part series of articles about getting the most out of your HOA/Condo collections provider. The article originally appeared in 2010 Issue #2 of Community Resource, a periodic publication of the Central Arizona Chapter of the Community Associations Institute and is reprinted in its entirety here.

In recent months, we all have had challenging discussions about how to best help associations collect their delinquent assessments. There are some methods seeming to be magic elixirs that promise higher collection rates and astounding results. This article is not about those methods or results. Instead, this article explores some simple, foundational principles that should undergird any association collections provider agreement. Whether your association hires a lawyer, relies heavily on the community manager or engages a grey-bearded guru with a collections divining rod, these are three essentials of that relationship. Awareness and insistence on these Three “Cs” of collection services will give associations a firm foundation and ultimately translate into fewer write-offs, lower collection costs and attorney fees and more money collected for the association. Boards of Directors should demand these behaviors from their collections providers.

Pillar #1 – Communication

A collections provider should always communicate clearly and regularly with the association and its board of directors.

Communication between the Board and its collections provider must be swift, accurate and occur often. Accepting any less means the loss of valuable time and the possibility that the association is further separated from its prize: its money.

Communication about the Status of Matters

There should be a free routine information exchange about open collections matters between the Board and its provider.

As attorneys who collect delinquent assessment debt for community associations, we are required by lawyer ethics to “keep the client reasonably informed about the status of the matter.” For attorneys, this communication is not optional, and we risk our licenses and livelihoods should we fail to communicate well and often with our clients.

Good communication is required of managing agents as well. The law of agency applies to agents of an association such as managers and their non-attorney collection agents. These universal laws on agency establish a duty of communication for the agent:

An agent owes the principal a duty to provide information to the principal that the agent knows or has reason to know the principal would wish to have. An agent also owes the principal a duty… to provide information to the principal that is material to the agent’s duties to the principal.

In other words, management companies, collection agencies and any other association agents have a duty to keep the Board of Directors informed. This includes good and regular communication about pending collections matters.

Communication about Decisions Required of the Board

(Especially about a Proposed Settlement of the Debt)

Be wary of restrictions that keep the Board of Directors in the dark regarding attempts by owners to settle their accounts or the terms of their settlement offers. Boards should jealously guard their right to settle a matter. The collections provider may be the intermediary, and may exercise express limited authority (for instance waiver of ‘soft costs’) but the ultimate decision maker should be the Board of Directors.

Communication about Fees

In this economy, fees often drive Boards to new collections tools and providers. Boards of Directors and their agents have a duty to familiarize themselves with the fees being charged the association and/or the homeowner. This should be known before a Board ever enters into a collections services agreement.

Lawyer ethics require lawyers and law firms to communicate about fees and expenses “before or within a reasonable time after commencing the representation.” That rule also applies to the fees the lawyer charges during the attorney-client relationship.

But the rules for lawyers are not unique. Other collections providers are required to disclose fee information to the client. Arizona’s laws and administrative rules that regulate collection agencies require regular accounting and communication about fees, fairness and client funds. The restatement of agency also has similar language and requires a managing agent to “deal fairly in arranging the terms of the relationship.” Agents must disclose material information (such as collections fees and costs) before the association makes its decision whether or not to engage the agent.

In addition to knowing the fees “upfront” a Board should always know where they stand on what fees have been charged to date, both collectively (for all of the collections matters) and individually (for each matter). The object of the Association’s collections action is to collect money, not to become terminally enslaved to collections expenses.

Communication about Results

A Board of Directors should not have to guess what is going on with the association’s collections accounts. If results matter to the association, then the provider’s communication about results is critical. If the delinquent accounts go into some black hole when turned over to the collections provider, a Board cannot be expected to make good decisions on those matters or on what to do with new delinquencies. Perfect results are unrealistic, but perfect communication about results, whether good or bad, should be expected in the association’s relationship with collections professionals.

A few weeks ago, we were shocked to learn that HOA lawyers aren’t well liked (shocker!).  We licked our wounds and have been working to repair our pride ever since.  Then all too soon, we were groin kicked again. Today,  a homeowner called one of our lawyers a liar. Ouch.  Again.

This is not the first time we have suffered such an insult.  But all of the monikers we wear as attorneys, “liar” is an odd choice.  Call us greedy, stubborn, heartless, unprincipled, shrewd, fat or ugly, but liars?  Really?

Charles Lamb, a 19th century British essayist, once wrote, “He is no lawyer who cannot take two sides.”  I think our “argue both sides” training and education can confuse and concern people who  interact with attorneys.  Lawyers may indeed and adeptly take both sides, but these attorney behaviors do not a liar make.

Candor and truthfulness are actually pillars of lawyer ethics and professionalism.  Persuasive argument and safeguarding client confidentiality shouldn’t be labeled as untruths.  Disputes make the legal world go round. Call them lies if it makes you feel better, but if good lawyering causes the others to cry “pants on fire” then we’ll have to live with the liar label.  Nobody likes us, everyone hates us and everyone is calling us liars.  I think I’ll eat some worms!

It’s back to the basics for this blog entry. We were talking about HOA and Condo Association records at a seminar recently, and specifically, we were asked whether or not a member can request and receive a copy of the membership list of the Association?

Yes. Arizona’s planned community and condominium acts proscribe open access to almost all association records. Our statutes were changed several years ago to allow HOA and Condo members to have access to ALL Association financial records.

A liberal reading of these statutes together with a reading of the non-profit corporations act reveals but a very short list of corporate documents that most members are not entitled to inspect and copy. The Association’s records are indeed an open book.

Arizona’s planned community and condominium laws do allow the Board to decide to withhold certain records, including attorney/client privileged records, owner/employee “personal” records and some records of an ongoing dispute between Association and homeowner.

But what about the membership list? Arizona’s not-for-profit corporations act (as well as the Model Nonprofit Corporations Act) requires that the membership list be prepared and kept as part of corporate records. The Arizona statute further requires the non-profit corporation to make that list available for copying and inspection. The only limitation on the timely disclosure of a membership list is that a homeowner make the request “in good faith” and the homeowner must state “a proper purpose” for which the list will be used.

The Arizona statute does not define “proper purpose”, but the non-profit act does prohibit the member from using the list for any of the following: 1) Used to solicit money or property; 2) Used for any commercial purpose or 3) Sold to or purchased by any person. If the homeowner is not intending to use the list for pecuniary gain, there is no legal reason for the Association to withhold the list.

The law does not favor withholding Association records, financial or otherwise. Proper disclosure and board transparency breed good governance and help the Association avoid litigation. Your association should be like an open book and those associations that function best have long learned and practiced this transparency.