11221 Pearl Road
Strongsville, Ohio 44136
P: 440-846-0000 F: 440-846-9770
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Frequently asked Questions

Bankruptcy Questions

1. If a delinquent owner files bankruptcy, should the association automatically write off the debt?
2. If a delinquent owner files bankruptcy, can the association terminate utilities to the owner’s unit?
3. Does the association have any chance of collecting assessments if the owner files a Chapter 7 bankruptcy?
4. What are the association’s chances of collecting assessments if the owner files a Chapter 13 bankruptcy?
5. If a delinquent owner files bankruptcy, are they required to keep current on assessments?
6. When can the association expect to begin receiving payments after an owner files bankruptcy?
7. What can an association do if the debtor does not keep current on the payment of assessments coming due after filing for bankruptcy?
8. How many times can an owner file bankruptcy?
9. Can the association restart collection if the debtor’s bankruptcy has been dismissed?
10. What can the association do if the debtor’s bankruptcy is discharged?

Foreclosure Questions

1. What is the process for a foreclosure?
2. Can an association foreclose if the only delinquency is late charges?
3. What happens if no one bids on the property at the foreclosure sale?
4. If a first lien holder forecloses, what happens to the association’s assessment lien?
5. How long is the association’s lien valid?

General Collection Questions

1. Must an association accept an owner’s partial payment?
2. Can the association accept post-dated checks?
3. How much does it cost to take a particular action?

Bankruptcy Questions

1. If a delinquent owner files bankruptcy, should the association automatically write off the debt?

   No. The mere act of filing for bankruptcy does not relieve the homeowner of his or her debts. The filing of bankruptcy does, however, affect an association’s ability to take legal action to enforce its collection rights. Depending upon the type of bankruptcy the owner files, the owner may pay the association under a court-approved payment plan. In almost all cases, the delinquent owner will be obligated to pay all assessments which become due after the bankruptcy filing. If a delinquent owner receives a “discharge”, he or she will be relieved from the obligation to pay assessments which became due prior to the date the owner filed bankruptcy (the “pre-petition assessments”). The discharge, however, does not affect the association’s assessment lien against the owner’s unit or property or the debtor’s obligation to pay assessments which became due after the date the owner filed bankruptcy (the “post-petition assessments”). The association can still foreclose this lien if the pre-petition or post-petition assessments are not paid even if the owner receives a discharge. Some debtor’s attorneys do not understand the effect of a discharge.

2. If a delinquent owner files bankruptcy, can the association terminate utilities to the owner’s unit?

   No. A bankruptcy automatically stays (halts or prevents) any further collection action against the debtor or against the debtor’s property. The automatic stay also prevents any threat to take collection action such as the threat to terminate utilities. In a Chapter 13 bankruptcy, a bankruptcy also automatically stays further collection action or threats against the debtor’s spouse. A violation of the automatic stay may subject the association to sanctions by the bankruptcy court.

3. Does the association have any chance of collecting assessments if the owner files a Chapter 7 bankruptcy?

   The chance of collecting assessments in a Chapter 7 bankruptcy is not as good as in a Chapter 13 bankruptcy proceeding. A Chapter 7 bankruptcy is known as a “liquidation”. In other words, the debtor liquidates or sells all of his other assets to satisfy his debts. In most cases, there are not sufficient assets to satisfy the debtor’s obligations to creditors. The typical Chapter 7 involves a debtor who turns over his or her property to the Chapter 7 Trustee, who takes over control and possession of the debtor’s property. The trustee will then typically abandon the debtor’s property to the creditors. Once the debtor’s property is abandoned, any creditor with an interest in the property may then take collection action against the property. Usually this means foreclosure of the first mortgage by the first mortgagee. The rarer case is where the debtor retains the property, continues to pay his or her mortgage and pays the assessments. Each account should be evaluated on an individual basis to determine the viability of collection efforts for that particular situation.

4. What are the association’s chances of collecting assessments if the owner files a Chapter 13 bankruptcy?

   A Chapter 13 bankruptcy, also known as a “wage earners repayment plan”, should, in most cases (although there are no guarantees), eventually result in an association recouping all past-due assessments, as well as collecting current amounts as they come due. Under a Chapter 13 bankruptcy, the debtor sets up a payment plan administered through the bankruptcy trustee. The payment plan is designed to allow the debtor to pay off all secured, pre-petition debts (those debts incurred prior to the date of bankruptcy) over a three to five year period. Once the plan is approved by the court, the trustee will begin disbursing payments to secured creditors in the order of priority (tax liens and administrative claims are paid first). Subsequent to the court’s approval of the payment plan, the association should begin receiving periodic payments from the trustee. These payments from the trustee must be applied towards the pre-petition assessments and not to the post-petition assessments. The association should also begin receiving payments directly from the debtor. These payments should be applied towards the post-petition assessments. Once the plan is completed, the association should be paid in full, typically with interest.

5. If a delinquent owner files bankruptcy, are they required to keep current on assessments?

   Generally, yes. An owner filing Chapter 13 is required to keep current on all post-petition assessments. An owner filing Chapter 7 is also required to keep current on all post-petition assessments.

6. When can the association expect to begin receiving payments after an owner files bankruptcy?

   Even though an owner files for bankruptcy, the owner is still required to timely pay any assessments which become due after the date of the bankruptcy filing (the “post-petition assessments”). The association is entitled to receive post-petition assessments as they become due. With respect to the assessments which became due prior to the date of bankruptcy filing (the “pre-petition assessments”), the time period of when the association should expect to begin receiving payments, if at all, will depend on whether the owner filed Chapter 7 or a Chapter 13 bankruptcy petition. If the owner filed a Chapter 7 bankruptcy petition, the association should not expect to receive any payments towards the pre-petition assessments. If the owner filed a Chapter 13 bankruptcy proceeding, the association should expect to begin receiving payments from the Chapter 13 trustee to be applied to the pre-petition assessments as soon as the Chapter 13 plan is approved by the bankruptcy court and the debtor begins making payments into the plan. Generally, a plan is not approved for several months after the date the bankruptcy petition is filed. In some cases, it may take up to a year before a plan is approved.

7. What can an association do if the debtor does not keep current on the payment of assessments coming due after filing for bankruptcy?

   If a debtor fails to stay current on assessments coming due after the date of the filing of bankruptcy (the “post-petition assessments”), the association can ask the bankruptcy court to lift the automatic stay in order to allow it to continue with collection activity. This request is made by a written motion usually entitled a “Motion to Lift Stay”. The court will conduct a hearing on the motion, unless the motion is unopposed or unless the parties can agree to a resolution of the post-petition delinquency. Because bankruptcy courts are courts of equity, the bankruptcy court judges will typically not lift the stay unless the debtor is at least six (6) months delinquent in the payment of post-petition assessments. Even then, the bankruptcy court judge will typically allow a debtor an opportunity to cure post-petition delinquencies before lifting the stay. Given this, we generally attempt to reach an agreement whereby the automatic stay is modified to allow the association to foreclose without further bankruptcy court approval if the debtor defaults under a court-approved payment plan. This court-approved payment plan is set forth in a document entitled “Agreed Order”.

8. How many times can an owner file bankruptcy?

   There is no specific limit to the number of times an owner may file bankruptcy. We often see debtors make repeated bankruptcy filings, typically immediately preceding a scheduled foreclosure sale. Many times these debtors have no intention of carrying out the terms of their bankruptcy obligations. Invariably, the debtor’s bankruptcy is dismissed, which allows creditors to restart collection action. If a debtor repeatedly files bankruptcy and fails to comply with the bankruptcy requirements, the trustee or a creditor may ask the court to dismiss the bankruptcy “with prejudice”. If a bankruptcy is dismissed with prejudice, the debtor will be prevented from refiling bankruptcy for a period of time, usually 180 days. This will give creditors sufficient time to foreclose their liens if they so choose.

9. Can the association restart collection if the debtor’s bankruptcy has been dismissed?

   Yes. Normal collection action can continue. If a long period has passed since the association last took collection action, it may be wise to resend a demand letter, revise the lien or take other collection action before proceeding with foreclosure. Upon dismissal, we will restart the account on our on-line system at the point we believe is appropriate for that particular account.

10. What can the association do if the debtor’s bankruptcy is discharged?

    If the debtor still owns the unit or lot, the association can pursue foreclosure of its lien. Keep in mind that a discharge only relieves the debtor of the personal obligation to pay the assessments, but does not extinguish the association’s assessment lien. While the association cannot demand payment of assessments which have been discharged in bankruptcy, it can pursue foreclosure of its lien. Upon receipt of a discharge, we will reset the account on the on-line system back to the beginning stage of collection. If you would like for us to proceed with collection action, you will be prompted to authorize us to send a demand letter.

Foreclosure Questions

1. What is the process for a foreclosure?
   1. Collection Letter. The first step in the foreclosure process is to prepare a collection letter to the owner of the property pursuant to the collection policy of the association. This is normally done when the owner of the property is two months delinquent with their maintenance fees. By law, we are required to give the owner thirty days from the date the owner receives our letter in which to dispute the debt we claim is due the association. If the owner disputes the debt, we must provide verification of the debt (usually by providing a copy of the owner’s account statement) within thirty days of the owner’s request. No further collection action may be taken until the verification is provided. Once the verification is provided, the association may continue with collection.
   2. Title Check. The next step is to verify ownership of the property before proceeding with filing a notice of lien against the owner’s property. This is done through a title check on the property. Depending on the county, a title check can take up to two weeks to perform. If the title check shows an additional owner or a different owner, the law requires that we send a collection letter to the additional/new owner and allow the same thirty days to dispute the debt before proceeding further.
   3. Notice of Lien. If the title check confirms ownership, we will prepare and record with the county recorder a notice of lien. Preparation of a lien will be pursuant to the collection policy of the association. Usually, a lien is placed on a property after the owner is ninety days delinquent. At the same time, we will send a second collection letter to the owner with a copy of the lien giving the owner thirty days in which to cure the delinquency.
   4. Law Suit Stage. Should the owner fail to cure the debt owed to the association, we will request authority to begin foreclosure against the delinquent owner(s). Again, this will be done pursuant to the collection policy of the association. Most associations begin this process after the owner is five months delinquent with their assessments. It should be noted, however, that most condominium documents allow foreclosure after the owner is ten days delinquent and most homeowner association documents allow foreclosure after the owner is thirty days delinquent. This will require written authority from the board. Once the foreclosure lawsuit is prepared, it will be filed with the court in the county in which the property is located.
   5. Service of Lawsuit. Once it is filed, the lawsuit must be legally served on a delinquent owner (the defendant). Once it is served, the defendant must file an answer with the court within twenty-eight days of the date of service.
   6. Default Judgment/Summary Judgment. If the defendant fails to respond to the lawsuit, we will prepare and file a default judgment with the court. In most cases, but not all cases, the judgment will include a judgment for the assessments including all costs of collection and a judgment for foreclosure of the association’s lien. If the defendant timely answers the lawsuit, we will typically request the defendant to contact us regarding settlement. If settlement cannot be reached, we will prepare and file a motion for summary judgment. This motion is served on the defendant (or his attorney) and is decided by the judge. The defendant may respond to the motion in writing setting forth the basis for non-payment or challenging the legality of the charges. If the association prevails, the judge will enter a final judgment for assessments and related charges and for foreclosure of the property. If the court denies the summary judgment motion, the court will set the matter for trial.
   7. Order of Sale. We will then request that the court issue an order of sale, which is forwarded to the sheriff for execution. The sheriff will publish a notice of the foreclosure sale as required by law. Once the requisite notices have been published, the sheriff will sell the defendants property to satisfy the judgment. The highest bidder at sale will acquire title to the property. Bidding of the property will generally start at two-thirds of the appraised value of the property. The defendant will have the right to redeem the property for a period of three days after the date the property is sold at sheriff’s sale.
2. Can an association foreclose if the only delinquency is late charges?

   Yes, provided the association’s governing documents provide that late charges may be assessed against a delinquent owner and that late charges are part of the association’s assessment lien.

3. What happens if no one bids on the property at the foreclosure sale?

   Generally, this will not happen. If there is a mortgage on the property, the bank will bid up to what it is currently due on the mortgage. The bank will generally not bid beyond that amount. On rare occasions, nobody has placed a bid on the property. Should that occur, the association would have to reorder the sheriff’s sale in an attempt to obtain a purchaser.

4. If a first lien holder forecloses, what happens to the association’s assessment lien?

   A foreclosure by a first lien holder will be superior to the association’s assessment lien. Therefore, an association will only receive proceeds from the sale of the property if there remain funds available after the first lien holder’s lien is satisfied. The purchaser at a foreclosure sale will be obligated to pay assessments from and after the date the title is recorded in the purchaser’s name. Any assessments owed prior to this date will be the obligation of the former delinquent owner. Whether it is economically viable to pursue collection against the former owner is dependent upon the circumstances of that particular case. To pursue collection against the former owner, the association must file a law suit against the former owner for a personal judgment.

5. How long is the association’s lien valid?

   There is a common misconception that an assessment lien is enforceable forever – that if the association simply files a lien with the county recorder it will be valid (and must be paid) if the owner ever sells or refinances his property. Unfortunately, this is not correct. A lien is generally only enforceable for five years from the date it is filed. To avoid time barred from enforcing the lien, the association should file suit to enforce its lien or to seek a personal judgment within five years from the date the lien is filed.

General Collection Questions

1. Must an association accept an owner’s partial payment?

   No. The association does not have to accept a partial payment from an owner. This, however, will depend on the particular circumstances of the case. Should the association enter into a payment plan arrangement with the debtor, partial payment would be acceptable under those circumstances. In other circumstances, however, the association might want to ensure complete payment by accepting nothing less than payment in full. Particularly in the case where the owner is chronically delinquent with his assessments. In any case where the association accepts partial payment from an owner, the association should place a restrictive endorsement on the back of the check. The endorsement should read “to be paid on account towards a balance of (enter current balance) as of (enter current date)”. This will have the effect of keeping track of all payments as well as preventing the owner from claiming that the check submitted to the association was payment in full. However, in any case where the owner claims that the check is payment in full and it is clearly delinquent, the association should not accept that check by any means.

2. Can the association accept post-dated checks?

   Yes, but the association should advise the owner in writing no more than ten business days and no less than three business days prior to cashing the check that it intends to do so. Failure to do so may be a violation of federal law.

3. How much does it cost to take a particular action?

   Almost all our collection actions are based upon a fixed fee which we will bill at the time the collection action is taken. This allows the association and its manager, if any, to predict the costs associated with the collection activity as well as to timely post the attorney’s fees to the delinquent owners account. Our on-line system reflects current attorney’s fees and costs incurred for each account. Before providing pay-off information to an owner or a title company, please contact our office to ensure that all attorney’s fees and costs have been included in the pay-off. A schedule of our fees will be provided upon request. We have two schedules – one for association’s who are part of our Alternate Service Plan and the other for the association’s who have opted not to take advantage of this plan. This plan includes fixed reduced costs for all collection efforts as well as reduced hourly rates. It also includes free phone calls no longer than fifteen minutes in length, free quarterly seminars for board members and free monthly newsletters from our firm. Please contact our office should you wish to receive a copy of the Alternate Service Plan and its benefits for consideration for your association.