1.            Collection Policies--the “Do’s”

a)             The importance of having a collection policy

i)               avoidance of liability

ii)             uniformity of application

iii)            lessening the chance of letting a debtor fall through the cracks

iv)           maximizing the amounts collected

b)             Recommended collection procedure:

i)               Send a polite letter at the first missed assessment

ii)             Send a more strongly worded letter at the second missed assessment

iii)            Send a letter advising the matter is being turned over to the attorney in 10 days at the third missed assessment

iv)           Send the file to your attorney

a)             FHA/VA/FHLMC policies

b)             why I don’t recommend having the attorney send his own pre-lien demand letter

2.              Avoiding Liability--The “Dont’s”

a)             Don’t post the names on a billboard at the project

b)             Dont get personally involved--let the professionals handle it

c)              Don’t pursue out of spite/anger/revenge, etc.

d)             Don’t play favorites--treat everybody equally

e)             Don’t forget that the debtor is your neighbor

3.              Fair Debt Collection Practices Acts

a)             Federal and Michigan Acts are essentially the same

b)             Applies to “debt collectors:” those who collect debts for another

i)               Managing agents

ii)             Attorneys

c)              Certain prohibited acts:

i)               Calling between 8 pm and 8 am and any other time when the debt collector should know debtor does not want calls

ii)             Calling at work

iii)            Any false or misleading statement--“stupidest debtor” standard

iv)           Collecting a debt not owed

d)             Certain mandated disclosures

i)               Name of creditor

ii)             Name of original creditor if different

iii)            amount of debt

iv)           right to dispute debt

v)             right to verification of debt

e)             Damages and Relief

i)               Statutory damages of $1,000

ii)             Actual, proved damages

iii)            Costs and actual attorney fees

iv)           class actions

f)              Your professional should not, in my opinion, ask you to indemnify them from costs or damages they incur as a result of their violation of the FDCPA

4.              Bankruptcy

a)             Remember:  creditors lose.  The object in bankruptcy is to minimize your losses.

b)             The Automatic Stay

i)               The mere filing of a bankruptcy case under any chapter operates as an injunction prohibiting creditors from taking any action to collect a debt, either against the debtor or against property of the debtor

a)             No demand letters

b)             No termination of privileges/services

c)              No recording of liens

d)             No lawsuits

e)             Stops lawsuits currently pending

ii)             Actions taken subsequent to the filing of the case are void and will be set aside by the court.  Notice is not required.

iii)            A “willful” violation of the automatic stay will result in the assessment of actual damages, sanctions, and costs and attorney fees.

c)              The “Chapters”

i)               7--straight liquidation.  Non-exempt assets owned on the date of filing are liquidated and the proceeds paid to unsecured creditors.  The debtor receives a discharge from liability for the debts.

a)             Liens survive bankruptcy

b)             Exemption in real property is $15,000 per debtor.

c)              Liability for post-petition assessments is tied to occupancy:  the debtor is liable for post-petition assessments only to the extent that the debtor actually occupies the unit, or to the extent that the debtor rents the unit and actually receives rent paid.

ii)             11--the “Wealthy” debtors.  ordinarily for businesses, but can be used by individuals who have more than the limits on debt in chapter 13.

iii)            12--Family Farmer reorganization.  It is theoretically possible for farmland to be placed into a condominium but I have not seen it yet.

iv)           13--Wage earners plan.  The debtor keeps his property, but devotes his future income stream over the course of the next 3 to 5 years to payment of the debts existing on the date of filing.

a)             The Plan

(1)           Sets forth how the debtor plans to treat his debts.

(2)           should provide for payment of both the arrears existing on the date of filing together with the future assessments as they fall due.

(3)           Confirmation of the Plan

b)             Post-confirmation issues:

(1)           Post-confirmation defaults are common

(2)           changes in the amount of the assessment

d)             The importance of being a secured creditor

i)               Liens survive a chapter 7

ii)             secured claims must be paid not less than the equity in the property in a chapter 13

iii)            claims secured only by the debtor’s principal residence cannot be modified and must be paid in full.

iv)           unsecured claims are usually paid NOTHING in a chapter 7 and can be paid as little as $0.01 on the dollar in a chapter 11 or 13.

5.              Late Charges

a)             Written policy, provided in advance to membership

b)             Reasonable

c)              FDCPA considerations

d)             Late fees as a negotiating point

e)             Late fees should not be counted on as income in preparing the association’s budget

6.              Costs and Attorney fees

a)             the “American” Rule

i)               Condominiums have a statutory exception--narrowly defined

b)             Mediation sanctions

c)              Impossibility of recovering every dime of attorney fees

7.              Condominiums

a)             Priority of lien

b)             Foreclosure by advertisement vs foreclosure by judicial action

i)               time frames

ii)             costs

iii)            why I don’t recommend foreclosure by advertisement

c)              Small claims lawsuits/lawsuits for money judgments

d)             termination of services/privileges

8.              Homeowner Associations

a)             NO statutory framework from which to proceed

b)             Relatively ambiguous documents/declarations

c)              Lien rights

9.              Cooperatives

a)             NO statutory framework

b)             Summons and complaint for non-payment of “carrying charges”

c)              Usually enough shareholder’s equity in shares of the corporation to pay any unpaid carrying charges.

Steve Sowell is a licensed attorney practicing real estate law in Mt. Clemens, MI.  For the past 14 years, he has represented over 175 condominium, homeowner, and cooperative associations.  He has lectured for both CAI-National and CAI-Michigan on community association topics.  He has published 5 articles, three of which dealt with community association issues.  He provided testimony before the National Bankruptcy Review Commission regarding the “fairness to condominiums and cooperatives” provision of the United States Bankruptcy Code.  He served on the Michigan Bar committee which recently proposed extensive amendments to the Michigan Condominium Act.  He currently serves on the Education committee of CAI-Michigan.