ABC’s of Collections From Procedure to Foreclosure

1. ABC’s of CollectionsFrom Procedure to Foreclosure Shaun Cranford Cranford Law shaun@cranfordlawfirm.com

2. Introduction • Shaun Cranford • Cranford Law • Practice dedicated to representing Community and Homeowners Associations • Licensed in North and South Carolina

3. Overview • Importance of Assessments • Board Collection Policies • Demand Letters • Notice of Lien • Money Judgment • Foreclosure • Bankruptcy • Other Issues for Consideration • Questions

4. Assessments • Assessments are the life blood of an Association • Governing Documents or the South Carolina Horizontal Property Act give an Association the Power to Collect Assessments • Board has a Duty to Collect Assessments

5. Assessments • Do governing documents require approval of Budget by members? • Failure to notify is not a defense. • Waiver of Use of Common Elements does not eliminate Owners Obligation to Pay. • Owner may not withhold Assessments to Force Association to Act.

6. Collection Policy • Collection problems are compounded when an Association does not have a policy and procedure for collecting Delinquent Assessments • Authority from Governing Documents • The Association has the right to levy and collect assessments • The Association has the right to promulgate rules and regulations

7. Collection Policy • Policy Should be Adopted by Board and Provided to All Members • Adopt by Resolution • Policy must be applied Uniformly • Policy should give management and Attorney authority to act

8. Collection Policy • Sample Outline of Collection Policy • Management or Board Sends Demand Letter when account becomes Delinquent by 30 Days • Letter gives 30 days for Owner to Pay • Late Fees and Interest Rate shall be applied • Fees and Interest may be set by Governing Documents • If payment is not received; Account is turned over to Attorney for Collections

9. Collection Policy • Attorney may send a Demand Letter on Behalf of Association • If payment is not received within 15 to 30 days Attorney will File Lien • Suspension of Privileges • Access to Unit or Grounds? • Charges by Management for Collections

10. Collection Policy • Attorney Files Lien • If payment is not received within 30 days attorney may proceed with Foreclosure of Lien • Attorney may Foreclose Lien • Foreclosure should be considered on a case by case basis • Confidentiality!!!

11. Two Options for Assessment Collection • Lawsuit against Delinquent owner for Breach of Promise to Pay • Generally filed in Small Claims Court • If successful the Court will issue a Judgment • Judgment will be filed in Judgment Rolls of the County and attach to Owner’s Property • Assignment of Rents or the use of a Receiver. • Filing and Foreclosure of Assessment Lien

12. What is a Lien? • Created the moment an Owner is Delinquent • A Notice of Lien is Filed by the Association’s Attorney • Filed with the Register of Deeds • Puts all on Notice that Owner owes a sum of money to the Association

13. Assessment Liens • Notice of Lien • A Lien is essentially a claim on the Owner’s Unit or Property to Secure the Debt owed to the Association • Who should file a Lien? • What Should be Included on the Lien • Association Name • Attorney’s Address • Debtors Name • Property Information • Amount of Debt (Assessments, Late Fees, Cost, Fees)

14. Assessment Lien • Notice • A copy of the Lien must be provided to Owner • Use All known Addresses • Priority of Liens • First in Right; First in Time • Purchase Money Mortgage • Previously Filed Judgments • No Super Lien in South Carolina

15. Money Judgment • Magistrate Court v. Circuit Court • Summons and Complaint • Answer • Discovery • Hearing • Judgment (Default Judgment) • Transcript of Judgment

16. Foreclosing Assessment Lien • Foreclosure will result in either the Association taking Title to the Property or the Lien being paid. • Foreclosure should be evaluated on a case by case basis • Balance Due • Is the property Mortgaged • What is the value of the property • Taxes

17. Foreclosure Process • Title Search • Lis Pendens • Summons and Complaint • Answer • Master in Equity or Special Referee • Hearing • Sale • Deed

18. Bankruptcy • Stay of Collection Proceedings • Chapter 13 • Protection for 3 to 5 years • Debtor makes monthly payments to Trustee who distributes to Creditors • If a plan is confirmed, the Association will be repaid in full including interest, costs and assessments • Association must review Chapter 13 plan to ensure that it is a Creditor and that it will be repaid • If Debtor fails to pay Trustee; Creditor may ask Court to dismiss Bankruptcy.

19. Other Issues for Consideration • Fair Debt Collection Practices Act • The Act Prohibits the Following: • Harassing Calls • Threats • Making False Statements • Threatening Legal Action that is Not Intended • Association is not a Debt Collector • Manager • Conform to FDCPA

20. Practice of Law? • Case pending in Charleston County • An injunction was issued by the SC Supreme Court prohibiting Managers from filing liens and appearing in Magistrates Court • Plaintiff, Rogers Townsend and Thomas argued that the preparation and filing of liens is the practice of law • Important case to monitor as managers.

21. QUESTIONS? Shaun W. Cranford CRANFORD LAW 803-779-6444 shaun@cranfordlawfirm.com