When a condominium or homeowner board faces a financial crisis from unpaid assessments, the effects can be devastating. Property values can drop and services cut. Trying to collect assessments can be confusing, frustrating and expensive.
Understandably, many associations turn to law firms for help with collections. But good legal counsel doesn’t come cheap. Here’s an idea of what an association can expect in fees associated with the legal collection process:
• Flat rates for standard collection letters, pre-lien notices, title searches and other “point, click, and print documents”
• Monthly monitoring charges for review of files
• Monthly reporting charges for producing a status report of delinquent units for clients
• Hourly billing rates that typically range from $225 to $450 per hour for answering bank foreclosure complaints (when the association is named in a complaint), drafting and filing foreclosure complaints, representing the association when foreclosure defenses are raised, etc.
• Expenses and costs for photocopies, envelopes, labels, postage, filing fees, travel expense and other ancillary fees
Some estimate that the average legal cost for foreclosing on a unit is $4,200. With foreclosure, an association can also lose the opportunity to collect all the outstanding maintenance fees, which can be an even greater amount.
When the average delinquency rates exceeded 30 percent in Florida in 2008, LM Funding was created to buy debt held by associations. By using LM Funding, associations got a much-needed infusion of cash and a better way of collecting late dues than when they foreclose on owners who fall behind on their association payments.
At the Cypress Fairway condominium development in Orlando, the association’s regular law firm was collecting the delinquent accounts, costing both unit owners and the association a lot of money. The association ended 2009 with just $1,000 in its account, said Orlando property manager Bonnie Jordan, who worked with that association.
“They charged their hourly billing. Every time they would look at something from the courts, they billed us,” Jordan said. “Just monitoring cost a fortune.”
In 2010, Cypress Fairway sold its newer delinquencies to LM Funding. LM Funding paid the association about 80 percent of the value of the collectible debt up front and later paid more as it collected more. The change gave Cypress Fairway a much-needed infusion of cash and ended its flood of legal bills. LM Funding was able to reduce the association’s bad debt from about $867,000 to $627,000 in the first year.