In private, lawyers will tell you these three rules about their legal fees:
Rule #1- Never bill a client less than the client is willing to pay.
Rule #2- Never bill a client more than the client is willing to pay.
Rule #3- Clients will always pay more later.
From these simple rules have evolved three ways for collection attorneys to bill community associations. Is it time for a fourth?
Association collection attorneys contract with community associations to bill on a current hourly, deferred hourly, or contingent fee basis. With current and deferred hourly billing, the lawyer charges an hourly rate for the lawyer’s time without regard to the size of the matter or its financial outcome. Time charges can often exceed the value of the recovery in a smaller collection case. Recognizing this, lawyers will sometimes offer to defer their bill until the collection case is finished and will often reduce their fee to no more than the collected amounts. Or worse, some will defer the unpaid bill from one collection case to subsequent ones. This type of deferred billing is questionable under certain circumstances and can lead to a large bill owed to the attorney if the association ever terminates them. All Rules have consequences.
Contingency billing may prove more fair. Bar rules restrict contingency fees to 40-50% of recovery net of the attorney’s costs advanced. Theoretically, most collections from a contingency fee arrangement should result in cash to the association. But for small collection matters of under $2,000, how hard will an attorney work to make $800 when the attorney traditionally bills more than $200 an hour? Also, Florida Law imposes legal fees and collection costs upon account debtors unless the lawyer is working for a contingency fee. So, a contingency fee arrangement for association collections may violate Rule #1 because the association may be willing to pay more to get more from its collection attorney.
The insurance industry is light years ahead of other industries in the area of legal cost management. Insurance companies collect premiums, pay claims, and hire attorneys to act on behalf of their insureds to defend claims. Insurance companies know these lawyer billing rules, and they meet them by providing lawyers with high volume work, at reasonable rates, paid on a current basis, much like the traditional hourly billing model. The community association collection industry has seen companies employing the same model since 2008.
Community associations may now contract with companies like LM Funding to contain legal expenses caused by delinquent homeowners. LM Funding will contract with a community association to pay its legal fees and costs for collection matters. In exchange, LM Funding receives the proceeds from interest and late fees collected on behalf of the association. The association receives the balance of assessments collected without incurring any legal fees or costs. LM Funding pays the attorneys whatever it takes for the best collection result, the association pays what it should (nothing), and there are never surprise bills at the end of a case. Better yet, the association receives the assessments collected on each account after the collection is complete.
Just following the rules to a better way.