Arizona Practical Questions Answered

System Arizona 10 January 2012 Hits: 4720

Practical Questions Answered

The information contained in the “Practical Questions Answered” is for informational purposes only and does not constitute specific legal advice or substitute for specific legal counsel. Readers should not act upon this information without seeking professional legal counsel. Please do not hesitate to contact Ekmark & Ekmark at 480-922-9292 with any further questions on these issues.

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Delinquent Assessments

To write off or not to write off? That is the question many associations are asking when it comes to past due balances of former owners who have been foreclosed upon.

We often hear clients saying they are “writing” off the debt after an owner has been foreclosed upon. But what does this mean and how is this impacting associations? In following up with clients about this, we have learned the term “writing off” has different meanings to different associations. Some use this term to mean the association is taking such debt off its account receivables list but may still try to collect it. Others are actually writing off that debt from the standpoint of an actual loss with a decision never to pursue the debt.

Before making a determination to never try to pursue the debt of a delinquent owner, associations should consider the following factors: 1) The association has six years from the date the debt originally arose to file suit against that former owner for the full balance owed; 2) The amount of the delinquency as of the bank foreclosure; 3) Type of debt (i.e., assessments, late fees, fines); 4) Whether the former owner is in state or out of state; 5) Whether that former owner presently owns any other local property; 6) Whether the former owner is an individual, LLC, corporate entity, trust; 7) Whether the association has already obtained a judgment or whether a suit is pending as of the bank foreclosure; 8) Whether the former owner filed bankruptcy and if so, what was the outcome; 9) Whether the former owner received a discharge of their debts and if so, when was that bankruptcy filed versus when they actually lost the house; and 10) Whether there are any tax implications associated with writing off the debt (a CPA should be consulted for this).

Keep in mind that while an association may take the debt of former owners off its books from an accounts receivable standpoint, it does not necessarily mean it should give up efforts to try to recover on an already obtained judgment or to obtain a judgment when appropriate circumstances exist. Post-judgment collections, such as earnings, bank or rent garnishments are effective tools to collect on money judgments. Such judgments are valid for 5 years and can (and should) be renewed. Therefore, while the present likelihood of recovery against a former owner may seem bleak, there does not have to be a rush to collect.

In fact, we have been advising clients to wait 6 months, 18 months, 2 years, etc. before trying to actually collect on a judgment. This gap in activity does not negatively impact the validity of the judgment. Waiting to collect can be the most prudent course of action, as during that gap in time 1) The former owner may buy another property; 2) The former owner may return to Arizona after moving away; 3) The former owner may become gainfully employed after a period of unemployment or reduced wages; and/or 4) The former owner might have built up the checking/savings account. In other circumstances, though, immediate post-judgment collection is the way to go.

As proof that waiting works, such strategy has actually paid off (literally and figuratively) for a number of our clients. A 2008 judgment was recently collected via rent garnishment. An early 2010 judgment was recently collected (in excess of $15,000.00) via a bank garnishment. These clients were patient in their collection efforts, following our advice to wait and pursue when we finally obtained information that would indicate such efforts would be successful.

For more information about smart collection strategies, feel free to contact Penny Koepke at 480-922-9292.

The information contained in this Homeowners Association Tip is for informational purposes only and is not specific legal advice or a substitute for specific legal counsel. Readers should not act upon this information without seeking professional counsel.