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Effective Debt Collection Solutions for Associations, An Inside Look at Receiverships

08/01/2019 10:34 AM | CAI Rocky Mountain Chapter (Administrator)

By Ryan Gulick and Heather Nagle, The Receiver Group, LLC


Everyone knows of or has had that “problem property” where the homeowner just won’t stay current or pay their HOA assessments. The past-due balance is growing, and the demand letters continue to be ignored.  The property is either tenant-occupied or vacant, the yard is not cared for, the neighborhood is unhappy, and the code violations are piling up.  These circumstances are challenging and stressful for managers and their boards to work through, but did you know these properties usually fit the bill for receivership?  


In recent educational seminars on receiverships, we asked for a show of hands as to how many Community Managers in the room were familiar with homeowner association (HOA) receiverships.  The responses have been alarmingly low with approximately 20% or less raising their hands.    We understand that receivership will never be a hot topic of conversation in the breakroom, but it certainly should be in your arsenal of remedies for debt collections, when the time comes.  Although receivership is an advanced legal process, it is not complicated and can be employed in many situations for associations.  Let’s take a closer look.


Receiverships have existed for a long time, dating back to the reign of Queen Elizabeth in England and later used in America where there was need to protect the insolvent railroads during the panic of 1873.  The concept of receivers to protect and manage assets where debts are concerned is not new.    


Colorado is one of twenty-one states in the US that allow liens to be filed against properties for unpaid assessments and costs when the property is governed by a common interest association.  There are also legal remedies to collect on those liens.  The Colorado Common Interest Ownership Act (CCIOA) , article 38-33.3-316 states, “In any action by an association to collect assessments or to foreclose a lien for unpaid assessments, the court may appoint a receiver of the unit owner to collect all sums alleged to be due from the unit owner prior to or during the pending of the action. The court may order the receiver to pay any sums held by the receiver to the association.”  


What is Receivership?


Receivership arises when a court takes custody of property involved in a dispute (for our purposes, call it a debt owed to the HOA) and places it in the control of a receiver.  The court issues an order outlining the duties of the receiver and oversees all actions, ensuring the receiver remains independent, unbiased, and neutral. 

The receiver then administers or manages the property on behalf of the court until the matter is resolved or the debt is paid.  


An HOA specific receiver is appointed by the court to collect a debt by taking control of a property and collecting the rental income.  The asset must be producing income or able to produce income, such as vacant properties, for it to be a success; it cannot be owner-occupied.  As funds become available, the receiver can distribute money to the association until the amount owed is paid in full. It is possible for a homeowner to retain counsel and challenge the lawsuit; however, unless otherwise ordered by the court, or a settlement is reached, the homeowner does not get their property back until the debt is paid.  So, one can see there is a lot of incentive for a homeowner to fix their situation on their own.  A good receiver will give homeowners the opportunity to do this, if they are willing or able to.  Once the debt is satisfied, the receiver is discharged from the court and the property is released back to the homeowner.


Often, receivers do not have to enforce the full authority of the court order to be effective in satisfying the debt.  Just the mere threat of the receiver’s authority and losing the property’s rental income can bring a homeowner out of hiding to negotiate or pay in full.  Thanks to today’s strong real estate market, we have seen this scenario play out in up to 75% of recent receivership matters.  



Some key points about appointing a receiver:


Not every delinquent homeowner can be put into receivership.  It is best to consult with the association’s attorney to make sure the action is warranted.  The courts will not always appoint a receiver just because the CCIOA statute allows for it.  In recent years, the courts have made it abundantly clear that the power of their discretion overrides any entitlement an association may have under the law.  The courts would like to see associations make reasonable, if not extensive efforts, to collect a debt before asking for the appointment of a receiver.  


It is imperative to follow the association’s collection policy.  The outstanding debt should be high enough to elicit the court’s assistance, the homeowner should have a long-standing or habitual delinquency, and remember, the homeowner cannot occupy the property.  If the conditions are right, the association’s attorney can then file a lawsuit to appoint a receiver.


It is also important to make sure you’re requesting a reputable receiver with substantial experience and a good standing relationship with the courts.  The Courts appoint receivers who have proven business practices, unquestionable ethics, and specific experience in both real estate and the legal process.  Although most courts are familiar with the more active receivers, they heavily rely on the attorney to propose the best candidate.  Attorneys themselves should also have extensive experience with the process so the association is well advised throughout the matter.  Not to worry though, after the financial crises of 2008, it is rare to find an association attorney who has not appointed a receiver one time or another.  

    

There are also other inherent values to receivership, other than just debt collection.  Receivers care for properties when homeowners do not. Receivership provides a piece of mind to the community and HOA-board that a problem property is being handled.  While the debt is reduced, code violations can be cured, problem tenants removed, and neighbors more at ease 


Finally, don’t be fooled by the perceptions out there that receiverships are too extreme, too complicated, or too expensive.  Having a good receiver who understands the process and can navigate the situations efficiently will have the matter resolved quickly and with minimal harm to the homeowner and association. Let’s face it, if someone is being placed in receivership, they are not being a responsible homeowner and sometimes receivership is the only option.  There are times when even more aggressive action is needed, such as foreclosure, but don’t overlook the option of receivership as an alternative or even in conjunction with a foreclosure action.  


Receivership is an effective method for collecting debts when the more traditional methods have failed.  There is no need to remain burdened by uncollected debt if a property is the right fit for receivership, it might just be the best solution for the association.  


The Receiver Group is a professional receivership company offering equitable solutions for HOA debt collections in Colorado.  Their team has provided services for associations and their community managers for over thirteen years and are proud business partners to CAI.  You can learn more about them at www.thereceivergroup.com.

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