Managing Financially
Distressed Communities
In Pennsylvania
Neil M. Hilkert, Esquire and Mary Ann Mulfino, CMCA
Reidenbach
& Associates, LLC
Financially Challenging Times
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We are in financially challenging times and no person, business or condominium
association is immune from the effects of our distressed economy.
Community associations have seen an explosion of economic related issues in
recent months adversely affecting the operation of their association.
Associations have unit owners failing to pay monthly assessments and increased
unit foreclosure filings and budgetary issues are the main contributors to the
Associations economic downfall.
Association boards can mitigate the effects of the primary financial issues in a
distressed economy with the assistance and guidance of professionals –
management and legal.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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How the Problems Begin…
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Usually when the progress in the development slows, claims against the
Declarant mount from a number of parties including vendors, the
municipality, lenders and unit owners.
This creates and exacerbates financial and other stresses on the
Declarant, the development, the Board and the Unit Owners.
Frequently, the situation turns into a chain reaction causing problems in:
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collection of assessments;
increased rental of units;
financing for the purchase of a unit;
the refinancing by unit owners; and
frequently a decline in unit values.
When the financial viability of the development and its completion is in
jeopardy, available alternatives can be employed but all include a certain
level of liability and risk of the Declarant and unit owners.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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What are the Primary Causes?
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Unemployment
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Illness
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Lack of understanding regarding obligations to Association
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Developers unable to complete build-out
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Decreasing equity in homes → foreclosure
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Static income with increasing fees (aging communities)
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THE ECONOMY
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Sales Have Slowed
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The sale of units in a condominium or planned community have
slowed significantly in the past several years.
The real estate market decline has resulted in the inability of some
developers to sell units to prospective homeowners that were not sold
through pre-construction sales efforts, resulting in partially completed
projects because of the financial challenges faced by the
developer/Declarant.
When all units have not been sold, there is a negative impact on both
the Declarant and the Unit Owners in the community.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Impact of Failed or Incomplete Project
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Another consideration for the Unit Owners residing in the planned community,
and the degree of impact the failed or incomplete project will have depends on
whether transition of control from declarant/developer to Association has
occurred.
If transition has occurred, the unit’s owners through their elected Executive
Board are now managing the day-to-day operations of the Association but the
project may still be incomplete with units to be built, sold and amenities to be
completed.
Even when transition has occurred, the unit owners face many challenges in
satisfactorily completing the project as originally planned.
The best interests of the unit owners are further jeopardized when the Declarant
has filed for bankruptcy protection, is being foreclosed upon by its lender or is
in Receivership.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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See §3302 and §5302
Adopt and amend bylaws, rules and regulations, budgets and collect
assessments
Institute, defend or intervene in litigation.
Enter into contracts and incur liabilities.
Regulate the use, maintenance, repair, replacement and modification of
common elements.
Grant easements, leases, licenses and concessions through or over the common
elements.
Impose and receive any payments, fees or charges for the use, rental or
operation of the common elements.
Impose charges for late payment of assessments.
Impose reasonable charges for preparation and recordation of amendments to
the declaration, 3407/5407 resale certifications or statements of unpaid
assessments.
Impose a capital improvement fee, but no other fees, on the resale or transfer
of units.
Provide for the indemnification of its officers and executive board and maintain
directors’ and officers’ liability insurance.
Assign its right to future income, including the right to receive the payments
made on account of common expense assessments (except reserve funds).
Exercise all other powers that may be exercised by legal entities of the same type
as the association.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
Powers of the Association
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The Declarant
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The Pennsylvania Uniform Condominium Act (the “UCA”) and the Pennsylvania
Uniform Planned Community Act (the “UPCA”) collectively (the “Acts”) provides
that the condominium or planned community, collectively (the “Association(s)”) is
created when the developer (the “Declarant”) complies with the Acts in creating
and recording a declaration (the “Declaration”).
The Act also provides that the control and management of the development
transitions from Declarant to Association control when a specific number of units,
typically 75%, are completed and sold to homeowners.
If the Declarant cannot sell to prospective homeowners, the completion of the
development itself and rights of the unit owners are stymied.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Special Declarant Rights
Rights reserved of the benefit of the Declarant - §3103 and §5103
• Protect the rights and property value of the Declarant
• Divide a Unit into 2 or more units.
• Maintain office(s) signs and model.
• Make the community subject to a Master Association.
• Appoint or remove an officer or a board member during the period of
Declarant control.
• Use Easements through the common facilities or controlled facilities for the
purpose of making improvements within the planned community.
• Special Declarant Rights are a commodity that can be sold, divided or shared.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Special Declarant Rights
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A Declarant has specially enumerated rights it can reserve which are provided
for in the Acts (see §3103 and §5103) called Special Declarant Rights (the
“SDR”).
The SDR allows the Declarant to manage and control the Development in a
manner unavailable to the owner of any single unit.
The SDR bolsters the Declarant’s ability to complete the development and to
conduct a sales program whether during Declarant’s Control or after
termination of Declarant Control.
The SDR can also be transferred and any successor to the Declarant could be
subject to some, none or all of the SDR, depending on the agreement reached
between the Declarant and the successor.
The document transferring SDR must specify which rights are being
transferred, and whether any are being retained by the original declarant, or
being shared.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Special Declarant Rights cont’d …
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A transferor is not relieved of its liabilities or warranties for its prior
acts and, so long as it is unaffiliated with the transferee, it does not
assume the risk for the transferee’s acts.
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Special rules apply for units or additional real estate purchased at a
foreclosure sale or via bankruptcy, and for lenders in possession.
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A purchaser via bankruptcy or foreclosure may request and receive all
SDR of the original declarant, or only the rights to sell and market units.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Liabilities and Obligations of
Successors
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A successor to any SDR who is/isn’t an affiliate of Declarant is subject to all
obligations and liabilities imposed on the transferor.
Until transferring, all SDRs to any person acquiring title to any unit owned by the
successor or until recording an instrument permitting exercise of all those rights.
So long as a successor declarant may not exercise SDRs under the subsection he is
not subject to any liability or obligation as a Declarant other than the successor’s
acts or omissions.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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In a case where Declarant’s construction loan mortgagee, foreclosing upon
Declarant would typically include in the petition for relief the request for
the deed to contain the selected SDR to be transferred.
An alternative available to the mortgagee, successor Declarant, is to simply
act as custodian rather than assuming SDRs and thereby avoid liability of a
Declarant.
In this scenario the mortgagee might foreclose and take over Declarant’s
development and remaining units with the intent to sell them and pay
down the mortgage debt while carefully avoiding liability as a Declarant
pursuant to the Acts.
While certain rights might be retained by the Declarant because of the very
limited rights acquired by the successor whether a mortgagee or other
party, the retention of those rights by the original Declarant does not
necessarily result in the obligations of the Declarant being satisfied and the
needs of the development and its unit owners met.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
Successor Declarant May Chose Which
SDRs It Will Accept
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Another scenario that could unfold is the Declarant deciding to terminate the development
and its Association.
If less than twenty percent (20%) of the Units have been sold, the Declarant can terminate
the Association since it has the requisite number of votes to control the outcome.
Should the Declarant pursue termination the Association property would revert to a fee
simple estate.
Each minority unit owner would have the right to occupy the portion of the real estate that
formerly was defined as the unit purchased.
If the Declarant terminated the Association, unit owners could claim damages for the
Declarant’s failure to proceed with a sales program as described in the Public Offering
Statement.
Realistically speaking, a claim(s) against the Declarant could be difficult to pursue and
realize any beneficial outcome.
Instead of termination the Declarant could postpone the completion of the development
and sale of units.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
Another Scenario…
A lengthy postponement could result in the expiration of Declarant control and association
decision making and operation could be jeopardized if transition has not occurred.
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The auction or fire sale of units appears as another alternative for the Declarant
or successor.
The sale of property in an auction or fire sale while possibly accomplishing the
objective of the Declarant or the mortgagee in a foreclosure of raising funds
while limiting or reducing costs, it can negatively impact existing Unit Owners.
These sales can result in the destruction of value of the existing units.
The distress sale can cause the homeowner to suffer an almost immediate loss
of value on paper.
However, it can be argued that a market bottom for the unit(s) might be finally
established by the sale with the opportunity for unit prices to stabilize.
It is also important to remember that unlike a successor to the Declarant, a
purchaser usually takes none of the duties and responsibilities of the Declarant
and the character of the development could be substantially changed when
incomplete units are constructed with fewer features, lower cost materials and
possibly a change is design.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
Auction or Fire Sale of Units
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In light of all the possible options that could unfold in the distressed
development, perhaps the best option, other than a workout with the
Declarant, would be Receivership.
In the case of Receivership, the lender has the right by statute and as provided
in the mortgagee loan documents to institute a receivership proceeding
following a material default of the development loan terms and conditions.
A Receivership is a court supervised proceeding which involves the hiring of a
receiver to take control of the properties of the Declarant borrower.
Under this option, the lender incurs additional costs resulting from the court’s
supervision, receiver’s charges, and in engaging new vendors to complete the
project and sell the units.
The lender however, avoids the expense of foreclosure or a bankruptcy by the
Declarant and never takes on the responsibility of a successor Declarant and
therefore avoids liability as such.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
Receivership
Typically, the receiver has some expertise in completing the development and
the sale of units thereby maintaining as much value as possible for the lender
which can also inure to the benefit of unit owners.
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Declarant Experiencing Financial
Difficulties
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When the Declarant is experiencing financial difficulties that
could impact the completion of the development all
stakeholders need to understand the available options and the
pros and cons of each.
The Declarant, successor Declarant, Declarant’s mortgagee, the
Association, the individual Unit Owners all have a substantial
financial interest in completing the project.
Frequently, the path to resolution is long, tedious, and usually
results negatively on the value of the investment for the existing
unit owners and the business success of the Declarant.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Common Causes of Financial Distress
1.
Failure to Make Building Repairs
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Failure to Maintain Reasonable Reserves
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Failure to Adopt Necessary Special Assessments
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Failure to Review Association Financial Budgets
5.
Failure to Promptly Collect Assessments
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Failure to Make Building Repairs
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Associations tend to delay approving necessary expenditures for
building maintenance and/or necessary building repairs due to the
financial hardship it will impose upon unit owners in financial distress.
Failing to promptly make building repairs exposes the association to
emergency expenses and increased repair costs.
The board has a fiduciary obligation to all unit owners to maintain,
repair and, if necessary, replace the common elements of the building
and must fulfill that obligation regardless of the condition of the
economy.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Failure to Maintain Reasonable Reserves
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One of the most common mistake the association make during difficult
financial times is to freeze contributions to the reserve fund.
Associations do not raise assessments or adopt special assessments in order to
maintain reasonable reserves.
Under Sections 3314(a), 3320(7), and 3407(a)(4-7) of the Pennsylvania Uniform
Condominium Act (the “Act”), and 5314(a), 5320(7), and 5407(a)(4-7) of the
Pennsylvania Uniform Planned Community Act (the “Community Act”) the
board is required to maintain reasonable reserves for the association.
Budgets should always contain a line item for reasonable contributions to a
reserve fund.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Keeping the Association Budget reasonable
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Seek alternate forms of income to keep the fee from increasing
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Bid out necessary services aggressively and appropriately
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Find vendors who will work with the Association to allow for cash flow
requirements
Reduce costs without affecting value or safety (energy efficiency or
alternative providers, mulch schedules, bulk purchasing, etc.)
Is the reserve under-funded with the need to perform needed capital
replacements> potential for loan options.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Failure to Adopt Necessary Special
Assessments
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Associations are typically reluctant to adopt special assessments during
financially difficult times.
It is a mistake to delay implementing special assessments for necessary
building maintenance and/or repairs due to the financial burden it will
impose on its unit owners.
If the association's reserves are low or non-existent, and the need for a large
capital repair project exists, special assessments should be adopted, despite
the financial times.
Under Sections 3307(a), 3314(c) (§5307(a) & §5314 (c)) of the Acts, the board
has the authority to repair, replace or restore the common elements and to
adopt special assessments, if needed.
Empathizing with unit owners in financially difficult times, will create a
domino effect of financially difficult times for the association.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Failure to Review Association Financial
Statements
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It is necessary to review monthly financial statements to ensure the
association’s funds are being handled correctly and that the association
is fiscally sound.
Responsibility for the economic welfare of the association rests with the
Board.
The Board should be vigilant about reviewing the association's monthly
financial statements.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Collection Assessments
In assessment collections, the goal should always be
to recover all costs and attorneys fees incurred by
the association, as well as the assessments, interests
and late fees, using the clear entitlement to such
collection under the state law and most governing
documents.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Failure to Promptly Collect Overdue
Assessments
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A common mistake made by the association during difficult financial times, is
to provide unit owners extra time to pay their assessments.
Giving unit owners extra time to pay their assessments creates an association in
financial distress.
When the association does not get paid in a timely manner by the unit owners,
the association’s financial obligations also do not get paid in a timely manner.
Collection policies should be enacted for delinquent assessments where legal
action commences 60 days after assessments are past due.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Foreclosures By Mortgagee
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Contractual Obligation of Unit
Owners
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At the time of closing, when an individual purchases a condominium unit, he assents
to the terms and conditions contained in the condominium/planned community
documents.
The condominium/planned community documents created the arrangement.
Each unit owner is a member of the association.
The unit owners, as members of the association, elect an executive board which, among
other things, is in charge of collecting the assessments, either voluntarily or by legal
means.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Breach of Contract Action Against Unit
Owner
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Since the unit owner assents to the terms and conditions contained in the
condominium documents, the association may file a breach of contract action
against the unit owner.
Usually, the documents stipulate the unit owner must reimburse the association
for the attorneys’ fees and costs associated with collecting unpaid assessments.
Under a breach of contract theory the association sues the unit owner personally
and does not directly attack the unit owner’s interest in the unit itself.
This is a good way to obtain a Judgment against the delinquent unit owner.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Foreclosure Action Against the Unit
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Under Section 3315 of the UCA (§5315 UPCA), the association has the
right to foreclose on the unit owner’s lien in a mortgage foreclosure
action.
Section 3315/5315 of the Acts provides that so long as the condominium
association records the condominium declaration, the association has an
unavoidable statutory lien for the unpaid assessments.
The purpose of the lien is to secure payment of the past due
assessments.
Similar to the attorneys’ fee provision contained in the condominium
documents, Section 3315 (§5315) specifically provides the association
with the right to reimbursement for attorneys’ fees and costs incurred in
the foreclosure action.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Foreclosure Case Example
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In Gateway Towers Condominium Association v. Krohn, (Super. Ct. 2004), after failing to
pay the monthly condominium fees assessed to the unit owner’s unit for several
months, the association filed a mortgage foreclosure complaint under Section
3315/5315 of the Acts.
The unit owner did not dispute that he failed to pay the assessments and he did not
contest the amount of the assessments therefore, the trial court granted the
association’s Motion for Summary Judgment and the unit owner filed an appeal to
the Pennsylvania Superior Court.
As part of his appeal, the unit owner argued the parties had contractually agreed that
arrearages in assessments could only be resolved by a lawsuit of assumpsit (contract
action), which by implication, precluded commencement of the mortgage foreclosure
proceedings.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Foreclosure Case Example cont…
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The Superior Court continued to note that nothing in the language of the
condominium documents restricted the form of relief the association could take
to recover unpaid assessments.
The Superior Court ultimately concluded the provision of the condominium
documents allowing the association to bring a breach of contract action to
recover unpaid assessments did not preclude the association from commencing
a mortgage foreclosure proceeding.
In other words, although the association has the right to proceed against the
unit owner through a breach of contract action, the association lawfully could
also exercise its statutory right to foreclose on the lien provided by the Acts.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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When to Write Off Bad Debt?
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FHA statutory requirements→15% delinquent over 60 days.
Bankruptcy was discharged or foreclosure action completed and no
personal assets.
Work with your auditor and attorney on the decision to write-off and
make sure your Board makes a formal resolution to adopt.
Ask the question – can you sell your Association’s debt to a third party
for a lump sum (portion of the debt balance).
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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UCA§ 3315 (UPCA§5315)
Lien for Assessments Defined
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The association has a lien on a unit for any assessment levied against that unit or fines
imposed against its unit owner from the time the assessment or fine becomes due.
The association's lien may be foreclosed in like manner as a mortgage on real estate.
A judicial or other sale of the unit in execution of a common element lien or any other
lien shall not affect the lien of a mortgage thereon,
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except the mortgage for which the sale is being held, if the mortgage is or shall be prior to all
other liens upon the same property except those liens identified in 42 Pa.C.S. § 8152(a)
(relating to judicial sale as affecting lien of mortgage) and liens for condominium assessments
created under this section.
Unless the declaration otherwise provides, fees, charges, late charges, fines and
interest charged and reasonable costs and expenses of the association, including legal
fees, incurred in connection with collection of any sums due the association by the
unit owner or enforcement of the provisions of the declaration, bylaws, rules or
regulations against the unit owner are enforceable as assessments under this section.
If an assessment is payable in installments and one or more installments is not paid
when due, the entire outstanding balance of the assessment becomes effective as a lien
from the due date of the delinquent installment.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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PRIORITY OF LIEN
(A) GENERAL RULE - A lien under this section is prior to all other liens and
encumbrances on a unit except:
i.
Liens and encumbrances recorded before the recordation of the declaration.
ii.
(a) Mortgages and deeds of trust on the unit securing first mortgage holders
and recorded before the due date of the assessment, if the assessment is not
payable in installments, or the due date of the unpaid installment, if the
assessment is payable in installments.
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iii.
Judgments obtained for obligations secured by mortgages or deeds of trust under clause (A).
Liens for real estate taxes and other governmental assessments or charges
against the unit.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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PRIORITY OF LIEN
(2) LIMITED NONDIVESTITURE - The association's lien for assessments shall be
divested by a judicial sale of the unit:
i.
As to unpaid common expense assessments made under sections 3314(b)/5314(b)
(relating to assessments for common expenses) that come due during the six
months immediately preceding the date of a judicial sale of a unit in an action to
enforce collection of a lien against a unit.
ii.
As to unpaid common expense assessments made under sections 3314(b)/5314(b)
other than the six months assessment referred to in subparagraph (i), in the full
amount of these unpaid assessments, whether or not the proceeds of the judicial
sale are adequate to pay these assessments.
iii.
To the extent the proceeds of the sale are sufficient to pay some or all of these
additional assessments, after satisfaction in full of the costs of the judicial sale, and
the liens and encumbrances of the types described in paragraph (1) and the unpaid
common expense assessments that come due during the six-month period
described in subparagraph (i), they shall be paid before any remaining proceeds
may be paid to any other claimant, including the prior owner of the unit.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Monetary Exemption
The lien is not subject to the provisions of 42 Pa.C.S. § 8123 (relating to general
monetary exemption).
(C) NOTICE AND PERFECTION OF LIEN - Subject to the provisions of
subsection (b), recording of the declaration constitutes record notice and
perfection of the lien.
(D) LIMITATION OF ACTIONS - A lien for unpaid assessments is extinguished
unless proceedings to enforce the lien are instituted within three years after the
assessments become payable.
(E) OTHER REMEDIES PRESERVED - Nothing in this section shall be construed
to prohibit actions or suits to recover sums for which subsection (a) creates a
lien or to prohibit an association from taking a deed in lieu of foreclosure.
(F) COSTS AND ATTORNEY'S FEES - A judgment or decree in any action or suit
brought under this section shall include costs and reasonable attorney's fees for
the prevailing party.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Monetary Exemption
(G) STATEMENT OF UNPAID ASSESSMENTS - The association shall
furnish to a unit owner upon written request a recordable statement
setting forth the amount of unpaid assessments currently levied against
his unit and any credits of surplus in favor of his unit pursuant to
section 3313 (relating to surplus funds). The statement shall be furnished
within ten business days after receipt of the request and is binding on
the association, the executive board and every unit owner.
(H) APPLICATION OF PAYMENTS - Unless the declaration otherwise
provides, any payment received by an association in connection with the
lien under this section shall be applied first to any interest accrued by
the association, then to any late fee, then to any costs and reasonable
attorney fees incurred by the association in collection or enforcement
and then to the delinquent assessment. The foregoing shall be
applicable, notwithstanding any restrictive endorsement, designation or
instructions placed on or accompanying a payment.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
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Recap of What Managers Can Do
During Financially Distressed Times
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Educate the Board to adopt a consistently enforced collection policy.
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Educate the community about their obligations and the result of non-payment.
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Pursue all delinquencies as soon as they occur and in keeping with the adopted
policy and the Fair Debt Act requirements.
Work with owners on payment plans wherever possible – in writing with a
consequence for failure to perform.
Work with legal counsel on collection cases to determine collectability (asset searches,
rent garnishments, chattel sales, freezing accounts).
Protect the Association’s right to collect – if not now, then in the future.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
38
Cont’d Recap of What Managers Can Do
During Financially Distressed Times
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Understand bankruptcy law and options. When can you file for relief?
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If the unit is vacant – can you pursue a rent receivership?
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Foreclosure – make certain to get the statutory 6 months. Can you ask for
more?
When should the Association foreclose? Stop the bleeding and at what cost.
Does the Association offer an amnesty program? Delinquent homeowners pay
the delinquent fees in a specified amount of time and late fees/legal costs are
waived.
Know your options for collection when the Unit Owner is in Bankruptcy.
MANAGING FINANCIALLY DISTRESSED COMMUNITIES IN PENNSYLVANIA
Neil M. Hilkert & Mary Ann Mulfino
39