|July 26, 2011|
An Existing Legal Provision Provides a Cost-Effective Approach for Expediting Payment
Just like the comedian, Tim Allen on the sitcom, “Home Improvement,” who had his favorite set of tools, condominium associations now have multiple options available to them to collect on unpaid monthly condominium association fees, special assessments and/or fines and penalties imposed by homeowners’ associations.
The Legal Standby
Historically, the primary legal device used by condominium associations was the privilege and lien right granted by homeowners’ associations (hereinafter “HOA”) provided under the Louisiana Condominium Act (hereinafter the “Act”) (La. R.S. § 9:1123.115), which has typically been articulated in one form or fashion in the condominium declaration and bylaws of most condominium developments in Louisiana.
However, this tool is both time consuming and costly as it relates to attorney fees and court costs balanced with the likelihood of recovery. In most cases, the lien is subordinate to at least a first, and in many cases, a second mortgage encumbering the property. Even if the lien is properly perfected by the association and pursued in a lawsuit, it will be subordinate to any existing encumbrances, which makes collection of any judgment and enforcement of the HOA lien problematic.
Furthermore, the notice and lien must be sent seven days in advance of the actual filing of the lien and then every 90 days or so, a new notice and lien would have to be filed. The legislature amended the Act in 2006 and thereafter in 2011 to allow HOAs to accelerate one year of condo minimum fees in advance, if the unit owner had failed to pay three months out of the past eight-month period. Again, this device requires filing a lawsuit, obtaining a judgment in recognition of the HOA lien, and then seizing the unit or any other assets to collect and satisfy the judgment.
An Existing Provision Provides a New Approach
The Act has had since 1988, a provision, which until recently was often overlooked as a collection tool. That provision is set forth in La. R.S. § 9:1123.102(11) which provides in full as follows:
“Subject to the provisions of the declaration, the Association, even if unincorporated, may:
. . .
“(11) Impose charges for later payment of assessments and after notice an opportunity to be heard, levy reasonable fines for violations of the declaration, bylaws and rules and regulations of the association and, when the violation is a failure to pay for services, interrupt those services until the violation has ceased.”
HOAs have now started using this provision as a cost-effective approach to expedite payment. After proper notice to the unit owner and/or occupant and a hearing, HOAs have been cutting off common services to the unit to try and facilitate payment of past-due fees and to encourage timely payment of condominium fees on a going-forward basis. This process has been effective from both a timing and cost standpoint so long as the unit is occupied by either the unit owner and/or a tenant. With the occupancy of the unit, the cutoff of common services such as water, electricity, cable, access, and parking has a real and immediate impact. However, without occupancy of the unit, the cessation of common services has no real effect.
What Common Services Can Be Terminated?
The issue has arisen as to what common services can and cannot be terminated by the HOA after notice and a hearing. Louisiana case law is very limited in addressing this issue, especially to the extent any of the common services relate to life-safety matters. A couple of cases provide some direction:
In Wagner v. Fairway Villas Condo. Associates, Inc., 2001-0734 (La. App. 3 Cir. 3/13/02), 813 So. 2d 512, writ denied, 2002-1492 (La. 9/20/02), 825 So. 2d 1174, the association cut off the water to several condominium unit owners. The owners tried to obtain injunctive relief saying it was an abuse of the association’s rights. The court found that the resort owner’s predominant motive for cutting off the water was unit owners’ failure to pay for the water or to agree to a new water provision contract and that this motive was legitimate.
In Parker v. Chimneywood Homeowners’ Ass’n, Inc., 2002-2475 (La. App. 4 Cir. 12/17/03), 866 So. 2d 289, writ denied, 2004-0202 (La. 9/3/04), 982 So. 2d 606, the Louisiana Fourth Circuit Court of Appeal upheld the right of the homeowners’ association to elect to terminate the water supply to a resident’s condominium following the failure of the resident to pay assessments as required by the bylaws. Although there was specific language in the condominium associations’ bylaws to allow for the termination of water in the event of non-payment of fees in excess of $500.00, the provisions of La. R.S. § 9:1123.102(11) specifically supports this action.
It is also clear that eviction of the unit owner for non-payment of association fees under this provision is not a remedy available to the HOA, as stated by the Louisiana Fourth Circuit Court of Appeal in Regency Park Townhome Cond. Ass’n, Inc. v. Roche, 98-0045 (La. App. 4 Cir. 6/17/98), 715 So. 2d 600. The Fourth Circuit made it clear that one of the remedies available to the HOA for non-payment of fees did not include eviction.
How Other States Weigh In
Outside of Louisiana, Texas has upheld the association’s right to interrupt services for non-paying unit owners, including water, gas and electricity San Antonio Villa Del Sol Homeowners Ass’n v. Miller, 761 S.W.2d 460 (Tex. App. - San Antonio, 1988). Other states have supported the termination of various utilities (i.e., water, gas and/or electricity) for non-payment of association fees and have consistently held in favor of the association. See, Towers Condo. Ass’n v. Lawrence, 1995 WL 458279 (Terr. V.I. 1995), the Territorial Court of the Virgin Islands; Bauman v. October Hill Camplot Owners’ Ass’n, 2005 WL 3112843 (Ohio App. 5 Dist. 2005); Fontaine Condo. Ass’n v. Schnacke, 496 S.E.2d 553 (Ga. App. 1998); and Frantz v. Piccadilly Place Condo Ass’n, Inc., 597 S.E.2d 354 (Ga. 2004).
The Legal Takeaway for HOAs
For HOAs, the cheapest and quickest tool for collection of unpaid condominium association fees, special assessments or fines for units occupied is the notice and termination of common services. Failing that, the traditional lien and privilege and lawsuit course of action is still available, but HOAs need to be aware that this approach has the tendency to be time consuming, more costly and much more problematic in terms of collection where there is little or no equity in the unit and/or the judgment debtor.
Please contact Randy Opotowsky for more information on Steeg Law’s Residential and Multi-Family Real Estate practice.