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You Have the Money, Now What? Top 4 Pitfalls and Common Concerns in Handling Payments from Owners

on Sep 8, 2014 - Condo & Homeowner Associations

By Cynthia Trimmer, Attorney

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What may seem like the deceivingly simple task of billing owners for assessments and collecting payments becomes muddled when statutes, conflicting case law and common sense mix with day‑to‑day business practices. These are a few issues that require special attention when processing payments from owners:

 

 

 

1) Partial Payments. In a perfect world, the association would issue an assessment notice and owners would promptly pay the full balance due. In practice, however, partial payments are a fact of life. So how do you handle these payments? Associations charge late fees, interest or both, but it is not as simple as posting payment to the overall balance. Sections 718.116(3) and 720.3085(3)(b), Florida Statutes, provide that payments must be applied first to interest, then to administrative late fees, then to costs and reasonable attorney’s fees incurred in collection and then to the delinquent assessment. Note that the mandated order does not provide for allocation toward outstanding fines or work orders.

2) Restrictive Endorsements. At some point you have likely written or encountered a check with the notation “payment in full” or words of similar import. What you may not know is that such phrases may have legal consequence for your association. Sections 718.116(3) and 720.3085(3)(b), Florida Statutes, specifically provide that payments be applied as outlined above “notwithstanding any restrictive endorsement, designation or instruction placed on or accompanying a payment.” Florida courts, however, have interpreted this provision differently. In Ocean Two Condominium Association v. Kliger, the Third District Court of Appeal ruled that associations cannot refuse any partial payments, including those with restrictive language. On August 8, 2014, the Second District Court of Appeal issued a ruling that directly contradicts Ocean Two. In St. Croix Lane Trust v. St. Croix at Pelican Marsh Condo Association, the association was deemed to have waived its right to collect the full amount due by accepting a check with a restrictive endorsement. This conflict between cases means that we do not have clear instruction on how to handle such payments in Duval, Clay, Nassau, St. Johns, Flagler and Volusia Counties until a local appellate court or the Florida Supreme Court weigh in.

3) Overpayments. Sometimes owners pay a little more than what is owed, title companies disburse too much at closing or special assessment balances are left over. How should these overpayments be handled? Conventional wisdom dictates that the owner would be entitled to a refund, but what if the owner does not request one? What happens when ownership has changed? In general, overpayments should be applied toward future charges, and assessments run with the unit rather than the individual owner. With regard to special assessments, §718.116(10), Florida Statutes, provides that funds may be used only for the specific purpose for which they were collected, but permits leftover funds to be considered common surplus that may be returned to owners or credited toward future assessments at the board’s discretion. No such provision exists in Chapter 720.

4) Adjustments. There are inevitably times when an owner’s account must be adjusted, perhaps due to human error in entering numbers, cancelling a payment returned due to insufficient funds or forwarding payments to an attorney to hold in trust for a delinquent account. Just as payments must be allocated in a specific way, so too must adjustments. If a payment is allocated to interest, late fees and costs, then the accompanying adjustment must be allocated to interest, late fees and costs in the exact same way. To post the same adjustment to principal would result in an artificially high assessment balance, leading to inflated interest, thus compromising the entire account.

It is important to regularly review your association’s policies and procedures for billing and collecting assessments with an attorney to ensure you are implementing the best practices for your community. Board members and community association leaders should also take steps to stay abreast of new court decisions and the ever-changing law governing condominium and homeowners’ associations. Members of the Ansbacher Law team lecture regularly at legal updates and board certification courses and regularly consult with clients from more than 200 condominium and homeowners’ associations on these issues.

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