This article provides an overview of important provisions and issues to be considered in modernizing condominium governing documents in order to streamline the collection of delinquent assessments.
Assessment collection is critical to the efficient operation of a condominium. Governing documents play an important part in the collection process by establishing a condominium association’s collection authority and collection procedures. Therefore, it is important that governing documents clearly define procedures and comply with current laws. Some collection procedures in governing documents are outdated or lack specificity. For example, governing documents often afford broad discretion to directors and management, permitting them to set interest rates, late fees, and apply acceleration. While such provisions can provide flexibility in administration, they can also create additional work and risk inconsistent application.
Modernizing governing documents to clarify and update collection provisions can provide continuity and consistent application for owners, directors, and management. Below are some provisions and issues that should be considered when modernizing governing documents for the purpose of streamlining assessment collections.
Some governing documents use formulas to calculate assessments, including, for example, to address shared utilities or units of varying types and sizes. Such formulas can be complicated and sometimes result in assessments being calculated and collected incorrectly. An association should review any assessment calculation methods in its governing documents and attempt to clarify or correct any ambiguities or errors so as to foster simplicity and avoid miscalculations.
Interest & Late Fees
Associations should consider updating governing documents to include clearly defined interest rates and late fees, consistent with state law.
In D.C., after payment is 15 days late, interest can be charged from the due date at either 10% per year or the maximum first mortgage loan rate in D.C., whichever is less. D.C. Code §§ 42–1903.12(e).
In Maryland, interest can be charged from the due date at up to 18% per year, or less if specified in the governing documents. Md. Ann. Code, Real Property (“RP”) § 11-110(e)(1). In Maryland, bylaws can also impose a one-time late charge of $15 or 10% of a delinquent assessment, whichever is greater, after 15 days. RP § 11-110(e)(2).
In Virginia, after 60 days a late fee can be charged in an amount equal to the penalty for unpaid taxes, currently 5%. Va. Code §§ 55-79.83 & 58.1-3915. In Virginia, 6% interest from the due date can also be recovered for sums secured by a lien. VA Code §§ 55-79.84 & 6.2-301.
Most governing documents provide for a yearly assessment to be paid in monthly installments and permit an association to accelerate the entire remaining annual assessment following nonpayment of an installment. Associations should consider updating governing documents to include clear acceleration provisions that specify when an annual assessment will be accelerated, consistent with applicable laws.
In D.C., governing documents can provide for acceleration after one unpaid installment, which can be mandatory or at the option of the association, board, or manager. D.C. Code § 42–1903.12 (d).
In Maryland, a declaration or bylaws can provide for acceleration after one unpaid installment, but only if the association notifies an owner within 15 days of nonpayment that if not paid in 15 more days, the entire annual assessment will become due and constitute a lien on their unit. RP § 11-110(e)(3).
The Virginia Condominium Act does not specifically address acceleration.
D.C., Maryland, and Virginia associations can lien condominium units for unpaid assessments. D.C. Code §42-1903.13; Md. Ann. Code RP § 11-110(d). Va. Code § 55-79.84. Maryland’s highest court recently held, however, that governing documents alone are ineffective to create a lien unless an association complies with the procedures in the Maryland Contract Lien Act. Select Portfolio Servicing, Inc. v. Saddlebrook West Utility Company, LLC, 455 Md. 313 (2017); RP § 14–201 et seq. Therefore, governing documents should be updated to specify when and how unpaid assessments constitute a lien on a unit consistent with applicable laws, including, in Maryland, the Maryland Contract Lien Act.
The above is intended as an overview. Each individual condominium association will need to consider its community’s particular circumstances, needs, and location when contemplating modernizing collections provisions in governing documents.
By Stanford L. Kimmel III, ESQ.
Stanford is a Maryland attorney and partner in the law firm Cowie & Mott, P.A., and has been practicing community association law for more than 10 years. Cowie & Mott, P.A. provides Maryland and D.C. community associations with comprehensive legal services and advice on a range of matters, including governance, contracts, litigation, and assessment collection.