Article Courtesy of The Orlando Sntinel

By Mary Shanklin

Published June 13, 2011

Marta and Gary Giddens owed their homeowner association in Winter Garden a few hundred dollars in 2009 because they had failed to make several payments on their twice-yearly association dues.

Yet their final bill came to $2,000, and most of that went to lawyers for the Crown Point Springs Homeowner Association.

"The attorney fees can be the tail that ends up wagging the dog's body," said Orlando lawyer Paul Hinckley, who represented the association against the Giddens. "It does kind of work that way. The reason is that, whether the debt is $10,000 or $1,000, the attorney's fees usually run $1,500 plus the cost of filing the actions. …it behooves them to pay."

With the housing slump and recession pressing on so many home and condo owners, collecting delinquent fees for homeowner associations, or HOAs, has become big business in Florida. So big that at least one company has started buying such debt from community associations, a practice that worries at least one national HOA group.

Foreclosure-riddled Nevada has been considering caps on HOA collection costs, called "junk fees" by some lawmakers there. In Florida, the fees and legal costs can bury a delinquent homeowner so quickly that one Orlando lawyer, a state legislator, advises his clients against fighting the fees because the odds of winning are slim — and it will get expensive.

"If you fight, it's going to increase the debt," said Orlando lawyer Daren Soto, a Democratic state representative. "The homeowners think they can fight, but the problem is that the attorney's fees are going to eclipse everything. My advice to homeowners is to pay it now."

Florida leaves it up to a judge's discretion to determine what constitutes "reasonable fees" when someone sues to collect delinquent HOA dues. But the lack of a statutory cap has allowed some law firms and collection companies to charge as much as $13,000 or $14,000 in cases where the homeowner's overdue payments amounted to less than $4,000, Soto said.

If owners can't pay the mounting tab, associations often foreclose on the properties. Once that happens, a home can be in ownership limbo for months. And once it sells at a foreclosure auction, the distress-sale price further erodes the value of nearby homes or condo units.

In the Giddens' case, court records show that the Orlando-area law firm of Taylor & Carls billed the couple almost $2,000 in costs and fees plus extra charges to set up an installment plan. While the Giddens owed $100 every six months in dues, the association's lawyers charged them $175 to set up the payment plan. The couple did not respond to several attempts to contact them, but court documents, including a handwritten letter from them, detailed their legal bills.

"We feel the amount $1,970.44 is unreasonable for the $200 original HOA fee and feel the HOA acted in bad faith by not providing the opportunity to fulfill our obligation through an installment plan and expecting us to pay unreasonable attorney fees on behalf of the HOA," Marta Giddens wrote. "The HOA's attempt to foreclose over a $200 HOA fee is not only unreasonable but unnecessary."

Orlando lawyer Barbara Stage said collection fees and costs can add anywhere from $2,000 to $15,000 to a delinquent HOA debt. Stage knows the process well: In June 2005, she was delinquent on a $57 special homeowner assessment that she had questioned. When she didn't make the payment, things spiraled out of control quickly.

"They forced me into foreclosure by refusing to accept payments," said Stage, who now specializes in community-association law. "In the end, it cost me $15,000."

Law firms, Stage added, must charge for their services, for it takes time to do the research necessary to collect an HOA debt. But the system that allows those charges is sometimes abused, she added.

In Nevada, state Assemblywoman Allison Copening, D-Las Vegas, recently sponsored a bill that would have capped collection fees on delinquent homeowner-association dues.

Copening said homeowner associations need enough teeth to collect delinquent dues, so responsible owners in a neighborhood or condominium aren't forced to pay more than their share. But she accused collection agencies in her state of hitting consumers with exorbitant fees and said one of her goals was to rein in such abuses with a $3,300 fee cap.

The legislation was postponed earlier this week, however, minutes before the end of the legislative session.

With community associations averaging delinquency rates of more than 30 percent in Florida, Frank Silcox founded Tampa-based LM Funding in 2008 to buy debt held by the associations. The associations, he said, get a much-needed infusion of cash and a more expeditious way of collecting late dues than when they foreclose on owners who fall behind on their association payments.

"When we recover on an account, that's where we make our money — interest and late fees," Silcox said, adding that the average collection totals $3,000. "We have been collecting 92 percent of everything."

When a bank forecloses on a house or condo that is behind on its mortgage and also has association debt, Florida requires that the bank pay only one year's worth of back-owed dues or 1 percent of the mortgage — whichever is less. With the rash of bank repossessions in recent years, that has left many associations with years' worth of uncollected fees on foreclosed properties. Silcox said his firm often gets the full amount owed by the banks, instead of the state-set minimum, by challenging the lenders on their loan documents.

"We get the full amount on bank foreclosures nine out of 10 times," he said. "Everything you read and hear about sloppy assignments and lost chain of title, we challenge all of those and, nine times out of 10, we're getting the full amount."

At the Cypress Fairway condominium development in Orlando, the association ended 2009 with just $1,000 in its account, said Orlando property manager Bonnie Jordan, who worked with that association. At the time, the association's regular law firm was collecting the delinquent accounts, and it was costing both unit owners and the association lots of money.

"They charged their hourly billing. Every time they would look at something from the courts, they billed us," Jordan said. "Just monitoring cost a fortune."

Last year, Cypress Fairway sold its newer delinquencies to LM Funding. Jordan said LM paid the association about 80 percent of the value of the collectible debt up front and later paid more as it collected more. The change gave Cypress Fairway a much-needed infusion of cash and ended its flood of legal bills, Jordan said.

Jordan, who now helps manage the Bermuda Dunes condo association in Metrowest, said that association's bad debt has been reduced from about $867,000 to $627,000 in the year since it began working with LM Funding.

Selling off homeowner-association debt has its detractors, however.

Andrew Fortin, vice president of governmental affairs for the nonprofit Community Associations Institute, said his group is concerned about firms that purchase homeowner associations' delinquent debt because such businesses can stray into gray areas that reflect badly on an association.

"Once they've assigned that debt to someone else," Fortin said of HOAs, "there's the potential for abuse."

The institute, a collection of homeowner associations, has raised questions about collection-agency tactics.

"You hear all these horror stories: 'I got my bill and tried to go to a meeting and pay, and they wouldn't take it,' " he said. "… If someone is in financial distress, they need to immediately reach out to the HOA to work out a payment plan."