Community Associations Must Keep Their Ledgers Accurately

In any business it is imperative that proper Accounts Receivable ledgers be maintained, and this is especially important for community associations.   It should be a simple task as every month, quarter, or year an amount is due and when its paid the ledger goes down to zero.  Not too much math involved here, and when a unit owner is paying on time it’s quite simple.  Yet, what happens when a unit goes delinquent, or when payments come in on an irregular basis and the ledger is not kept properly?  That I can answer in one word, and that would be “trouble.”

In Florida, keeping community association ledgers is a tricky business due to the “statutory order of payment application.”  Both in 718.116 and 720.3085 a very specific hierarchy is established for how payments are to be applied.  It’s not as simple as the oldest amount in arrears gets paid before newer amounts when money comes in.  Any funds received must be applied in a special manner, and here I quote from the statutes:

“Any payment received by an association must be applied first to any interest accrued by the association, then to any administrative late fee, then to any costs and reasonable attorney’s fees incurred in collection, and then to the delinquent assessment.”

So what does this mean and how are payments supposed to be applied?  Let’s say a unit owner is delinquent one month for the amount of $300.00 and the association properly added late fees of $25.00 and late interest of $4.50 ($25.00 per month  and 18% per year and as are required by the association’s governing documents).  So the amount owing for the past due month is now $329.50. When the next month comes around and if  the delinquent owner sends in a check for $600.00 to cover his current month and the late month how should this money be applied. Well in this case the the law is very clear in that $29.50 is applied to the late fees and late interest, and $571.50 is applied to the maintenance fees for the two months.

Interest can only be charged on the principal amounts of delinquent maintenance fees (never on late fees or other interest) and therefore next month the owner owes $300.00 for current maintenance fees, $29.50 for delinquent maintenance fees, and $25.00 for being late and .44 cents for interest (charged only on the delinquent portion of the delinquent maintenance fee amount).

Now, this may seem like a trivial matter, but should the association wish to make a proper legal demand, or even foreclose on this unit the amount demanded must be accurate and in accordance of the law.  In a case coming out of the Fourth District Court of Appeal (CONNIE YANG and FRANK ROMEO v. SEBASTIAN LAKES CONDOMINIUM) the court found in favor of the unit owners citing that “the association could not verify the amounts due.”  This was a very expensive lesson for this association and I am quite sure that the board is now insisting that records be better kept.  Don’t let this happen to your association and know the law and double check the math on delinquent unit ledgers.