How to See if your Community Association Ledgers are Right.
Just recently I posted on a social media site a discussion about your community association’s ledgers and asked if you really know that they are being maintained properly. Do you really know? I did not think that this subject would cause a lot of discussion but it has and I have been asked to elaborate and give a few pointers to board members and association managers. Once again, this may seem to be Florida specific but it pertains to all associations in all states. So here goes some humble advise.
As with anything you deal with in a community association the first thing you have to do is read the governing documents and find out a few things:
- – What is your pay period (monthly, quarterly, annual).
- – What day are your assessments due?
- – What is the grace period allowed in your governing documents.
- – Do your governing documents allow for late fees to be charged and how much are they?
- – If your governing documents do not indicate late fees do the statutes in your state default to a given amount (in Florida if your governing documents are silent then you cannot charge late fees).
- – If you do charge late fees be sure they do not exceed the amount allowed by law (Florida condos say $25.00 or 5% of the assessment amount – the association may charge the greater of).
- – Do your governing documents allow for late interest to be charged and what is that rate per year?
- – If your governing documents are silent on late interest in your state can you default to a given amount (In Florida you shall charge late interest at the rate of 18% per year). Check your local state and governing documents. My company is national and there are vast differences between states. Before we do business in a new state we do a tremendous amount of underwriting of the statutes and how governing documents are written.
- – Check documents and statutes if late interest can be charged against principal (late assessments only) or if they can be charged against the entire accounts receivable balance (Florida says only on principal).
- – Look at your state statutes and see how the payments are to be applied (in Florida 718.116 and 720.3085 state: 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.
- – Determine if your state allows for restrictive endorsements (that means if somebody writes on a check that their payment is for assessments only then you can only apply them to assessments – Arizona has restrictive endorsements but Florida does not allow for them in condos and HOAs). In Florida the law states: The foregoing is applicable notwithstanding any restrictive endorsement, designation, or instruction placed on or accompanying a payment.
This may seem like a lot of stuff to find out about but they are right there in your governing documents and state statutes, and if you need a lawyer to figure it out for you then you should consider a new career if you are a manager, or if you have taken on the responsibility to be a director on a board of an association maybe you should think about that decision again. On the other hand if you are not sure then perhaps you should spend the money and ask your attorney about state statutes and your governing documents. Considering the money you could be losing it’s a solid investment.
The next thing you should do is get hold of all of your association’s delinquent ledgers and find one or two that are only delinquent two or three months. Let’s take baby steps here as on such a short term delinquency you can see things clearly because there are not too many entries on the ledger. If you find that a ledger that is delinquent for three months is not in good order it’s a sure thing that the bigger ledgers have the same problems but only they are magnified by the volume of money that is owed and time that has elapsed.
So let’s say that you are in Florida and I have laid out all the regulations above. You can do this if you are in any other state but for this example I’m going to make the Florida ledger an example. The assumption is that the regular assessments are $300.00 a month, payable monthly on the first, and late on the 15th, and that the association has the right to charge $25.00 for late fees and 18% per year for late fees. It is the 21st day of the third month and Mr. Delequaint has not paid his bill for three months. How should the ledger look:
Month 1…….……..$300.00 Maintenance fee .
THIS IS THE LEDGER FOR MONTH TWO BEFORE THE GRACE PERIOD.
$300.00 Delinquent maintenance fee from month 1
300.00 Month 2 maintenance fees
25.00 Late fees for delinquent month 1
4.50 Late Interest for month 1
$629.50 – TOTAL OWED ON THE FIRST DAY OF THE SECOND MONTH THAT THE MAINTENANCE FEES ARE DUE.
NOW COMES THE LEDGER YOU SHOULD BE FOCUSED ON – THIS IS THE LEDGER AFTER THE GRACE PERIOD OF MONTH THREE HAS PASSED.
$600.00 Past due maintenance fees.
300.00 Month 3 maintenance fees.
75.00 Late fees for three months being delinquent.
27.00 Late interest for three months (90 day) delinquency.
$1,002.000 – TOTAL OWED… THIS IS YOUR LEDGER.
After the grace period (15 days) in the subsequent month the balance will be $1,327.00 ($300.00 assessment plus $25.00 late fee) and Mr. Delequaint should be sent into collections
This was an example of a delinquency that is not chronic and if you can see that your ledgers are not reflecting the methodology shown here you have a very big problem. If your management company tells you that late interest is added after a unit is sent into collections then by all means ask them why. If your management is not keeping your documents up to date as per your governing documents and state statutes then they are NOT doing their job properly. This is a very simple audit to do and by all means if you are the treasurer or even just a director of an association and you have not done this then you are not adhering to the fiduciary duties that are expected of you.
