CMCA Assessments and Collections 3 — Questions and Answers
Question 1: What is 'super-priority lien' status for HOA assessments, and which states commonly grant it?
- A lien that supersedes all other debts including federal tax liens in every state
- A lien for a limited number of months of assessments that takes priority over a first mortgage in certain states (Correct answer)
- A lien that automatically converts unpaid dues into a mortgage
- A federal law granting HOAs priority over all creditors nationwide
Correct answer: A lien for a limited number of months of assessments that takes priority over a first mortgage in certain states
Approximately 23 states and D.C. grant HOAs a 'super-priority' for a limited months-worth of assessments that sits ahead of the first mortgage lender in a foreclosure proceeding.
Question 2: Which internal control best practice helps prevent fraud in the assessment collection process?
- Having the same employee open mail, post payments, and reconcile bank statements
- Requiring dual signatures on checks and separating the duties of billing, receiving, and reconciling (Correct answer)
- Allowing the property manager to waive late fees without board approval
- Keeping collection records only in the manager's personal files
Correct answer: Requiring dual signatures on checks and separating the duties of billing, receiving, and reconciling
Separation of duties ensures no single person controls all aspects of a financial transaction, reducing the risk of embezzlement or error.
Question 3: An owner claims they never received an assessment notice and therefore should not owe late fees. What is the association's strongest defense?
- The association must waive all fees if delivery cannot be proven
- The governing documents and state law typically impose a duty to pay regardless of notice, and the association should maintain proof of mailing (Correct answer)
- The association must resend the invoice and reset the due date
- Late fees are waived automatically if mail is returned undelivered
Correct answer: The governing documents and state law typically impose a duty to pay regardless of notice, and the association should maintain proof of mailing
Most governing documents and statutes establish that assessments are due whether or not notice is received, and maintaining records of mailed statements strengthens the association's position.
Question 4: Which scenario correctly describes 'voluntary' versus 'involuntary' lien release in HOA collections?
- Voluntary: owner pays in full and lien is released; Involuntary: a court orders lien released due to procedural defect (Correct answer)
- Voluntary: association waives the lien; Involuntary: owner pays in full
- Voluntary: lien expires by statute; Involuntary: owner refinances
- Voluntary: mortgage company pays; Involuntary: owner declares bankruptcy
Correct answer: Voluntary: owner pays in full and lien is released; Involuntary: a court orders lien released due to procedural defect
A voluntary lien release occurs when the debt is paid and the association records a satisfaction; an involuntary release can occur if a court finds the lien was improperly filed.
Question 5: Under the Fair Debt Collection Practices Act (FDCPA), which party collecting HOA assessments is most directly regulated?
- The HOA board of directors acting in their volunteer capacity
- Third-party collection agencies and attorneys hired by the association (Correct answer)
- The property management company in all circumstances
- The individual unit owners disputing their balance
Correct answer: Third-party collection agencies and attorneys hired by the association
The FDCPA primarily regulates third-party debt collectors, including collection agencies and law firms, when they collect debts on behalf of the association.
Question 6: What is the effect of 'estoppel letters' or 'resale certificates' on assessment collections at the time of a property sale?
- They permanently waive all outstanding assessments owed by the seller
- They disclose the current assessment status and typically freeze the stated balance for the closing transaction (Correct answer)
- They transfer all past-due assessments to the buyer without limitation
- They cancel the association's lien upon issuance
Correct answer: They disclose the current assessment status and typically freeze the stated balance for the closing transaction
An estoppel or resale certificate states the amounts currently owed and typically binds the association to those figures for a set period, protecting the buyer and closing process.
Question 7: When an owner disputes an assessment as improperly levied, what is the recommended course of action for the manager before escalating to legal action?
- Immediately file a lien and proceed to foreclosure
- Review the governing documents and board minutes to verify proper authorization, then communicate findings to the owner in writing (Correct answer)
- Waive the assessment to avoid conflict
- Refer the matter to law enforcement
Correct answer: Review the governing documents and board minutes to verify proper authorization, then communicate findings to the owner in writing
Verifying that the assessment was properly authorized per the governing documents and state law, then communicating this in writing, protects the association and may resolve the dispute without litigation.
CMCA Assessments and Collections 3
What is 'super-priority lien' status for HOA assessments, and which states commonly grant it?