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Pedal to the Metal - Acceleration of Assessments as a Collection Tool
What does an association do about the chronic delinquent, the owner who finally pays only to become delinquent again the following payment period? Repeated dunning and legal action can impair the relationship with the owner and can cost the association time and money. And, of course, the association’s cash flow is interrupted over and over. An often overlooked association option is acceleration. Acceleration is the association’s right to declare an owner’s future assessments to be presently due and payable if certain conditions occur.
The most obvious condition is delinquent payment or non-payment of assessments. The right to accelerate is usually found in an association’s recorded declaration. A typical acceleration provision reads:
Effect of Nonpayment of Assessments If any assessment becomes delinquent, the Board, in its sole discretion, may take any or all of the following actions: . . . Accelerate all remaining assessment installments so that unpaid assessments for the remainder of the fiscal year shall be due and payable at once.
Invoking this acceleration provision allows the association to maximize the impact of its collection efforts. Instead of acting to collect first quarter assessments, then starting over to collect second quarter and so on, the association can act once and resolve the whole year’s assessments. Also, collection efforts may be completed sooner. Specifically, they may be completed before an owner in worsening financial difficulty falls into bankruptcy or foreclosure that can impair the association’s ability to collect the owner’s delinquent assessments. An additional benefit to the association is the deterrent effect on an owner who may otherwise be unimpressed with the penalty for “slow paying.”
Acceleration provisions are expressly recognized as enforceable by CCIOA - The Colorado Common Interest Ownership Act (Colorado Revised Statutes 38-33.3-316 (1)). Of course, acceleration provisions may vary. A particular provision may require a specific period of delinquency before the association may accelerate. The provision may specify the number of future assessments which may be accelerated. The above example, which allows acceleration only through the end of the current fiscal year, is typical. The interplay of notice and budget provisions should be considered. Before utilizing the acceleration option, an association should consult its Declaration for specifics, and consult its attorney.
If your association’s governing documents lack acceleration provisions, what can your association do? One solution is that the association can amend its declarations to provide for acceleration. Your attorney can advise you on the specifics of the amendment process. Another solution is to adopt a policy allowing for acceleration. CCIOA empowers an association to enact reasonable policies, so long as they do not conflict with the association’s governing documents. That is, if the documents specifically authorize or are silent regarding, but do not prohibit, acceleration than the board may adopt a policy regarding acceleration. An example of providing for acceleration by policy can be found in the provisions of Orten & Hindman’s Sample Collection Policy, available on our website by clicking here. We highly recommend that you consult with your attorney before adopting such a policy.
Your association cannot function if assessments are not timely paid. Accelerating the payment obligation of habitually-delinquent owners offers another tool to assure that those payments are received.
[PRINTER FRIENDLY VERSION]
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