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Recent Case: Application Of Payments
In a recent case of ours, the association brought suit against an owner for the nonpayment of her assessments. Late fees were added to the account as permitted by the declaration. After several months of delinquency, the owner began submitting regular monthly payments, but failed to pay the delinquent balance.
The governing documents are silent as to the application of payments once an account becomes delinquent, so the management company applied payments to oldest outstanding debt first. This method of payment application resulted in a continual monthly delinquency for the homeowner and additional late fees. The Defendant’s attorney argued at trial that, because the governing documents are silent on the issue of payment application, her payments should be applied to the current month and late fees would not be permitted. The association, through counsel at HindmanSanchez, argued that the management company had properly applied the payments under Colorado law. The judge agreed, citing several cases, and concluding that it is well established Colorado law that if a debtor makes no designation as to how payment is to be applied, the creditor may apply the payment to the debt in any way desired.
In this case, because the governing documents are silent and because the homeowner made no instruction as to how the payments should be applied, the court ruled that the association, as the creditor, had the right to apply the payment to the oldest matured debt first. Regardless of the outcome of this case, we strongly recommend that an association include in its required SB 100 collection policy how payments will be applied.
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