When a homeowner in a Homeowner association has not paid their fees, the HOA has several options to collect the money. The HOA can sue in small claims court, pursue a lien and foreclosure on the property, or get a judgment against the property owner. In other articles, we went over liens, foreclosure, and small claims court. Now we’ll outline the pros and cons pf using judgment against a property owner and how the process works.
A judgment is a way to collect against a person. Some HOAs choose judgment over a lien because it does not require additional steps. A judgment is enforceable as soon as it is in place. However, after the lien is filed, further actions must be taken to make the lien enforceable. Many associations have reported this exact problem – they win and get a judgment, but then have no way to collect payment. However, liens and judgments aren’t exclusive. You can file a lien and pursue a judgment at the same time. Some boards find this covers all of their bases, though it requires more of their lawyers’ time.
Pros and Cons of Using a Judgement
Broadly, the downside of an HOA using judgment is that there is no guarantee. With a lien, since it is filed against the property, foreclosure to pay the debt can occur. The property is sold, and money from the sale pays off the fees owed by the homeowner. Some actions can be taken against an individual, such as garnishing wages or freezing their bank account. But usually, the HOA winds up using a debt collector to go after payment, which again, is less of a guarantee the HOA will see the money. It can be very slow and expensive.
Attorneys also report that collection rates on judgments are meager. The board has to hire a debt collector, which can take time. The debt collector might not recover anything, and the debt collector may also take 25-50 percent of the money recovered. The judgment will harm the homeowner’s credit rating, which some boards find appealing. However, dinging a homeowner’s credit doesn’t pay what is owed to the association. Foreclosure on a property through a lien guarantees some money will go towards the debt.
The benefit of pursuing the judgment route over a lien is the effectiveness. There isn’t an additional step before payment is required. With a lien, a foreclosure needs to occur, and often be ordered by a court. With a judgment, the court has to approve that there is money owed to the homeowner’s association by the homeowner.
Of course, there are many details on liens and judgments that vary significantly by state. Some states automatically attach a personal judgment when a lien is granted. An HOA can file a judgment against a property in other states, which turns it into a lien. There are so many different combinations that states have; this would be an excellent time to consult the association’s attorney.
Another option is to get a confessional judgment. A confessional judgment has the owner sign an agreement to stop collection. The confessional judgment contains a settlement agreement for the debt. The owner agrees that if they fail to meet the settlement, a judgment can be filed against them.
Process of Getting a Judgement
The process of getting a judgment is much more straightforward than getting a foreclosure granted. The natural process is one reason it can appeal to HOA boards.
Exactly how an HOA can get a judgment also varies by state. Usually, the association goes to the court with evidence that fees are owed to them. They must also notify the homeowner that they have notified the court and provide any supporting documentation. After the homeowner receives the notification, they can dispute the claim and ask for a hearing. If the homeowner does not show to the hearing, or if the association wins, a judgment is given against the property owner. Often the judgment also includes the association’s court fees and attorney costs.
While receiving a judgment against a homeowner is more comfortable, it is less likely to give the HOA the best results – payment of the debt owed by the property owner. A lien is more often used to go after fees owed because it is attached to the property and not an individual. Some states automatically apply a lien to the property if the owner has a judgment against them for HOA fees. But some don’t. If you decide to use judgment as to your collection method, consulting an attorney will make sure you know what your options are.