January 17, 2023 | James C. Turffs
As long as managed communities have existed, there have been owners who just will not pay their assessments. Whether they forget, cannot afford it, or simply choose not to, the association ends up having to fight to get the money that is owed. The Florida Statutes provide options when it comes time to collect, including filing a lawsuit against the owner in small claims court seeking to obtain a money judgment, or alternatively, the recording of a lien and foreclosure of the property. Many associations do not want to get involved in the lien foreclosure of a unit, mostly when the association does not want to take title to the unit and become a “landlord;” and/or there is a superior mortgage encumbering the unit. Below, I will describe some of the considerations a Board should think about when deciding, instead, to pursue a small claims case.
If you are unfamiliar with small claims lawsuits, the process is pretty straightforward. An owner falls behind, and the association and its attorney send the requisite collection letters. Even if the association does not plan to foreclose a lien, we also recommend that the lien be recorded so that it is “of record” and protects the association. If the owner still does not pay what is owed, the association can have the attorney file the small claims case in lieu of a lien foreclosure. After the suit is filed, the court sets a date that the association’s attorney and the homeowner must show up at the courthouse. Some courts still do this virtually, some have gone back to in-person. On that day, if both parties show, the parties are asked to mediate the dispute. As for mediation, that process has the attorney and owner sit in a small room with a court-provided mediator (i.e. the mediator is free of charge), and try to work out a payment plan or some sort of deal that resolves the non-payment problem. In Florida, small claims court can handle claims up to $8,000.00. I have certainly seen cases where owners owe more than that, but generally speaking most owners who just owe for assessments usually do not owe more than that jurisdictional amount, so I am going to focus on sub-$8,000.00 cases here. As long as the debt is less than $8,000.00, an association can file a small claims lawsuit seeking a money judgment against the owner to recover the debt, interest and late fees (if applicable), and almost always the bulk of the attorney’s fees and costs of the lawsuit.
Aside from small claims cases being less expensive than other options, they have a very high rate of collection for most associations. Sometimes, it is enough that the owner is served with the lawsuit by a deputy or process server. That can be pretty intimidating, and we frequently see homeowners call immediately after being served to satisfy the debt. Most commonly, however, small claims cases are resolved by mediation. Reaching an agreement through small claims mediation is voluntary, both parties must agree on the deal, but the parties can consider all sorts of different payment plans and other options, such as waiving certain fees, or extending repayment over a longer period of time. Assessments themselves cannot be waived, but other amounts can be negotiated. Mediation is flexible, and that flexibility allows the parties to reach a mutual agreement – and whenever both parties agree to a deal, compliance becomes much more likely.
If a small claims case is not resolved by voluntary payment or mediation, the next most common outcome is that the owner simply ignores the case, and the association obtains a default judgment against the owner without much additional effort. The least likely outcome for a small claims case seems to be actually going to a final hearing (or trial), but that really is very rare when it comes to assessment disputes. It is pretty hard for someone to argue that they paid their assessments if they have not actually done so.
So, if small claims cases are fast, cheap, and almost always result in a positive outcome for the association, why would you ever consider doing anything else, you may ask. In those small number of cases that do not settle, the final judgments can be sort of toothless. Let us think of a case where an owner just ignores the lawsuit, and the association obtains a judgment against them for the entire debt, including fees, costs, interest, etc. What next? The association will have the option of trying to go through the judgment collection process, which involves compelling the owner to disclose their bank accounts, real estate holdings, etc., to see if the association can garnish their wages or otherwise force the owner to pay on the judgment. The problem is that the judgment collection process can be long, expensive, and at the end of the day, the owner may just not have the ability to pay or to be garnished. We call that sort of owner “judgment proof.” However, the judgment is recorded state-wide, and may affect the homeowners’ credit, causing the homeowner to seek to pay off the judgment when, for example, they cannot get approved for a car loan. If nothing else, the judgment being recorded means the judgment is “of record.” This will safeguard the association so that the debt is paid off if/when the unit sells.
To boil that all down, small claims cases provide a great method for negotiating a settlement and collecting back assessments without spending an arm and a leg. However, there are going to be a small number of cases where even if the association obtains a final judgment against the owner, the debt remains unpaid, but “of record.”
There is no one size fits all rule when deciding whether to go through small claims or the foreclosure process. All available factors have to be considered, such as the owner’s payment history, value of the debt, perceived ability of the owner to pay the amount owed, value of the property itself, and potentially many other such considerations. For a small enough debt, with an owner that has never been behind before, and has the perceived ability to pay – small claims may be your best option.
James C. Turffs is an associate attorney with the law firm of Porges, Hamlin, Knowles & Hawk, and practices in the areas of civil litigation and community association law.