The lifeblood of all types of property owners associations (POAs) is the collection of monthly, quarterly, or annual assessments. Assessments pay for things such as common area maintenance and insurance, amenities like pools, gyms and tennis courts and other responsibilities covered by the POA, so when an owner fails to pay their assessment, it is imperative for the POA to pursue collection actions. While the collection process is clear through federal and state laws, it does not come without its pitfalls that can disrupt or prevent the collection of delinquent assessments.
Notice
A common pitfall that creates issues for many POAs is not following the statutory notice requirements to pursue collection actions correctly.
Some POAs may provide owners with a courtesy notice before beginning the legally mandated requirements. These notices are not to be confused with the notices required by law after the Board votes to send delinquent owners to the POA’s attorney for collections.
The next step in the process is the demand letter (also known as the 209 letter for single-family and townhome associations governed by Chapter 209 of the Texas Property Code). The requirements for the letter are outlined in Sec. 209.0064 of the Texas Property Code. This letter gives the delinquent owner 45 days to remit payment or enter into a payment plan before the home may transition to the foreclosure process.
If the owner fails to cure the delinquency or enter into a payment plan after the 209 letter is sent, the notice process continues by turning over the account to the POA’s legal counsel and having counsel send a delinquent owner the debt validation notice as required by Regulation F of the Fair Debt Collection Practices Act (FDCPA). This notice outlines the debt that is owed, provides instructions to dispute the debt and provides the delinquent owner 40 days to remit payment or enter a payment plan.
Pitfalls can arise with notices by board members or community managers misunderstanding the legal process that must take place. The courtesy notice discussed at the top of this section does not take the place of the notices required by statute. Also, while the time period in place for owners to remit payment is a minimum required by law, failure to take action in a reasonable time period after the statute required deadline can result in the process having to begin again due to further accumulation of charges.
Statute of Limitations
Another common pitfall we see through the delinquent assessment collection process is POAs taking lengthy periods of time to pursue collection action. While this is often done with the best of intentions to provide the owner opportunities to remit payment, it can also risk pushing the collection process past the statute of limitations. In Texas, the statute of limitations for the collection of delinquent assessments is four years. This means, since it is 2025, POAs are unable to pursue delinquent assessments that were charged prior to 2021.
This is why it is imperative for Boards to follow the timelines laid out by law and take decisive action on most delinquent assessments.
Bankruptcy
A situation where the Board would not want to act quickly is in the case of a delinquent homeowner filing for bankruptcy. Once notified that the homeowner is in bankruptcy, either before or after turning the file over to the attorney, the Board should immediately cease all direct communication with the homeowner related to their account.
Any type of communication with the owner discussing the collection account, including phone calls, emails, or letters, risks violating the automatic stay set forth by the Federal Bankruptcy Code. This is often caused by auto generated letters, status updates or 209 letters.
A violation of the automatic stay may result in a lawsuit against the POA where the POA could be liable for actual damages to the delinquent owner that includes costs and attorney’s fees.
While the need to act efficiently on the collection of delinquent assessments is important, should the word bankruptcy pop up, it is time to slow down and get the POA’s attorney involved to prevent liability arising for the Association. If you would like more information on the bankruptcy process, please see this article from Clint Brown.
Conclusion
The process for the collection of delinquent assessments does not always move as quickly as many board members would like. The Board is doing its duty to all owners by ensuring the delinquent assessments are collected in a timely manner, but the Board needs to be cautious. The pitfalls we discussed, and others, can arise at anytime potentially bringing chaos to the process. That is why it is important for the Board and community managers to rely upon their legal counsel who can help you steer away from the pitfalls in the collection process.
