CMCA Assessments and Collections 2 — Questions and Answers
Question 1: Which legal document typically establishes the association's authority to levy special assessments beyond regular monthly dues?
- State landlord-tenant law
- The CC&Rs or declaration of covenants (Correct answer)
- Federal Fair Housing Act
- Local municipal zoning ordinance
Correct answer: The CC&Rs or declaration of covenants
The CC&Rs (Covenants, Conditions, and Restrictions) or declaration of covenants is the governing document that grants the association authority to levy both regular and special assessments.
Question 2: When a unit owner files for bankruptcy under Chapter 7, which portion of their unpaid assessments is most likely to be discharged?
- Assessments that came due after the bankruptcy petition date
- Pre-petition assessments that are unsecured (Correct answer)
- Post-petition assessments for the unit still owned
- All assessments regardless of when they accrued
Correct answer: Pre-petition assessments that are unsecured
In Chapter 7 bankruptcy, pre-petition unsecured assessment debt is typically discharged, while post-petition assessments that accrue while the owner retains the unit remain the owner's responsibility.
Question 3: An association's collection policy must be provided to owners at what point to be most effective and defensible?
- Only when delinquency occurs
- Only at the time of annual meetings
- At the time of purchase or upon request, and posted where accessible (Correct answer)
- Exclusively via certified mail upon first missed payment
Correct answer: At the time of purchase or upon request, and posted where accessible
Best practices and many state laws require that the collection policy be provided to owners at purchase or closing and be made readily accessible so owners cannot claim ignorance of the procedures.
Question 4: What is the primary purpose of a 'payment plan agreement' in community association collections?
- To waive the owner's outstanding debt entirely
- To allow the owner to cure delinquency over time while preserving the association's lien (Correct answer)
- To transfer collection responsibility to a third party
- To convert assessment debt to a personal loan
Correct answer: To allow the owner to cure delinquency over time while preserving the association's lien
A payment plan agreement lets a delinquent owner repay arrears in installments while the association retains its lien rights until the debt is fully satisfied.
Question 5: In most states, when must a homeowners association record a lien against a delinquent owner's property to protect its priority position?
- Immediately upon any missed payment
- Within the timeframe specified by state law, often before a mortgage lender forecloses (Correct answer)
- Only after a court judgment is obtained
- Within 30 days of the fiscal year end
Correct answer: Within the timeframe specified by state law, often before a mortgage lender forecloses
State statutes typically set deadlines for recording assessment liens; missing these windows can cause the association to lose lien priority, especially in foreclosure situations.
Question 6: Which of the following is an example of an improper application of payments received from a delinquent owner?
- Applying payments to the oldest outstanding balance first
- Applying payments to attorney fees before principal assessments against the owner's wishes when restricted by state law (Correct answer)
- Applying payments in the order specified by state statute
- Applying payments as directed by the association's written collection policy
Correct answer: Applying payments to attorney fees before principal assessments against the owner's wishes when restricted by state law
Many states mandate a specific payment application order (e.g., assessments before fees and costs), and ignoring that statutory order when the owner objects can expose the association to legal liability.
Question 7: A condominium association's budget shows a projected shortfall mid-year. What type of assessment would the board most likely levy to cover the gap?
- Capital improvement assessment
- Special assessment (Correct answer)
- Regular monthly assessment increase
- Reserve contribution assessment
Correct answer: Special assessment
A special assessment is levied for a specific, often unforeseen expense or shortfall that cannot be covered by the current operating budget without additional owner contributions.
CMCA Assessments and Collections 2
Which legal document typically establishes the association's authority to levy special assessments beyond regular monthly dues?