Collecting dues from a deceased owner

“It all comes down to equity,” said David Byrne, an attorney with Ansell Grimm & Aaron, PC, in Princeton, NJ. “Equity is the key to deciding what steps an association takes to protect its interests after an owner’s death.” According to Byrne, chairperson of his firm’s Community Association Practice Group, if a home has equity, the association typically has nothing to worry about. If it doesn’t, problems can and often do arise when collecting dues.

“It’s predicated on the American dream,” said Byrne. “The assumption that you’ll buy a house and later it will be worth more. Unfortunately, that’s not always the case.” If the home never appreciates in value, the whole scheme falls apart, and the heirs won’t act, he said. The association can apply this methodology when analyzing a deceased owner’s empty unit and estate as a whole. “For all intents and purposes, if the deceased’s home or estate is worth something, there will be an economic incentive for the heirs to pay the assessments,” said Byrne. 

In a positive equity situation, an association almost always gets paid after an owner dies because it has the same rights against the former owner’s estate that it had when the owner was alive, he said. The rightful heirs or beneficiaries of the estate will eventually take title through the will or by operation of law, and that doesn’t change anything from the association’s standpoint. If assessments still go unpaid after that, the association can lien and threaten foreclosure pursuant to statutory procedures.

“Normally, it won’t come to that,” Byrne explained, “because the successors don’t want to lose the equity, whether it be in the home or the estate.” In this case, he recommended waiting it out and leading with compassion. It may take time to get a loved one’s affairs in order. “But eventually, the association will get paid,” he said.

In a negative equity situation, the board has a problem on its hands, but it can be remedied if swift action is taken, said Byrne. An association can get the money needed to fill the gap the deceased is not paying and also address maintenance issues with the vacant home. However, it won’t be looking to the heirs to meet those needs.“The way you hope it works is you get an inheritance and it’s worth something,” said Byrne. “But, if the deceased took out multiple mortgages on the home and has liens on the property, it’s not worth anything.”

In a zero or minimal equity scenario, the association faces the challenge of an heir simply walking away from something he or she does not want. “Just because you are the beneficiary under a will does not make you liable for the debts of the decedent,” Byrne said. “And if there is nothing you want, there is no reason to take care of the home.”

When an owner dies and a lender does not foreclose, the home continues to be owned by the deceased, he said. The heirs have no obligation to take care of it or to pay its mortgage or association fees. “Basically, it can just sit there empty until the bank decides to do something with it,” Byrne said. “But a vacant home doesn’t have to be a blight for the community; it can be an opportunity instead.” He suggested that the best option for a board is to explore is receivership. This allows the association to rent out the home and reap revenues from it. The revenues, in turn, can be used to maintain the property and pay the assessments. Additionally, he said, receivership keeps the association out of the ownership game. The home continues to be owned by the deceased and can be rented until the bank decides to foreclose on it, and finish that foreclosure via sheriff’s sale. It also helps to prevent a vacant unit from falling into neglect and disrepair, Byrne added, because receivership allows the association to access the home quickly following the death of an owner.

In two of the three states in which Byrne practices, New Jersey and Pennsylvania, receiverships are fairly common and easily obtained. In fact, in Pennsylvania, Byrne’s clients have never been refused in a receivership attempt. In the third state, New York, they are not, he said. This is mostly due to an antiquated judicial system that frowns upon giving associations control over a deceased person’s property. As an alternative, Byrne recommended that associations look at provisions in the master deed, declaration and/or bylaws that may allow them to seize abandoned units and rent them under a surrender clause. “It’s a procedure I’ve used myself as a creative way around the ongoing receivership issues in New York, as well as in relation to some difficult judges in New Jersey,” he said.

If a receivership or surrender isn’t a viable option, Byrne said that associations should follow through with the more lengthy process of lien foreclosure. Additionally, he said that regardless of what method it uses to collect dues from a deceased owner, an association should always file a lien if assessments become delinquent. “The downside of doing the lien foreclosure, however, is ownership,” Byrne said. “The association will likely be the only purchaser at a sheriff’s sale. So, the association that forecloses on a home with no value essentially is like the heir that doesn’t want it to begin with.”

Lien foreclosures are also time consuming, he added. In most cases, they take upwards of a year or more to complete. “But, it’s what associations must do if receivership or surrender isn’t feasible,” he said. “Because collecting dues and preserving property values in a collective community is vital, abandoned homes can also become a headache and an eyesore.” If left unattended for long periods of time, vacant homes run the risk of interior and exterior damage, or worse, they become the target of squatters and vandals. “The condition of the home and the impact it has on the neighbors is important, regardless of whether the units are attached or the homes stand alone,” Byrne said. “The quicker the association acts after an owner dies, the better. Maintaining the home is just as essential as collecting the dues.”

Ultimately, each community must decide for itself the best course of action, he said. Every association, though, should start by conducting an equity analysis of the property once it finds out that the owner has died. Next, they should file liens for any unpaid dues. “From there, it’s a pretty simple focus point,” said Byrne. “If there’s equity, the heirs are going to either keep the unit or sell it. If it’s worthless, they’re probably going to leave it behind.”