Law firm may be double-dipping on fees
An association can include reasonable attorney’s fees in collecting from a delinquent homeowner. If a law firm is also collecting a flat percentage of dues, that’s a rip-off.
By Donie Vanitzian August 19, 2012
Question: My homeowners association has contracted with the same attorney firm on retainer for more than 25 years. The attorney also receives 40% of any money collected from dues and fines, and the association is demanding more in settlements to recoup its attorney expenses. In response to questions of this practice at a board meeting, the president said that “we have no choice in this economy due to the high number of delinquencies but to use the attorney’s services, and all HOAs are doing this now.” Many of my longtime neighbors are walking away from their homes because they can’t meet these higher re-payment demands by the board. The association should be negotiating with owners, without the added expense of the attorney’s fees. Is my association being ripped off, and are the attorneys double-dipping?
Answer: Contrary to your board president’s comment, not all associations are doing the same thing, especially when it comes to collecting past-due association fees.
It appears as if your association’s law firm may be double-dipping. The law allows the association to recoup certain costs of collection by including reasonable attorney’s fees in the moneys it may collect from a delinquent homeowner. If the law firm is collecting both, then it is “ripping off” the association. If it is only collecting the 40%, then it appears the association is being ripped off by paying that amount instead of collecting its attorneys fees as part of a judgment for unpaid assessments.
As the client, the association (through its board of directors) had a duty to investigate several firms, negotiating the most favorable terms for itself before executing any retainer agreement.
Law firms engaged in a collections practice may take a percentage of the amount collected, forgoing any claim to attorney’s fees, or they collect under situations allowing them to recover their fees. The latter generally pertains to associations collecting delinquent assessments.
Before contracting with a law firm for collections, the board should negotiate with its delinquent owners directly. Failing to do so may be a breach of the board’s duty.
Associations and delinquent owners should engage in some form of dispute resolution as mandated by Civil Code Section 1363.840. The service must be provided at no charge to the titleholder. Many times associations can resolve difficulties without resorting to litigation. Even if the association attempts to strong-arm its delinquent owners, obtaining a judgment is no guarantee of payment.
Just because an association can foreclose on an owner doesn’t mean it is mandatory to do so. Negotiating an affordable payment plan is preferable to losing owners to foreclosure or devaluing everyone else’s unit by lowering the comparable sale prices.
Titleholders have a right to examine both the attorney-client retainer agreement between the law firm and the association and examine the law firm’s invoices billed to the association, including the checkbook register to see if the law firm is double-billing.
The late Stephen Glassman, an attorney specializing in corporate and business law, co-wrote this column. Vanitzian is an arbitrator and mediator.