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Can Associations Collect Rent From Tenants When The Owner-landlord Is Delinquent?

In the current housing market, many homeowners have trouble paying association fees for their home, not to mention units they may own as investment properties. Associations often find that these landlord unit owners become delinquent in paying their monthly or annual assessments while still collecting rent from tenants. Can Associations intercept these payments to help pay off delinquent common expenses?

The answer is yes, but to do so, Associations must engage in what is often a lengthy and expensive process. There must be a foreclosure case pending against the owner. Like most other states, Ohio requires judicial approval to collect rents directly from tenants.

The first place an Association must look to find authority to directly collect rents is in its documents. The Association’s Declaration and Bylaws must contain a provision allowing it to do so. If no such provision exists, the Association must pass an amendment allowing it to collect rents directly from tenants.

Next, the Association must put the owner on notice. This can be done by simply sending the owner a letter and allowing a 30-day contest period. If the owner does not contest, the Association can then begin collecting rents.

The Association itself, however, cannot collect the rents. According to Ohio law, a receiver must be appointed to do so through a foreclosure action. Now the process becomes time consuming and expensive. The Association must go to court to have a receiver appointed. This requires time and legal fees for the Association. The Association is then responsible for paying the receivership fees. In cases where owner-landlords are not delinquent thousands and thousands of dollars, much of the rents recovered will be paid to the court and the receiver.

Associations must also consider fair debt collection policies. Associations cannot directly inform tenants of an owner-landlord’s delinquencies. It is therefore a good idea to speak with tenants before sending them a letter informing them that the Association will now be collecting the rent. Florida, which has one of the worst housing markets, recently passed laws that allow Associations to bypass this long and pricey process. Associations can demand full rent from tenants as soon as an owner becomes delinquent. If tenants refuse to pay, they can be evicted. This has allowed Associations in Florida to recover millions of dollars that would have otherwise gone to owner-landlords who have stopped paying their common expenses.

While collecting rents directly from tenants seems like a quick fix to pay delinquencies of owner-landlords, Associations must consider the time and expense required to appoint a receiver before when considering this option.

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