This post is a bit long, but it’s an important topic. A recent sea change in the attitude of the courts has meant that it’s now more important than ever to follow correct procedures for approving budgets, fees, and improvements, and in documenting the debt. This post contains my opinion on this change, and how I believe you should protect your condo to make successful collection of delinquencies more likely.
Attitude of the courts
In recent years, the upper courts in México have been favouring individuals over institutions. One important example: an owner over a condominium.
There have been many examples of suits against delinquents that were won by a condo, and were appealed all the way up to a Federal court, only to have this final judge use a very narrow interpretation of the law, and dismiss the case because of a technicality.
You must be able to prove the basis for your fees
If you sue an owner for unpaid fees, the defence could call an expert witness to show that you have no rational basis for your fees. Because of this, you might also need to hire your own expert witness to answer this claim. This would be a certified accountant. There’s no guarantee this will work if you haven’t followed the proper procedures.
To protect yourself against having your lawsuit overturned, it’s important that you can clearly show documented evidence for the basis for the setting of your fees.
This can be easily done if your budgeting process is detailed, open, documented, is based on the last year’s actual detailed data, and includes review and input by the owners. Reserves should be based on a reserve study, rather than an arbitrary amount or percentage that can’t be defended.
Expenses for improvements must be voted on at an extraordinary assembly.
Special assessments and expenses for emergency repairs must be clearly justified, and there must be a formal motion from Council recorded in the minutes that form part of the condo records.
It’s also important that your monthly financial records be detailed, and show exactly what your expenditures are versus your approved budget on a line-by-line basis. This builds up a history of careful tracking of expenses vs. budgets over time. It also gives you the detailed history needed to form a rational basis for the next year’s budget and fees.
See the “Jalisco Condo Manual” for more detailed instructions on all this.
Make Your Assemblies Bullet Proof
To further make sure that the basis and the approval of your fees are difficult to question, it’s also important that the budget and fees as approved, be included as an appendix in the protocolised and registered minutes of the annual ordinary assembly in which the budget was passed.
A sample of how to do this (along with a WORD template) is included in the BONUS Pack for the “Jalisco Condo Manual.” NOTE: This is in V2 of the BONUS Pack released on February 11, 2013 – if you have the old version, you should download the latest version (it has many significant changes).
Extraordinary fees for improvements must be clearly defined in the motion recorded in the protocolised and registered minutes of the extraordinary assembly in which they were approved. This should contain a brief description of the work, the approved cost, and how and when the money is to be collected.
You must make sure that there are no irregularities with any assembly at which a budget and fees, or expenditures for improvements, were approved.
Be sure that the assembly had the correct quorum and was legally constituted, that the correct voting procedures were followed for that type of assembly (quorum and voting differs between ordinary and extraordinary assemblies), that any improvements needing fees were approved at an extraordinary assembly and not an ordinary assembly, that only titleholders voted or gave proxies or powers of attorney, and that any proxies or powers of attorney were legally valid documents. The assembly minutes must be protocolised and publicly registered by a notario.
Make sure that powers of legal representation were given by the assembly to the Administrator, the Council President, and the Council as a body, and that these are in the registered minutes of the Annual Ordinary Assembly at which they were appointed.
Be sure to keep these important attachments to the assembly minutes in the condo records: the sign-in sheet, and all proxies and powers of attorney.
There’s a Time Limit on Collection of Debts
It’s important to be aware that Civil Code Article 1743 forces a time-limit on the collection of debts.
This article is in Titulo Quinto – Extinción de las obligaciones (Title 5 – Termination of Obligations), Capítulo V – Prescripción (Chapter V – Prescription). Prescription is a legal term describing the process by which an obligation (debt) can be removed by a court because of too long a passage of time.
I translate this article as, “Pensions, private income, rent, interest payments and any other such periodic services [condo fees fit this decription] not collected by their due date, will be prescribed [legally expire] in two years, counted sequentially from the due date of each of them. At this moment [the end of the two years], the ability to collect payment is ended either through real or personal action.”
What this means is that collection of delinquent condo fees is limited to two years from their due date. This count of time will stop once you start a lawsuit. This means that if you wait too long to start a suit, you can’t collect older debts through the courts. As you wait longer to start legal proceedings after this two year limit has run out, more of this early debt will “fall off” and become non-collectable.
Note that this time period starts from the date of your court filing, and goes back two years to encompass all fees and charges that had due dates falling in this two year period.
How do you work out the due date of a condo fee debt?
Civil Code Article 1029 says that fees cannot be legally collected until 90 days has passed from the due date for payment. Therefore, you can include any fees whose original due dates fall inside a period going back two years plus 90 days from the date of your court filing (820 days).
For example, assume that you asked for payment of quarterly fees that were due on April 1, 2010. If these were unpaid, you could include them in a suit as long as you filed with the court before June 29, 2012.
This time limit on collecting a debt can affect your decision whether to mediate first or sue first. If you’re near the two year limit for some of your delinquencies, then you can start legal proceedings first, and then offer to mediate to avoid losing the ability to collect more past debt. The pending lawsuit makes a good carrot for the mediation sessions – tell the delinquent owner that if a mediation agreement is reached and signed, you will cancel the lawsuit.
If you’re past the two-year limit, it might not apply in a mediation. If you go to mediation before you file a lawsuit, then you could ask for payment of all the debts, including those beyond two years old. The delinquent owner can agree to pay everything.
File Your Lawsuit Correctly
It’s essential that all court documents you file in a lawsuit against a delinquent owner have all their ‘i’s dotted and their ‘t’s crossed.
First and foremost, make sure your lawsuit is against the registered titleholder of the unit. You need to know who this is – don’t assume! Go to the public registry office and get a copy of the title. Use the full legal name(s) as it appears on the escritura. If the property is held by a bank trust, consult a good lawyer as to how to proceed. You may need to contact the bank, and you will likely need copies of the trust agreement.
For the purposes of the court documents, a formal Statement of Account is needed showing the amount owed by the owner. This is a document that’s prepared once the debt has passed 90 days overdue (it’s not legally collectible before this time).
More than one such document could be needed. For example, you might have an owner who has missed three quarterly fee payments. In this case, you’ll need three statements – one for each quarterly fee that was missed.
This document must be in a particular format that contains, at a minimum:
- the type of debt (monthly, quarterly, or annual ordinary fees or extraordinary fees);
- citation of the by-law article and Civil Code article (1029) that requires fees to be paid;
- identification of the property and title holder;
- the amount of the fees owed and the due date;
- a description of the reasoning behind the charging of the fees; for example, “Quarterly fees as approved at Annual Ordinary Assembly held on xx/xx/xx,” or “Cost to install a solar heating system for the pool approved by 83.69% of the total condo rights at the Extraordinary Assembly held on xx/xxx/xx,” or “Emergency repairs to replace collapsed roof at the club house approved by the Council at the council meeting held on xx/xx/xx”;
- the amount and description of each penalty (late interest, by-law sanction, or other penalty); and
- the total amount of the debt plus all penalties.
This Statement of Account document must be signed by both the Administrator and the President of the Council. This then becomes a legally collectible instrument.