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Owners Corporation Debt Collection - Best Practices for Success

One of the prime responsibilities of an owners corporation (OC) is to collect levies from the individual owners in order to fund the maintenance and upkeep of the property. In this article, we will discuss the importance of collecting owners corporation levies on time and steps to make sure the OC documents comply with the Owners Corporations Act 2006 (Act).

Importance of Debt Collection
Timely collection of levies is essential to ensure that the OC has the necessary funds to maintain and repair the common property. If the levies are not collected on time, the OC may not have enough funds to cover insurance and necessary repairs and maintenance amongst its other responsibilities, which could lead to a decrease in the value of the property and even jeopardize the safety of residents.
Collecting levies on time is important for maintaining good relationships among the owners. Late payment of levies can cause tension and frustration between individual owners and the owners corporation. This can lead to disputes and conflicts that could affect the smooth running of the corporation. Timely collection of levies ensures that all owners are contributing their fair share to the upkeep of the property, which promotes transparency and accountability.
Timely collection of levies is also legal requirement. OCs have a legal obligation to collect levies from individual owners, and failure to do so can result in legal action against the OC. In addition, individual owners who fail to pay their levies on time may be subject to legal action or penalties, which can further strain relationships within the corporation.

Compliant Debt Collection Documents
To make sure timely and compliant collection of levies are carried out by the OC, the following must be undertaken:
  1. the ordinary levies are calculated according to lot liability;
  2. the fee notice states that payment due date is within 28 days of the date of the notice;
  3. the fee notice states the interest percentage charged by the OC on outstanding levies;
  4. if the OC is charging interest, it has resolved to do so in its annual general meetings;
  5. the fee notice states details of the dispute resolution process that applies under the rules in respect of disputed fees and charges (you could obtain a sample of these details from the Consumer Affairs Victoria website);
  6. the final fee notice states that the payment due date is 28 days after the notice date;
  7. the final fee notice states the daily interest rate charged (if applicable);
  8. the final fee notice states details that the OC intends to take action under Part 11 of the Act to recover the amount due if the overdue fees and charges and interest owing are not paid within 28 days after the date the final notice is given (you could obtain a sample of these details from the Consumer Affairs Victoria website); and
  9. the final fee notice states your charges for debt collection work that you have carried out as a manager which should be supported by a resolution and or statement in your contract of appointment supporting your charges.

Timely and compliant collection of the levies is crucial for maintaining the financial stability of the OC.  The OC should have clear policies in place for the collection of levies and should communicate these policies clearly to individual owners. By working together to ensure timely payment of levies, the OC can create a safe, stable, and harmonious living environment for all residents.  That said, if the OC must take debt collection action to collect the levies, it ought to make sure that the fee notice and final fee notices contain the required elements listed above for efficient collection action.

RC & Co Lawyers is a team of strata lawyers and strata debt collectors.  To help your OCs with effective debt collection please contact its Principal, Rochelle Castro on rochelle.castro@rccolawyers.com, phone 1300 072 626 or mobile 0429 028 182.
 

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Debt Recovery Alternative – Letter to Mortgagee


18 May 2021

Recently. I was handling a levy debt recovery process which had commenced in 2018 for an outstanding debt of $6,000. 

The Owners Corporation at the time held a VCAT order to enforce the debt but all the attempts to contact the owner were unsuccessful. Our lawyers lodged an application to the Magistrate Court to issue a warrant to seize personal assets of the lot owner and as a result the VCAT orders had become orders of the Magistrate’s Court to be enforced by the Sheriff’s Office.

The attendance of the Sheriff took longer than usual (60 days) due to Covid restrictions in 2020, however, the Sheriff’s attempts were also unsuccessful either and the debt grew to the amount of $18K by the end of 2020. 

The last advice received by the owners corporation was to take the next step and begin the process of escalating the matter to the Supreme Court to apply for the Warrant of Execution to sell the property. 

Knowing the complications of passing a Special Resolutions and the high cost of Supreme Court proceedings to issue the Warrant, I made a recommendation to the committee to instruct the lawyers to issue a Letter of Demand to the mortgagee (the Commonwealth Bank in this instance) to recover the debt before proceeding with the Warrant of Seizure and Sale.

The cost of sending a letter to the mortgagee is generally in the vicinity of $150-$300 (depending on the lawyer’s charges) so it is very cost effective relative to funding Supreme Court action.

Initially, the committee had mixed views as to whether to take this approach or not however, they eventually resolved to write to the mortgagee, and received a response from CBA within one week.

The mortgagee enquired as to whether communication had been made with the owner, evidence of which our lawyer provided immediately, as well as the most recent ledger of the lot owner’s account.

The outstanding balance was paid by the bank in full within 24 hours.

The process of writing to the mortgagee and recovering the debt took no longer than 2-3 weeks to complete and this process has been successful on multiple occasions. It is a cost effective alternative to proceeding with the seizure and sale of the lot.

Please note that the initial step of seeking a VCAT order to enforce the debt and submitting to Magistrates Court to issue a warrant to enforce the VCAT order should still be considered and explored by the Owners Corporation before issuing a letter to the Mortgagee.

If you would like to know more about how this process works, please contact me at rkaka@asmstrata.com.au

Rawand Kaka
Head of Strata