Dealing with Debtors: Negotiation Tips for Lien-holders to Avoid Foreclosure
This article highlights some key considerations in negotiating and structuring a repayment agreement, with a delinquent mortgagor or other lienor. Condominium and homeowner associations (in addition to private mortgagees) often record liens against owners who fail to stay current on their dues. Ultimately, the association may invoke Hawaii Revised Statutes Chapter 667 to conduct a non-judicial foreclosure of the property.
By law, an association obtains a statutory lien against a property that is delinquent—even if that lien is not recorded. In order for the association to act on that lien, whether to foreclose or proceed in court for a money judgment, the lien must be recorded in the Hawaii Bureau of Conveyances. Upon recording the lien, the association must send written notice of their intent to foreclose, thereby triggering the possibility for an offer of repayment and negotiation of acceptable terms.
Accepting the Offer
If the debtor responds within thirty (30) days and offers a repayment plan that is reasonable, then the association is required to accept it. See HRS § 667-19(3); see also HRS § 667-92(c). A repayment plan is “reasonable,” as defined by the statute, if it meets two basic requirements: (1) Timely payment of all assessments that become due after the date that the payment plan is proposed; and (2) Additional monthly payment of an amount sufficient to cure the default, within a reasonable period under the circumstances. Id.
These are bare minimum requirements. Basically, if a debtor offers to pay off the full sum owed to the association in a year’s time, then the association is obligated to accept that offer. There is currently no case law in Hawaii of a court mandating that an association accept a repayment offer – on the basis of “reasonability” under HRS § 667 – that it previously declined. If a debtor offers a repayment plan that fails to meet the above requirements; then it is up to the discretion of the association to determine whether to accept, decline, or counter the offer of repayment.
Negotiating the Offer
When negotiating towards a, the goal is resolution of the issues: the fees paid, violations fixed, and a promise to keep accounts current and cease further infractions of the ByLaws and/or Declaration. How an association accomplishes this goal is up to its Board of Directors and/or its representative in negotiation.
The primary concern to remember is that, during the negotiation process, the association has significantly more power to negotiate terms of repayment than the debtor, who owes a large enough sum of money sufficient to trigger the association invoking HRS § 667. This means that the debtor is at the mercy of the kindness of the association.
This does not mean that the Board of Directors should wield that power and hold it over the head of every debtor. The offer of repayment is a proverbial olive branch by the association to the debtor, to resolve the disputed matter and fees and to work toward the objective and goals, as set forth above.
With this in mind, negotiating the offer of repayment requires patience, judgment, and awareness of the circumstances at play. For example, recovering some money (even if less than full) from a debtor, through a repayment agreement, may be the best option in some instances; such as if a debtor, in good faith, offers a plan to repay most of the debt owed, and research into the debtor reveals that they have insufficient assets to cover the full amount owed. In this scenario, when an association is presented with statutorily “unreasonable” offers – as defined by HRS § 667 – the association has the option to consider the debtor’s attempt and accept a lesser sum or to propose a counteroffer. Again, the goal of negotiation is to come to an agreement that is advantageous to both parties (albeit in favor of the association), so that the fees are paid and the violations (permanently) resolved.
This does not mean that debtors should be granted every concession they demand. This is a negotiation – offer, counteroffer, and proposals. If the goal cannot be achieved through an offer of repayment, then the association still has the non-judicial foreclosure process to rely on. This can be a strong bargaining chip for the association if, for example, the debtor proposes an outrageous and unacceptable plan, if the debtor is obstinate and intractable; or if they demand too many concessions from the association.
As with any negotiation, the seasoned experience of an attorney, in handling and negotiating on behalf of the association, is essential to achieving the association’s goals.
Structuring the repayment agreement
Once preliminary terms are agreed on by the parties, then a repayment agreement must be drafted. This repayment agreement is a contract, so it is advisable that an attorney draft and/or review it. Certain minimum terms are strongly suggested, including: (1) Requiring, upon signature, that the debtor make a good faith payment upfront prior to the first monthly installment taking place; and (2) Establishing specifically defined installments and a set timeline for repayment. Other common concerns that an attorney can draft and/or look for are what occurs in the case of the debtor’s default; permitting alternate installment and repayment structure; and accounting for advance payments. As with any contract, these terms are negotiable; and an experienced attorney will draft a repayment agreement for the association that is firm, resolute, and achieves the association’s goals.
Every contract requires sound judgment in negotiation, setting of terms, and drafting.
Repayment agreements are no different: Always Negotiate With Goals In Mind!
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