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Maine Alliance for Road Associations

Handling past due assessments and Non Profits vs Statutory Associations

  • 15 Feb 2024 4:31 PM
    Message # 13316272

    Less than 2 years ago we moved into a home which has an association set up as a Nonprofit Association under Title 13.  We found out there was no disclosure of pending court case against the association and the association approved in the past certain expenditures beyond road maintenance.  Some of these expenditures are still potential costs for the members it appears.  After getting on the board I got more background on one member that has sought legal action several times and has not paid assessments since 2016.  The bylaws state interest on late payments is at a 10% annual rate.  Using the interest this calculates to over $5000 that the owner needs to pay the association.  We have a lawyer who represented the association in the recent court case decided in August 2023 where the final decision was in favor of the association.  The lawyer is supposed to handle the 2016 to 2019 past due assessments.  The remaining assessments 2020 to present need to be addressed by the association.  There have been no past due  notifications sent to the owner that I am aware of at this moment. No liens filed either.  The past due amounts have been in the board meeting notes and annual meeting notes.

    My questions are the following.

    1. Can the interest be assessed on the late payments if no notification has been sent to the owner?

    2. Is there a time limit that past due notifications need to be sent to the owner?  Can this be done years later?

    3. Since we are a Nonprofit Association can we follow Statutory Road Association Title 23 for collection of past due amounts?  Or does a nonprofit have to follow different procedures? 
    4. Are associations setup under Title 13B really more of a homeowner association versus Statutory Road Associations under Title 23?

    I appreciate any comments or suggestions as how to proceed.  I have always found the forum a great place for information even prior to becoming a new MARA member.

  • 16 Feb 2024 1:53 PM
    Reply # 13316703 on 13316272
    Anonymous member (Administrator)

    I'm afraid most of your questions really require an attorney to answer, and I am not an attorney.  However, one thing I can tell you is that the attorneys who speak at MARA's  annual conference repeatedly stress the importance of following the statutes precisely, as failure to do so provides loopholes where an opposing attorney can attack you.  I think that applies here.  The road association statutes will only "stick" if you are a statutory road association.  And I suspect you would have trouble collecting overdue amounts or interest if you have not notified the person in a timely fashion that they are overdue and that interest will be charged.

  • 18 Feb 2024 11:02 AM
    Reply # 13317337 on 13316272

    My thinking is along the same lines.  If we don’t follow rules with proper notifications we could be contested. I did reread our bylaws and they state that interest starts from the due date for unpaid fees.

    Unfortunately two other board members are very much against consulting an attorney. They do not want to spend the money as they feel we are only a road association and do not want to discuss anything further.  However our nonprofit status and past actions indicate to me the association is more a mutual benefit organization.  That is something I would like to verify.

  • 21 Feb 2024 1:46 PM
    Reply # 13318898 on 13316272

    As always Gregory, my first thought is to consult the bylaws because, absent any illegal provisions, they reveal how the organization is to be governed.  Fortunately, you are a registered nonprofit and also fortunately your bylaws are recorded in the county records. So, it was easy to get a copy for review (including three amendments.)  For the benefit of others reading this posting, the significance of this form of self-government is that each lot in the subdivision is mentioned in the bylaws by deed reference and each lot owner at the time of formation agreed by signature on the bylaws to submit the property to the terms and conditions of the bylaws. Recording of the bylaws informs the public that restrictions apply to each parcel and remains with each parcel as ownership changes and by taking title to a parcel an owner is obligated by the terms of the bylaws.  I did not review the Articles of Incorporation because that costs $3 to download but I will assume that it was drafted properly and contains signatures of all incorporators.

    Let’s address the first part of your third question first.  Statutory Road Associations are those that are established in accordance with the terms of the statute, so the statute has no influence over any organization that is formed differently.  Members of a nonprofit road association may elect to become a Statutory Road Association by following the procedures required by the statute, but the primary purpose of the statute is to grant enforceable assessment and collection powers and would be beneficial only if the nonprofit road association's governing documents (Articles of Incorporation & ByLaws) fail to do so.  So, no you cannot look to Title 23 for guidance or authority and in your case, you certainly don’t want to. Your bylaws handle all the issues quite well.  

    As for the second part of your 3rd question, Maine nonprofit corporations are governed by the Nonprofit Corporation Act, Title 13-B, which is reasonably broad so as to apply to nonprofits formed for various purposes. However, the act does specify how each nonprofit shall be governed – by its bylaws.  In the Act: “..."Bylaws" means the code or codes of rules adopted for the regulation or management of the affairs of the corporation.” Presumably, organizations don’t adopt bylaws that require anything that is illegal.  

    Regarding your 4th question.  If you believe what I said above, Title 13 has no connection to Title 23.  Title 23 applies specifically to private road associations whether incorporated or not and are governed by bylaws that must be drafted to meet rather specific requirements of Title 23 to remain enforceable. Title 13 applies to corporations that are formed not for profit to operate for the various reasons of its incorporators and are governed by bylaws drafted to suit the needs of the incorporators.  Lake associations, homeowners associations, road associations and child welfare groups will certainly adopt a set of bylaws vastly different from each other.

    Let’s double back to questions 1 & 2 which can be addressed together – and I suspect you guessed it – let’s look at your bylaws….and I suggest you seek competent legal advice to confirm anything written below.   

    Your bylaws read as follows: Article IV Section 5. Failure to Pay Assessments.  If any member shall fail to pay any assessment levied by the association within sixty (60) days from the due date specified by the association, the association shall, from and after the time a notice of such failure to pay is recorded in the office of the Register of Deeds for Cumberland County, have a lien against the member’s lot or lots, as the case may be, for the amount due and not paid plus interest at the rate of ten percent (10%) per annum from the specified due date to the date of payment thereof and all costs and expenses of collection, including reasonable attorneys’ fees.” 

    That paragraph is rather specific. If the payment is not made within 60 days from the due date the association has a lien against the property for the amount due, interest and all costs “AFTER THE TIME A NOTICE….IS RECORDED…”  So, the association does not have a lien until a notice is recorded BUT that lien may include the amount due, interest, and costs “FROM THE SPECIFIED DUE DATE OF THE DATE OF THE PAYMENT ….”

    The clock for collecting interest and costs starts after 60 days of the payment due date, but the lien is not effective until the notice is filed with the county.  The recalcitrant owner is obligated for the assessed amount from the date the payment is due. After 60 days of the payment due date interest and collection costs can be added to the amount due and that clock runs until the full payment is made.  The bylaws do not mention the timeliness of recording the notice, nor is there a mention of any requirement for the association to notify the owner that the payment is past due.  In fact, all owners are notified of the 60-day payment requirement by simply taking title to their property because these restrictions are filed in the county records and reference each lot and such obligation is mentioned in the bylaws (Article IV Section 1). The association does have the obligation to notify owners of the assessment and the date due (Article VII Section 2d.)  

    At this point the association would be well advised to immediately record a notice of payment due to protect it’s interest for any payments past due including interest and to periodically revise the notice for added amounts due, continued interest and collection costs to date.  Should the property be sold before a notice is filed the association will not likely recover anything.  

    Regarding taking action to recover unpaid assessments, I believe boards of directors should adopt what I call the “prudent person” doctrine (which is actually mentioned in the Maine Nonprofit Corporation Act) when it applies to protecting the assets of the corporation  – take whatever actions are legally and financially prudent.

    By the way, you mentioned that  “….the association approved in the past certain expenditures beyond road maintenance.” Your association is in no way obligated to limit expenditures to strictly road maintenance. To the contrary, the purposes of the association in the bylaws are reasonably broad - even to the extent to "promulgate rules and regulations for the members of the Associaiton" and state that the association may “take title to property including property for recreational purposes…” Further, Article IV Section 2 Purpose of Assessments says “...and such other common betterments the Directors of the Association may determine from time to time...”  Oh, the joys reading bylaws!

    Last modified: 22 Feb 2024 6:55 AM | Anonymous member
  • 24 Feb 2024 7:23 AM
    Reply # 13320269 on 13316272

    Thank you for the detailed review.  Of the seven landowners when the association was formed only one owner remains.  Most of the 6 parcels that exchanged hands have been subdivided so now there are 28 members plus an additional 4 members that benefit from access to their property over our roads.  The deeds do call out that you must be a member of the association.
    Glad to see you agree that the bylaws call out very specifically for what happens for nonpayment of assessments. I had noticed that in “A Guide to Forming Road Associations “ that assessment fees in a nonprofit can be unenforceable in some situations.  It appears that only applies when an owner does not sign on.

    I have had some discussions with other board members and members stating we are only a road association.  You picked up on the same wording as I did that the association is given some broad powers in the bylaws.  These powers have been used and voted on in the past to accomplish things outside of road maintenance and winter maintenance. If we want to function strictly as a nonprofit road association we can do that.  I don’t think there is any benefit at this point to also becoming a statutory road association in addition to the nonprofit association.

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