Attorney’s Fees For Assessment Collection Need not be Proportionate to the Underlying Claim

Blog post by David C. Swedelson, Partner, SwedelsonGottlieb

How many times have you heard a delinquent condo or HOA homeowner (or their attorney) complain that the fees and costs of collection are almost as much as the amount of the unpaid assessments or fees they owe their community association? I am betting that you have heard this complaint before. But the fact that the collection and attorneys’ fees are not proportionate to the amount sought to be collected is not a defense that can legitimately be asserted by a delinquent owner. Had they timely paid their assessments or not let the collection action go on for so long, the fees would not have been that much. And what do they expect their association to do? Not seek collection?

As this issue comes up from time to time, I found an article by New Jersey attorney Joanne Vos who reported on a recent case that dealt with this issue of interest.

Ms. Vos reports on a recent bankruptcy case where the court considered whether the late fees and attorneys’ fees assessed in connection with the collection of regular condominium assessment fees were reasonable. In that case, the court’s decision was two-fold. First, with respect to the late fees, the court determined that the authority to assess late fees is expressly granted by the law and further, that late fees are entitled to a presumption of reasonableness (In California, late fees are regulated by statute, Civil Code Section 1366(e)(2): “A late charge not exceeding 10 percent of the delinquent assessment or ten dollars ($10), whichever is greater, unless the declaration specifies a late charge in a smaller amount, in which case any late charge imposed shall not exceed the amount specified in the declaration”).

Second, with respect to the attorneys’ fees, the court determined that although attorneys’ fees must be reasonable, they need not be proportionate to the amount of the underlying claim prosecuted by the attorney (there are cases in California not dealing with assessment collection that have come to the same conclusion). Ms. Vos provides the following as to the facts of this case:

The debtor/owner owned a condominium in the Society Hill at Hamilton II Condominium Association. The owner’s particular unit was one of 80 affordable units within the Association. As such, her monthly maintenance fees were only $56.53, which amount represented 1/3 of the regular fees assessed to market unit owners. She filed a bankruptcy petition, and in response, her association moved for relief from the automatic stay in order that it could collect post-petition maintenance fees in the amount of $791.42 plus late fees, fines, and attorneys’ fees (we are often asked to file these motions). The Association filed its claim in the amount of $4,688.14. Of the amount claimed, only $1,131.52 represented arrearages and late fees. The remainder of $3,556.62 represented attorneys’ fees incurred in connection with the collection of the arrearages. The owner objected, asserting that the late fees and attorneys’ fees were unreasonable.

The determination of whether attorneys’ fees are reasonable usually includes an analysis of “the amount involved and the results obtained.” This delinquent owner argued that the amount of attorneys’ fees incurred was unreasonable since they far outweighed the amount of the underlying claim. Specifically, the attorneys’ fees of $3,556.62 were $2,425.10 higher than the arrearages owed by Debtor in the amount of $1,131.52.

Fortunately, the Court held that proportionality alone is not a reason to reduce a fee award. If the fees represent a “proper calculation of a reasonable market rate multiplied by the number of hours reasonably expended on the matter”, then the attorneys’ fees are reasonable. The court awarded the Association 100% of the legal fees (minus one duplicative billing entry), even though the attorneys’ fees were roughly three times the amount of the underlying claim.

So, while attorneys’ fees must be deemed reasonable in order to be awarded to an association, attorneys’ fees need not be proportionate to the underlying amounts at issue in order to be awarded.

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