Condo Media - August 2011 - (Page 20)

ASKED & ANSWERED Check Mysteries When Allocation of Payment Is Unclear Q A QUESTION: We received a check from an owner for $2,000 with a notation in the memo line stating that it represented “payment in full.” The problem is the owner owed $3,000 — $2,000 for the current fee, plus an unpaid balance and late fees on a prior monthly payment. How should we handle the discrepancy? Take the money and bill the owner for the balance, as one board member suggests, or return the check and insist that the owner send a new one for the entire amount owed? ANSWER: This is a common problem and one associations need to handle carefully. The governing legal principle is “accord and satisfaction,” explains Patrick Brady, a partner in Marcus, Errico, Emmer & Brooks. If you cash the check, you accept the owner’s assertion that it is sufficient to pay the outstanding debt — in effect, you forgive the unpaid balance, which presumably is not what the board wants to do. What the board should do in this case, suggests Brady, is return the check and insist that the owner either issue a new check for the entire amount due, or indicate on the memo line that it represents only “partial payment” and not payment in full of the amount due. Association managers, their accounting staffs or association treasurers (in self-managed communities) should be, and usually are, alert for these discrepancies. But many communities are using lock-box services, and Brady says it’s not clear how these companies handle the problem, or if they are equipped to handle it at all. “It is an outstanding problem and I don’t know of any great solutions for it,” agrees Gary Daddario, a partner at Perkins & Anctil. If a check falls through the cracks and a $500 payment ends up settling a $2,000 debt, the liability of the lockbox service isn’t clear. “That depends on the contract between the parties,” Daddario says. But he thinks it is reasonable for an association to refuse to indemnify a company for mistakes it makes in processing the checks. “This is still a new issue,” Daddario adds, and it hasn’t yet “stung” enough communities badly enough to make them insist that management companies, or the lock-box companies they use, address the problem. But he thinks community associations should insist that the lock-box servicers deal with the concern. Ideally, he says, the companies should flag the checks and send them to the association’s attorney. “You’re paying these folks to provide a service and they have an obligation to come up with something that works for you.” No Instructions Provided “Accord and satisfaction” isn’t the only check-processing problem communities encounter. Sometimes checks arrive with no instruction in the memo line. If payments are due in several categories — 20 CONDO MEDIA • AUGUST 2011

Table of Contents for the Digital Edition of Condo Media - August 2011

Condo Media - August 2011
From the CED’s Desk
Editorial Board
CAI News
CAI Regional News
Asked & Answered
Homeowner’s Corner
Smooth Operations
Vendor Spotlight
Industry Perspective
Advertisers Index
Classified Service Directory

Condo Media - August 2011