Property Management Blog

Presuit, Lawsuit and Beyond: An Overview of the Collection Process

System - Wednesday, July 11, 2012
Our office believes the collection process serves a dual purpose.  The primary and obvious purpose is the actual collection of the unpaid funds.  Naturally, the collection of unpaid funds is the cornerstone of any business. Without an effective collection strategy your business will struggle to survive and reach its maximum potential.  The second purpose is the concept of deterrence, a concept commonly associated with criminal punishment. In other words, by imprisoning another, potential criminals will refrain from engaging in the same conduct.  We believe the same rationale applies to the collection process. By engaging debtors in the collection process other debtors or potential debtors become aware that your business will not accept delinquent accounts.  We approach each account with a strategic approach and with a level of professionalism you would expect from your own staff.  Our office has found success collecting funds in the following ways: 1. Pre-Suit Settlement Agreements.  Our office clears up delinquent accounts big and small prior to suit. We enter into monthly payment arrangements which depending on the client’s wishes and sum of money owed, may or may not include a substantial down-payment.  Our payment arrangements often referred to as “letter agreements” are formal, but informal enough so the debtor does not feel compelled to retain its own attorney. Here, the point is to avoid a contentious situation to avoid a legal battle and increased attorneys’ fees. For clients that desire this approach our office has found great success here because we carefully maintain a collegial attitude at all times and the debtors are never intimidated. We maintain the power of any attorney but with the professionalism you would expect from a member of your own staff. This approach has resulted in tremendous results. 2. Lawsuit and Post-Judgment Execution.  It’s not always possible for creditor and debtor to form a meeting of the minds when it comes to debt collection; hence, a lawsuit is often necessary. In most circumstances a debtor does not have a legally cognizable justification for not paying; hence, the complaint will likely go unanswered.  In the event a complaint goes unanswered, our client will receive a default judgment.  Once the court enters a default judgment, we can take certain steps to execute on the judgment. Examples of post-judgment execution remedies we have successfully pursued include: (1) bank levy; (2) wage garnishments; (3) rent levy; (4) docketing judgments to ensure the judgment serves as a lien against debtor’s real property; (5) sheriff’s sales of real and personal property. However, I do advise clients to prepare for not only an Answer but a Counterclaim as well.  For example, in a case of unpaid services, a debtor may claim that the services were not performed in accordance with some agreement between the parties and that the individual seeking the money was the party who actually breached the agreement first.  To provide a more practical example, our office represented a condominium association against a unit owner for unpaid common expense assessments.  Here, the debtor filed an Answer and a Counterclaim alleging the condominium association failed to meet certain obligations allegedly required of the condominium association. The Counterclaim was indeed frivolous and we were able to get the Counterclaim dismissed prior to trial by filing a Motion to Dismiss; however, this is an example of a situation where a debtor may try and create justification for failure to pay. Collection work is also specific to certain industries. For example, a large portion of our collection work involves condominium associations.  Condominium associations may pursue action against person and/or property; meaning, a condominium association may seek a judgment against the individual personally and may contemporaneously record a lien and foreclose the lien in the same manner a mortgage lender may foreclose upon a home.  There are also creative methods such as rent receivers, a method which allows a condominium to take possession of a unit during the pendency of the foreclosure action and collect rental income. Another example of an industry with specific collection methods is the construction industry.  A private contractor, subcontractor and suppliers may look to secure payment for their labor and materials on certain projects by filing liens. In New Jersey the requirements differ depending on whether the project is considered “residential” or “commercial” (i.e, a Notice of Unpaid Balance must be prepared and filed with the County clerk for residential projects but same is optional for commercial projects). If you have any comments or questions regarding the foregoing or if we can assist you in any way please contact us at