Condo Media - July 2019 - 20

Asked & Answered

Check Mark

When 'Payment in Full' is Only Partial
Is it possible to inadvertently erase
an owner's debt to the association by
accepting a check on which an owner has
scrawled "payment in full" when the check
amount is less than the owner owes?

Many board members and managers share your concern. It is the reason some associations will no longer
accept lockbox payments from delinquent owners,
fearing that the check would be deposited automatically,
before anyone has noticed that $3.25 is not, in fact,
"payment in full" for the $5,000 debt. But your risk of
being blindsided in that way is more theoretical than
real, Janet Aronson, a partner in Marcus, Errico, Emmer
& Brooks, PC, believes. "Just because someone writes
'payment in full' on a check," she notes, "doesn't make
it so. If that's all you had to do, everyone would do it."
Under the Uniform Commercial Code (UCC), the
federal law governing these transactions, a debtor would
have to meet several conditions to support a "paymentin-full" claim, including providing "conspicuous notice"
that the check was intended to be "full satisfaction" of
the debt. To meet that requirement Aronson explains,
the payment-in-full notation would have to appear
where it is likely to be seen-on the back of the check,
where it would be visible to the individual endorsing
it for deposit. Sending the check to a lockbox where
it won't be reviewed won't work, Aronson contends.
"You can't just try to slide a check through to discharge
a debt." The association could argue, successfully, she
believes, that no one authorized to receive the check
"knew that [it] was tendered in full satisfaction of the
claim"-another requirement of the federal law.
PAYMENT PRACTICES
Although it is certainly possible that an owner might
try this ploy, Aronson doesn't think anyone should be
losing sleep over that prospect. "In all the years I've
been practicing law, I've never seen a 'payment-in-full'
dispute," she says. Nonetheless, she advises boards to
take common sense precautions to protect themselves.

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CONDOMEDIA July 2019

In addition to the obvious (don't deposit a check that
says it is 'payment in full' if it isn't), she suggests:
■ "Err on the side of caution." If you have questions
about the check-if you can't read or don't understand
a notation on it, for example-contact the owner and,
if necessary, have the association's attorney review the
check before depositing it.
■ Prohibit payment of disputed debts through the
lockbox-a good practice, Aronson believes, even
though the risks are small.
■ Adopt a policy consistent with the UCC requirements,
directing owners to send communications about
disputed debts, including "payment-in-full" checks,
to a designated individual (the manager, a board member or the association's attorney) and/or to a specified
address. Remind owners of this policy periodically,
for example, by posting it on the associations website
or publishing it in an association newsletter.
■ Adopt a policy specifying that when owners have an
unpaid balance, payments they make will be applied to
the oldest debts first, and make sure owners are aware
of this policy, as well. Without it, Aronson cautions, if
an owner specifies "this payment is for the June common area fee," the association would have to apply it
that way, leaving older debts outstanding and at risk of
timing out of the six-month priority lien protection.
Condo Media - July 2019

Table of Contents for the Digital Edition of Condo Media - July 2019
