LEGAL UPDATE: HOW RECENT CHANGES TO PERIODIC GARNISHMENTS IN MICHIGAN AFFECT CONDOMINIUM COLLECTION PRACTICES

The Board of Directors for condominium associations are often faced with delinquent co-owners who fail to pay assessments or fines.  Typically, the Association seeks voluntary compliance with the co-owner to obtain payment, but sometimes the Association is forced to pursue a judgment against the delinquent co-owner.  If that happens, the Association may pursue collection efforts against the co-owner, including but not limited to, a periodic garnishment sent to the co-owner’s employer.

On April 16, 2015, Michigan Governor Rick Snyder signed into law House Bill 4119 (the “Bill”), which affects periodic garnishments sent to employers.  The Bill amended MCL 600.4012 and made the following changes to periodic garnishments (typically wage garnishments), which became effective immediately:

• Periodic garnishments will now remain in effect until the balance of the judgement is satisfied rather than having to renew the garnishment every 182 days under the previous provision. MCL 600.4012(1);

• The garnishee fee has risen from $6.00 to $35.00. MCL 600.4012(12);

• The periodic garnishment is not valid or enforceable unless it is served in accordance with the Michigan Court Rules. MCL 600.4012(4);

• Although default judgments will still be allowed against an employer that fails to fully comply with a periodic garnishment, creditors will be required to give employers ample notification, via a multi-step process, when they are not in compliance. Employers will then have 28 days to rectify the situation and after entry of a default but prior to entry of a default judgment. MCL 600.4012(6)-(8); and

• Even if a default judgment is entered against an employer, the employer will have 21 days after entry of the default judgment to petition the court to limit the amount of the judgment to the amount that would have been withheld if the garnishment had been in effect for 56 days, rather than entering the judgment for the full amount of the debt. MCL 600.4012(9)-(10).

How the Recent Changes Affect Your Association

The good news for condominium associations is that only a single writ of garnishment to the delinquent co-owner’s employer will be needed to pursue collection of the entire judgment.  This translates into savings to the Association whereby it will no longer incur additional attorney fees and costs in having to prepare and reissue supplemental writs of garnishment after the initial 182 day garnishment period expired with a balance still due and owing on the judgment.

However, there is a “but” to the recent amendment. Since priority of payment on the garnishment is established in the order that the garnishments are received—except for child support withholding orders and tax levies, which have priority over a creditor garnishment order regardless of when received—it is imperative for Board of Directors to act promptly in pursuing garnishments against a delinquent co-owner.  If another creditor files a wage garnishment first, the Association may have to wait years until the first garnishment is paid off.

How the New Law Changes the Employer’s Responsibility

Under the former garnishment provisions, if an employer failed to timely respond to a writ of garnishment, the Association’s attorney could pursue the employer for the full amount remaining due on the judgment set forth in the garnishment against the employee.  Thus, the old statute provided a hefty incentive for employers to comply with garnishment requests.  Under the new changes to the statute, the Michigan legislature made it much more difficult to hold an employer liable for failing to comply with a garnishment request related to its employees.  As described above, the Michigan legislature added numerous notice provisions, allowed the employer 28 days to rectify a default and further allowed an additional 21 days to petition the Court to limit the total amount.

How the New Law Changes a Former Collection Tactic

Under the former garnishment provisions, garnishments only lasted 182 days and could not be renewed until the 182 days had expired.  A clever collection attorney for the Association could establish writ priority by submitting the Association’s garnishment a couple of days prior to the expiration of the writ that had priority.  Thus, the Association would often obtain at least some funds during the year from the co-owner’s employer.   Regrettably, with the new amendment to Michigan’s statute, the Association may have to wait years to see a dime.  However, the Board will still want to direct its attorney to prepare and file the garnishment with the co-owner’s employer in order to establish priority since the employer will be required to begin paying the Association once any prior garnishments have been paid in full or withdrawn.

Conclusion

It is important for the Board of Directors for the Association to continually review the Association’s receivables and aggressively pursue the collection of any delinquent accounts.  With the recent changes to Michigan’s statute, any delays may impact how quickly the Association will obtain garnishment payments.