Quarterly report pursuant to Section 13 or 15(d)

Due to Related Party

v3.10.0.1
Due to Related Party
9 Months Ended
Sep. 30, 2018
Related Party Transactions [Abstract]  
Due to Related Party

Note 4. Due to Related Party

Legal services for the Company associated with the collection of delinquent assessments from property owners are performed by a law firm (Business Law Group or “BLG”) which was owned solely by Bruce M. Rodgers, the Chief Executive Officer of LMFA until and through the date of the initial public offering. Following the offering, Mr. Rodgers transferred his interest in BLG to other attorneys at the firm through a redemption of his interest in the firm, and BLG is now under control of those lawyers. The law firm has historically performed collection work primarily on a deferred billing basis wherein the law firm receives payment for services rendered upon collection from the property owners or at amounts ultimately subject to negotiations with the Company.

During 2016, the Company experienced a decline in collection events that affected revenues both to the Company and BLG.  That resulted in an increase in the related party receivable and reflects the decision by the Company to advance funds to BLG based on the amount of their unpaid legal fees due from property owners.  Effective January 1, 2017, the Company entered into a new services agreement with BLG which partially alters the traditional deferred billing arrangement noted above.  

 

Under the new agreement, the Company pays BLG a fixed monthly fee of $82,000 per month for services rendered.  The Company will continue to pay BLG a minimum per unit fee of $700 in any case where there is a collection event and BLG receives no payment from the property owner.  This provision has been expanded to also include any unit where the Company has taken title to the unit or where the association has terminated its contract with either BLG or the Company.    

Amounts expensed by the Company to BLG for the three and nine months ended September 30, 2018 and 2017 were approximately $246,000 and $738,000, respectively for 2018 and $246,000 and $738,000, respectively for 2017.  As of September 30, 2018 and December 31, 2017, receivables from property owners for charges ultimately payable to BLG approximate $2,986,000 and $3,657,000, respectively.

Under the related party agreement with BLG in effect during 2017 and 2018, the Company pays all costs (lien filing fees, process and serve costs) incurred in connection with the collection of amounts due from property owners.  Any recovery of these collection costs is accounted for as a reduction in expense incurred.  The Company incurred expenses related to these types of costs for the three and nine months ended September 30, 2018 and 2017 of $75,000 and $248,000, respectively for 2018 and $128,000 and $394,000, respectively for 2017. Recoveries during the three and nine month periods ended September 30, 2018 and 2017, related to those costs were approximately $66,000 and $208,000, respectively for 2018 and $91,000 and $258,000, respectively for 2017.  

The Company also shares office space and related common expenses with BLG.  All shared expenses, including rent, are charged to the legal firm based on an estimate of actual usage.  Any expenses of BLG paid by the Company that have not been reimbursed or settled against other amounts are reflected as due from related parties in the accompanying consolidated balance sheet.

The Company assessed the collectability of the amount due from BLG as of December 31, 2017 and concluded that even though BLG had repaid $252,771 during the year, it did not have the ability to repay the remaining balance and as such took a reserve of approximately $1.4 million for the balance due as of December 31, 2017.  Amounts receivable from (payable to) BLG as of September 30, 2018 and December 31, 2017 were approximately $(46,000) and $0, respectively.