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 (“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 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 Months ended March 31, 2021 and 2020 were approximately $246,000 and $259,000, respectively.  As of March 31, 2021 and December 31, 2020, receivables from property owners for charges ultimately payable to BLG approximate $1,214,000 and $1,332,000, respectively.

Under the related party agreement with BLG in effect during 2020 and 2019, 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 months ended March 31, 2021 and 2020 were $22,000 and $36,000, respectively. Recoveries during the three months ended March 31, 2021 and 2020, related to those costs were approximately $19,000 and $45,000, respectively.  

The Company also shares office space and related common expenses with BLG.  All shared expenses, including rent, are charged to BLG 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.  BLG was charged approximately $17,000 for the office sub-lease during the three months ended March 31, 2021.

Amounts payable to BLG as of March 31, 2021 and December 31, 2020 were approximately $232,700 and $158,400, respectively. In the first three months of March 31, 2021, the Company subsequently recouped $10,000 of previously written-off amounts to BLG.