As part of a community association, it’s common to encounter those one or two owners (or more) who don’t pay their community association fees. Unfortunately, the repercussion of those owners who don’t pay affects those who do. Reliable paying members of an association could face increased fees, special assessments or reduced spending on community maintenance and amenities. Usually in this situation the community association has to enforce the community association’s policy to establish consequences for continued non-payment and for that matter chronic late payments. Here is a short guide regarding HOA & Condo Association Collections: How to Collect Unpaid Fees
The Consequences Of Delinquencies To Community Associations
Non-payment of community association fees is a nationwide problem facing condo, single-family and other planned development associations today. It just takes a few homeowners who stop paying their HOA or Condo fees to cut deeply into an association’s budget. Owners who pay late don’t hurt the association as much as “non-payers” but they do disrupt the cash flow making managing an association even more difficult than it already is. In addition, lenders may be unwilling to make mortgages or refinance properties in a community with delinquently issues.
Collect Overdue HOA and Condo Fees Fast
Taking action sooner rather than later is a must and not only does a service to the association but to the delinquent owner as well. If you let a delinquent owner dig themselves into a deep hole of debt, getting out is even more difficult. A collections solution must provide customer service to the association and the delinquent owners by gently working with them to resolve the issue before it becomes a life crisis. Your collection solutions should have a collections platform that is geared to the community association industry and employ highly trained collectors who understand the sensitivities of homeowners in distress.
How You Should Go About Collecting Overdue Fees
If you are a member of an HOA or Condo board that has delinquencies, we recommend that you consider the following:
• An Attorney is not always the right course of action: Consulting with your community association attorney and he/she will direct you to a “legal solution” which is NOT a “collection’s solution.” You can lien and foreclose in order to rent, but that may not be the best decision for the association. This can be a costly problem if the bank is right behind you, or if the unit requires expensive rehabilitation. Also, do you want your association to be a rental community which may have ramifications with the FHA? Lots of money goes into this process and sometimes none comes out.
• Talk to a Collections Specialist: Collection agencies usually work on a performance based relationship where the association is not at risk for collection costs. Your collection solution should NOT take a percentage of the association’s principal (maintenance fees) but rather charge fees and costs that are passed through to the delinquent unit owner. If they cannot collect those fees and costs from the delinquent unit owner, subsequent purchaser or foreclosing bank the association should not have to pay. Your collection solution must work on a merit basis that requires them to perform and collect so that their interests are aligned with the association’s interests.
What Should You Look For In a Collections Company?
– Ask your collections company if they make outbound calls to engage owners in order to find solutions to their delinquency problem with the association. Ask if their callers are trained and have designations from collection trade organizations.
– Ask your collection solution if they can report delinquencies to credit bureaus which is a serious consequence to continued non-payment.
– Be sure that your collections solution specializes in working with community associations and that all fees are deferred and are passed on to the delinquent owner at no risk or cost to the association. Collection agencies that collect all matter of debts (credit card, car loans and medical debts) are just not suited to serve community associations due to the very personal nature of this class of debt.
What Else Can Be Done To Collect Delinquent Association Dues?
• Suspend the Right to Utilize Amenities: This should your first step that any and every board of directors in Florida is entitled to do unless it is prohibited in the governing documents. It pertains not only to a delinquent owner but is especially helpful if the home is occupied by rental residents who are likely to complain to the landlord about not being allowed to utilize the community amenities.
• Enforce renters to pay rent if their Landlord is delinquent in fees: There are laws in Florida that allow an association to intercept the rents from a renter if the owner is delinquent. Associations even have the power to evict a renter if they do not pay the rent to the association directly. Make sure that your credit solution or management company is sending out those rental demand letters and following up.
• Offer a Payment Plan: Some homeowners may experience financial stress, which could make it harder for them to pay the fees. A Condo or homeowner’s association could come up with a payment plan consisting of monthly installments for either a six or a 12-month plan. Payment plans should be laid out and explained in a written agreement. Any other payment to the association is not a payment plan but rather just a donation to the association. Your collection solution should have highly trained operators standing by to help a delinquent unit owner customize a payment plan that will fit their budget and the association’s needs.
• Cause a Lien to be filed on the property: For those who are unfamiliar with a lien, it is a court document that tells title companies the HOA or Condo has to be paid when the property is sold or the homeowner refinances his mortgage. Many collection agencies will cause an attorney to file a lien on a property to protect the interests of the association.
• Defending The Association After the Bank Has Foreclosed And Taken Title To A Unit: Many board members, association managers and even attorneys believe that when a bank forecloses the association is only entitled to recover the lesser of 12 months or 1% of the first mortgage amount. THIS IS NOT ALWAYS THE CASE. In order for a bank to qualify for “Safe Harbor” there are many procedures and protocols that they must follow, and often they do not. Everyday associations are losing out on money that they can be collecting from banks due to these files and cases not being carefully scrutinized. Ask your collections solution what they are doing to maximize the amount that is collected by law from banks. Often there are errors made in the foreclosure which will entitle an association to a FULL RECOVERY of the money that is owed to them.
The name of the game in community association collections is to recover as much as possible and as fast as possible. If your association is not taking immediate action to recover delinquent payments or correcting the behavior of slow paying owners it can cause great stress to your association. Collections delayed are collections denied.
Mitch Drimmer is a respected thought leader in his field and has led numerous continuing education classes in collections, His articles have been published in key trade journals and newspapers, and he is a speaker at educational seminars. Drimmer is also a former board member of the Florida Community Association Professionals (FCAP) and earned his company the distinguished FCAP Reader’s Choice Award for collections four years in a row. Throughout his career, Drimmer has worked with community associations to help them see their way through tough times, especially during the real estate crash. He is a passionate advocate for community associations and has participated in the legislative process over the years trying to bring fair and equitable legislation that serves community associations.
Drimmer earned a BA in History from Hunter College and served as CEO of Drimmer Industries, Inc. in New York City for 35 years.