This article is an excerpt from our ebook, How to Reduce Your Condo/HOA Delinquency Rate. Just the Facts: What You Need To Know About Your Delinquencies [Checklist]
Are you tired of writing off bad debt each year? Want to recover all of the delinquent assessments from non-paying owners? It all starts with information and data.
The first step to a good collections process is establishing a fact pattern and understanding what you can and cannot do, under the rules of the association, and under the law.
The following is a checklist of all the questions you should have the answers to before you begin your collections process. It’s extensive, but that means it covers all potential issues, even those you may not have come across yet (don’t worry, we’ve seen ’em all!). Put together a solid fact pattern about what you need to know about your delinquencies before you pursue the debt.
About Your Delinquencies
Every community association needs to have an up to date roster of all owners. Contact information and secondary addresses is critical to reach out. You cannot collect without this information. You will also need to have answers to the following questions about your delinquent units and their owners:
General Delinquency Questions
- The number of delinquencies.
How many units in the association are delinquent?
- How much is owed in total?
- Are the ledgers accurate and do they include all the money that is owed by the delinquent owner?
- The aging of these delinquencies.
How much money is 30, 60, 90 or more days past due?
- Who are these delinquent owners and where are they?
Do you have accurate contact information on these owners?
Questions on Specific Delinquencies
- Is the delinquent unit owner-occupied or rented out?
(Is this an investment property?)
- Is the delinquent unit’s owner currently serving in the military? Are they currently deployed?
- Has the delinquent unit’s owner filed for bankruptcy? Has the court discharged the bankruptcy?
- Is the delinquent owner’s estate in probate?
(People pass away and don’t have wills or relatives. A property can stand vacant for months before anybody finds out.)
- Has the unit been abandoned by the owner?
(This happens when people walk away from properties. It’s important to know if there is a resident in the property.)
- Is there an active bank foreclosure on the unit?
- Has the bank already foreclosed on the unit and the association or management team not know?
(This goes back to the question of who actually owns the unit. It could be a bank has foreclosed and is just not paying.)
- Are the real estate taxes paid up to date? Has somebody purchased a tax lien on the delinquent property?
Some of the answers above may have extenuating circumstances. In these cases the board may be willing to delay the collection process. (A good example would be in the case of the owner being active military on deployment.) The board can make these decisions on a case-by-case basis.
From Your Governing Documents
There are several items that should be defined in your governing documents, which will help dictate the actions you should take next:
Questions on Fees and Interest
- What is your community’s Maintenance Fee schedule?
(Annual, Semi-Annual, Quarterly, or Monthly)
- What late fees are required, and how should they be applied?
- Is late interest required, and how should it be applied?
Questions on Delinquency Actions
- Do you have a policy in your rules and regulations or anywhere else in your governing documents that defines collection actions the association will take?
- Under what circumstances the association can take action on a delinquency?
- What course of action are you permitted to take?
- When can you take action on a delinquent unit?
(How long after the payment is due?)
Before you take action, have your management team check the governing documents and state statutes. Knowing what actions are permitted for these scenarios can prevent lawsuits or prosecution by the media in the future.
Questions on Lien Rights
- Do your governing documents speak to joint and several liability?
(If a unit is sold and owes money, does that debt move over to the new owner?)
- Do your governing documents permit you to suspend rights to amenities and voting rights to delinquent owners?
- Do your governing documents allow for payment plans?
(There are some associations where payment plans must be offered and others where payment plans are prohibited.)
- Does the association have the right to recover collection costs from delinquent owners, or is this a common expense?
If your governing documents do not contain answers to these questions, you may refer to state statutes. Some states have fallback solutions written into the association laws.
If you don’t already have one, we strongly en-courage your board to consider adopting a Uniform Collections Policy. This policy establishes answers to all of the above questions, and sets procedural guidelines for the association to follow when delinquencies happen.
If you do have a policy in place, schedule a board review to ensure that all of the above questions are answered in a satisfactory manner.
Establishing a policy today won’t help with the lost fees of the past, but it will establish a standard for the future. Don’t make this up as you go along. Be prepared for whatever comes your way!
Check Your State Laws
Finally, you should know a few things from your state statutes that will help you to determine the path you will be taking to resolution:
- Is your state a super lien state?
- Are there joint and several liability provisions in your state statutes?
- Can the association intercept the revenue from a rented unit if the unit is delinquent?
- What are your state specific tolerances regarding collections activity?
- Are you required to offer up a payment plan before you take collection action?
- Does your state require a property to be delinquent for a certain amount or a certain time before you can lien and foreclose?
- Is your state a lien theory state or a title theory state?
- What are the laws regarding partial payments and restrictive endorsements?
- Does the state define how payments should be applied?
(Some states require assessments first, then fees, then fines.)
While there are federal housing laws, until Federal laws are passed regarding the governance of community associations, the laws are up to individual states, and they vary widely. (Some states don’t have any laws in place for community associations!)
To find your state’s statutes, try Googling “FL statutes homeowners association” (Put your state abbreviation in place of FL. Also, be aware that some states have different laws for HOAs, Condos and Co-ops, so enter your search accordingly.)
If these questions are not answered in your state laws, and you do not have standards set in your association’s you can follow the best practices set forth in our sample Uniform Collections Policy.
Why It Matters
As the governing body for the association, it is the Board’s responsibility (aka fiduciary duty) to enforce the rules and laws, and act in the best interest of the association.
Whether you are a manager or board member, a good understanding of the association’s documents and state laws is critical. But some of these answers require a level of understanding that not everyone can be expected to have.
It is incumbent on the board, or the board’s agent to compile and maintain the information outlined in this document, but like any highly specialized task, you can, and should, call in a professional when needed.
Compiling these rules & regulations, statutes and processes; knowing how to interpret them to best benefit the association; and implementing a collections process that focuses on maximizing cash returns and reducing delinquencies are tasks best handled by professionals. Understanding the data points hastens the collections process.
An attorney is one option communities turn to for legal action against delinquent owners. While attorneys are well capable of gathering and interpreting all of the necessary data, their focus is on legal action (punitive) rather than on recovering funds for the association.
A specialized Community Association collection agency like Axela is a professional option that will work on behalf of the association to recover your delinquent assessments.
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.