In contemplating the past twenty years in the community association management business, I have found the most challenging issue for board members to be the collection of delinquent assessments.
Some board members want to avoid legal fees by taking on the position of “collection representative”. They want to be the nice guy and approach the delinquent owner personally by way of a phone call or face-to-face meeting. This personal effort usually only works once. The second time around, the delinquent owner does not welcome the board members as nicely because he or she is embarrassed and does not want neighbors, including board members, to intervene in their personal financial affairs.
The board member’s colleagues should tell him that this is not the recommended approach to collecting past due assessments; making telephone calls and confronting delinquent owners may engender personal risks. Most state statutes and federal laws are specific with regard to collecting past due assessments.
To ensure a consistent and fair treatment of delinquent owners, the board should approve a collection policy that details exactly what a delinquent owner, or an owner who partially pays or who writes an insufficiently funded check, should expect from the association. Depending on what is already stated in the governing documents and state statutes, a collection policy should include:
- The amount of late and collection fee
- A date when the late fee will be charged
- When the account will be referred to a collection attorney or agency
- Time period in which the automatic lien will be recorded
- When the property will be posted for foreclosure
- An explanation of the foreclosure procedure
- Confirmation that the owner is responsible for all legal fees and that the costs will billed to their account
- A provision allowing delinquent owners the opportunity to pay in full or submit a payment plan to the board for consideration
- Flexibility to allow the board to consider an owner’s unique financial circumstances
All board members must remember not to discuss any delinquent accounts with anyone other than board members, the manager, and legal counsel
In pursuing legal remedies, a judge may award a personal judgment to association, but this does not necessarily mean the association will immediately collect the money due it. The association may need to pay legal fees to collect the judgment if the owner is not forthcoming with the funds. So, even if the association wins a judgment, the debt may still be uncollectible. It may be best to write off the debt and file a report on the delinquent owner with a credit bureau.
Boards of directors should understand that delinquent accounts prevent the community from completing projects and/or starting new ones. Additionally, the legal system is slow and is not always fair, but with a published collection policy and a due process system in place, associations have a better opportunity to eventually collect delinquent assessments.
This article was provided and written by staff of Associa Living.