To ensure the stability of every association, maintain property values and fulfill fiduciary obligations, it is important for the association’s board of directors to effectively pursue collection of assessments.
Associations’ annual budgets are based on the assumption that all property owners promptly and consistently pay their assessments. Typically, delinquency rates for an association range between five (5%) and twenty-five (25%) percent and sometimes, even greater. These delinquencies result in budgetary shortfalls and ultimately could result in the need for a special assessment for all property owners. Even worse, decreased property values can result from underfunded operating and reserve accounts. For these reasons (special assessments and decreased property values), failure to pay association dues directly and substantially affects all property owners.
An association should make every effort to collect as close to 100 percent of assessments as humanely possible. Constant communication with the property owners is the cornerstone of an effective collection program. The collection policy must be written and executed by the board of directors, and be enforced in a consistent and uniform basis.
Boards that are unhurried, laidback, or even neglect to collect assessments quickly indicate to property owners that non-payment is acceptable. The key to managing delinquencies is for the association to be prompt, consistent, and persistent in its collection practices. In the past, many associations have relied solely on the recording the automatic lien to collect delinquent assessments. Unfortunately, when a unit is foreclosed by a lender, the association’s lien for unpaid dues is eliminated. Furthermore, repayment of the lien can take years and judicial enforcement can be cost prohibitive.
In addition to recording liens, there are alternative courses of action that board of directors should pursue. Some strategies that have been successfully utilized to collect delinquent association dues and to address common issues facing associations are:
- 30 Day Notice Demand Letter
- 60 Day Demand Letter
- Lien Notice Letter
- Non –Judicial and Judicial Action to Collect Assessments
- Appointment of Trustee or Lawsuit
- Foreclosure
- Discontinue Services
- Prohibition on Using Common Elements
- Prohibiting the Right to Vote at any meeting of the Association
In collecting association assessments, all board of directors should be advised of possible liability under the Fair Debt Collection Practices Act. Empty threats of litigation, wrongful foreclosure or over-aggressive activity may violate the Act and subject the association to substantial liability. Additionally, all correspondence to the debtors should have the appropriate disclosures and warnings.
Even in this tough economy, with proper collection practices, associations can greatly decrease their exposure to 1) delinquent association assessments; and 2) having to write off assessments to bad debt in case of foreclosure or bankruptcy. Association board of directors must closely abide by their fiduciary obligation to the property owners by adopting a consistent collection policy and strategy.
This article is provided by Principal Management Group of Houston.