Best practices on collecting delinquent fees

We have begun our budget drafting for 2011 and because delinquent fees continue to increase, we’re increasing them 4%, as well as the late fees and collection cost charged to the owner. As treasurer, I’m also looking at what’s been done on our delinquent accounts this year and then we will meet with our attorneys regarding collection strategies for next year.

What I’d like from you good folks are your comments and suggestions regarding best practices for delinquency collection. For the most part, everyone knows the basics: establish a collection policy, advise all the homeowners of the policy and enforce it quickly and fairly. What I’m wondering about are best practices after the late notices haven’t worked and it’s off to the attorneys. Our efforts have ranged from lawsuits to foreclosure and some methods seem to be more effective than others. Does your association rely mostly on lawsuits, liens or go for the jungular in a foreclosure?

I’m particularly concerned about when liens should be filed so the Association has the best chance at collecting money. Lately, it seems we’ve imposed them, only to have them wiped out in a sheriff’s sale and I’m wondering if we should even bother with that expense. We’ve also had homeowners disappear completely, or so it seems, and we end up having to write that off too – if anyone has suggestions on how to best search for these AWOL homeowners, that would also be gratefully appreciated. In reading around this site and other places, I’ve seen strategies like reverse foreclosures, blanket receiverships and selling the liens to a lien collection service bandied about – has your HOA tried one or more of these and were they effective for you? If you’re an Indiana HOA I’d really like to see what you have to say.

I know there will be always be some accounts that we’ll just have to write off, but after writing off a huge chunk of money at last week’s meeting, I’m thinking what we’ve been doing isn’t working anymore and we can’t continue to pay megabucks in legal fees, so I want to get the biggest bang as possible.

In case you’re wondering, Indiana doesn’t have a super lien law, so there’s not much we can do right now to compel the mortgage companies to pay when they foreclose.

Sheila,

I agree with you 100%. I would NEVER approach my neighbors regarding their financial situation. Everyone is living in the same recession and many struggle, but still make their payments!

Unfortunately, our assn. is in a similar situation and have tried everything from the friendly "oops...did you forget your payment" letter, numerous late notices, to liens. The liens aren't very effective because if they're paying their mortgage like many of our homeowners are, the lien is just a piece of paper until they try to sell. As much as we didn't want to, but had to, we have begun foreclosure actions on a few. Amazingly, they suddenly responded to our attorneys and made payment arrangements. What they apparently didn't realize was that by waiting until legal action was taken, they now also owe the attorney fees. If only they had worked with us when we offered them a payment plan, all of that could have been avoided.

I wouldn't say this is a best practice, it's just what we've had to do. Good luck!

Far too many people equate a non-profit corporation with a charity and are willing to use its funds as one. It is not! And good excuse or not the people not paying their fair share are taking from those that pay. What happens when you have to raise assessments to cover the deadbeats, er excuse me the downtrodden members whose only "crime" is trying to live beyond their means? Maybe I'm just heartless but when I see the extra car or two disappear along with the 70" home entertainment center because they've sold or pawned them to pay their bills, then I'll feel sorry for them. Oh, yeah while I'm on my soapbox; since when did it become a crime to work a part-time job to cover your debts? For many years I worked a full time job, managed a convenient store on the weekends and still volunteered on the local life squad.

You know, come to think of it there is no law that I know of to stop a concerned neighbor from reaching into their wallet and ponying up a few bucks VOLUNTARILY and helping their neighbor out. I'll bet if said same concerned neighbor would go around and explain to the other neighbors that Joe Blow couldn't pay; that they too would voluntarily give to help them out. It happens, when a homeowner here was injured in an industrial accident, we all kicked in some cash to cover his assessments until he started receiving compensation. To this day I don't think he and his family know who paid, we just sent a receipt each month marked paid.

Thanks everyone for your comments!

That includes you, SnakeP - as you might guess, we will have to agree to disagree on some issues, as I concur with MaryA1, LoriL1 and GlenL. The Board isn’t made up of mind readers – people have to tell us what’s going on, otherwise we can’t help. And when the roof over my head is at risk, I would think that people would wake up and stop pretending that the bills and the Association will disappear. Contrary to what you may think, we’re not made of stone – we do have homeowners who’ve had financial difficulties, said so and we’ve worked with them and will continue to do so. My beef is with the folks who say and do absolutely nothing, and sometimes that includes not responding to the attorneys.

You say you and your wife have spoken to homeowners who’ve explained their situation – good, but what comes after that? What sort of terms do you set for payment plans – or do you say “ok, well, pay whenever you can?” If that works for you, fine, but I live in a townhouse community and we don’t have the luxury of saying that because the Association pays for services that benefit everyone – if we don’t cut someone’s small lawn because they didn’t pay, not only will we get in trouble with the health department for high weeds, but the people next door who ARE paying in full and on time won’t appreciate living next to a forest.

I know some methods work better than others, and wanted to see what others seem to find most effective, so I’m grateful for BrianB and Mary’s comments. I will take a look at the letters our property manager sends out – perhaps they are too benign. I will push our attorneys to run credit reports on some of these people so we’ll know what we’re working with – if everyone’s getting paid but us, I have a big problem with that, but if the report shows liens and repossessions all over the place, that may give us an idea as to how likely we’ll get anything and maybe we’ll save some legal fees on taking action that’s likely doomed from the start.

Snake,

I think the BOD may be in violation of the CCRs if they start allowing delinquent members to do volunteer work in lieu of paying their assessments. Most, if not all, CCRs state that assessments are due from each member and give no allowance for waiving them.

If meeting face to face with a delinquent member works for you, then by all means go for it. This may work in a small community where everyone knows everyone. But in an HOA as large as mine, 1,702 members, I doubt it would work. Our members are given ample time to pay their delinquency before their case is turned over to our attorney for collection. And, yes, we do file liens whenever required. BTW, our delinquency rate is between 1-2%. IMO, when a person falls on hard times and finds it difficult to meet their financial obligations it's up to them to notify their creditors to try to work something out. It isn't up to the creditor to contact that person for a face-to-face meeting. Your HOA assessment is no different than any other financial obligation. When you have your face-to-face meeting, what is the reason given for having not contacted the BOD to inform them of the reason for not paying? You would be surprised at how many of our delinquent members are current on all their other financial obligations; the only thing they aren't paying is the HOA assessment. Sorry but I can't garner any sympathy for someone like that!

You may not be looking at this from the right angle. In fact our HoA did this in the past.

A Board can hire and fire. Currently we are finding this should entail nothing more than hiring these people as temporary contractors, issueing them a misc-1099 for tax purposes, and apply their compensation to their dues. We are still hashing out any other potential problems with insurance, legal, etc.

The old Board took your approach of collections, wage garnishment, court, attorneys, etc. and it was a miserably failure. You can not bleed a turnip.

Like I said before, it is time to start thinking outside the box.

Snake ... good idea!!! How many HOA's spend alot of money for mowing grass, etc. This could be a win ... win situation. Also, comes down to neighbors helping neighbors in tough situations. It can be good to think outside the box.

Snake…we DO get it! In YOUR community, the reason people aren’t paying their dues is because they’ve all lost their jobs, had their hours reduced or have medical problems. What YOU don’t seem to get is that those circumstances don’t apply to all homeowners in every community, so different approaches are taken. As far as having a hard-ass attitude (your words), yes sir, especially when we have homeowners who have rent-paying tenants and the homeowner is not paying the monthly assessments! In Florida a law just went into effect that allows us to collect the rent from the tenant to pay for the homeowner’s obligation to the assn. Hallelujah! It works. We even had one homeowner pay his $2000.00 debt in full rather than have his tenants pay their rent to the assn. The point here is that if they could pay in full, why didn’t they pay the monthly amount, which would have been less of a financial hardship!

What we’re doing works for our community and is because of our responsibility to ALL the homeowners in the community, not just the ones that don’t pay their dues.

"Why" a homeowner is not paying their bills means very little to me. They either owe money or they cant afford to live here and need to leave. If they get foreclosed on, so be it. They will simply find another place to live in which they can afford. Life goes on.

I'm not going to get in financial trouble by paying special assessments just because people don't pay their dues. They are not taking me down with them.

We will continue to charge late fees, liens, foreclose, etc, to PROTECT the other homeowners, NOT to punish people who cant pay.

Boy, this thread really got hopping while I was gone – thanks once again for all your comments. A few of mine, for what they’re worth:

SnakeP – I do understand what you’re saying about treating people as neighbors (really!), but I notice you really didn’t answer Mary’s question as to why homeowners in your community don’t seem to respond when they get late notices. You said your old board did things similar to what mine is doing, but it would appear your homeowners STILL continue to keep their mouth shut when they run into problems, even though there’s a new board. And you and your wife have to take time out of your schedule to go and talk to whomever about what they haven’t paid when they could have picked up the phone and explained what was happening to you or your property manager (if you have one). Does losing one’s job mean you can’t get on the phone? The lady in the hospital – it’s one thing if she’s there now, but you said letters, meaning she got more than one – why not respond to the first letter or at least make the call after being released?

And while one should remember these are one’s neighbors, how is sending late notices and filing liens any different from what the mortgage company, gas company, Sears and every other creditor out there does when their customers don’t pay? We know that bad debt incurred by, say, a grocery store ultimately gets passed on to paying customers in the form of higher food prices. No one in my community is rich and next year’s fee increase won’t be easy to live with because EVERYTHING’S going up In the meantime, everyone expects the grass to be cut, the gutters cleaned and the snow plowed. In my community, we don’t plow until at least three inches have fallen – because we have to stretch the dollars of the folks who do pay. Why should they risk being late for work or their safety because someone didn’t pay (so we could plow at 2 inches - this IS the Midwest, after all) or have the decency to explain why?
Janet, your idea about homeowners doing some of the maintenance work around the community isn’t necessarily bad, but I’d worry about liability if someone got hurt (getting injured while cutting grass? It CAN happen).

Back to my original question – are there some tactics that seem to be working better than others? I told you about my concerns with the liens and while we don’t plan to stop using them, maybe there are other things we should consider. I’ve heard of lien collection services – has anyone tried them? Does anyone send their accounts to a collection agency to see what they can do before handing them off to an attorney? What type of terms do you have on your payment plans? Etc., Etc.

Our HOA has been going for the jugular and foreclosing on homes. Then, we rent them until the banks take over. It's been a good strategy for us. So, if a homeowner owed us 10,000 and we rent the home for 2,000/mth (we keep it a little below market value because the bank can foreclose on it, while the tenant is still in there) in approx seven months we've made enough to pay the back dues (it takes a little longer because we do put $$ out of our pockets to get the house ready, pay a mgmt. co, etc). Then, when the bank takes it back they are still responsible for a year past dues which, in most cases, will satisfy the legal fees.

We files our liens immediately. When the homeowner is sent a 45 day demand letter, on the 46th day the lien is placed, if the homeowner doesn't pay up.