MC4 (Florida)
Posts: 29
Posts: 29
Posted:
What does it mean when a management company write off the delinquent HOA dues as a bad debt on the books?
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Bad Debt
Started by MC4 • 16 replies • 4654 views
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RogerB (Colorado)
Posts: 5,067
Posts: 5,067
Posted:
MC4, it means the Board of Directors has voted and approved to no longer purse collection of the account(s) which have those delinquent amounts and have authorized the MC to wirte off those amounts as bad debt and to clear those accounts of those amounts of money owed.
MC4 (Florida)
Posts: 29
Posts: 29
Posted:
Please dont tell us that. We never approved for anything to be written off as a bad debt. We just recently became the new board. We are reviewing the financial statements and this came up. When we asked the previous board they stated that they never approved such thing, but the management company is seeing that they didnt need approval and that this is good for us. We can seem to figure how can it be good for us. It looks like for the past several years, they have been writing off the uncollected dues as a bad debt. It seems like it's anywhere from $12,000 to $15,000 a year.
CharlesB5 (Colorado)
Posts: 11
Posts: 11
Posted:
If the executive board took official action authorizing the management company to write off anything owed to the association as "bad debt," then there should be a record of such action in the minutes of the board meeting when that action was undertaken.
SusanW1 (Michigan)
Posts: 5,202
Posts: 5,202
Posted:
Don't kill the messenger . . .
Where else would uncollectibles be posted on a financial?
If the board had no collection policy, or these truely were deemed uncollectable, then they had no choice but to list them as written off as bad debt.
Where else would uncollectibles be posted on a financial?
If the board had no collection policy, or these truely were deemed uncollectable, then they had no choice but to list them as written off as bad debt.
DanielH1 (California)
Posts: 482
Posts: 482
Posted:
Your management company is incompetent. Fire them and find somebody else.
If you want to "undo" the bad debt write-off, it'd be a good idea to get a lawyer's opinion. If the debtor was informed that their debt was written off, they might legally be able to force you to keep it that way. If the debtor wasn't informed, it may be possible to re-state the financials and then get a collection agency to collect on these debts.
If you want to "undo" the bad debt write-off, it'd be a good idea to get a lawyer's opinion. If the debtor was informed that their debt was written off, they might legally be able to force you to keep it that way. If the debtor wasn't informed, it may be possible to re-state the financials and then get a collection agency to collect on these debts.
SteveM9 (Massachusetts)
Posts: 3,699
Posts: 3,699
Posted:
This topic is going to get messy. I can see it ending in the mgmt company getting fired.
MaryA1 (Arizona)
Posts: 388
Posts: 388
Posted:
MC4,
Do you have an attorney who handles your delinquencies? If so, the attorney would be the one to advise you whether or not a particular delinquency should be written off as a bad debt. This is not a decision for the mgr to make, especially w/o board approval. Not all delinquencies should be written off, I'm sure some are collectible. It sounds like past boards have given the mgr far too much authority. The BOD needs to have a talk with the mgr and let him/her know who is in charge. Those write-offs can be very easily reversed with an adjusting entry on the books, unless the delinquent h/o's have been notified that their account has been cleared.
Do you have an attorney who handles your delinquencies? If so, the attorney would be the one to advise you whether or not a particular delinquency should be written off as a bad debt. This is not a decision for the mgr to make, especially w/o board approval. Not all delinquencies should be written off, I'm sure some are collectible. It sounds like past boards have given the mgr far too much authority. The BOD needs to have a talk with the mgr and let him/her know who is in charge. Those write-offs can be very easily reversed with an adjusting entry on the books, unless the delinquent h/o's have been notified that their account has been cleared.
NameW (Virginia)
Posts: 74
Posts: 74
Posted:
I think it would depend on the cost of the suit and collections. It would be one thing if it could be done in a lower court with a simple small claims suit, but if it moved up a notch to a higher court where lawyers had to paid, the costs of winning the judgment may indeed be not worth the trouble. Since HOAs aren't usually taxed on collected assessments (Form 1120 H and all that) there is no deduction benefit to a bad debt. Here in VA our HOAs have several routes. The Treasurer (or the President or their delegate) can small claims court (in District Court) the year's unpaid assessments then file a lien 10 days later on the property when the judgment is won at trial. Or, they can do the (much) more expensive Circuit Court route of attempting perfection of an HOA lien. Are there Bad Debts? Sure. The guy is penniless and while you are waiting for the court hearing the house is foreclosed on and he then moves out of state and lives in his car under a bridge with no employment potential. That is probably a bad debt not worth spending a fortune of HOA money to pursue.
MC4 (Florida)
Posts: 29
Posts: 29
Posted:
based on what I am seeing right now we are in debt with HOA deliquencies $100,000. It appears that some of this debt is 2 years old. Apparently, in the past years they have been writing off anywhere from $10,000 to $15,000 in bad debt. It is obvious that the management company has been telling the Board what to do instead of the other way around. Since a new board was recently elected, we have been going over all documents. A lot of things don't make sense and there is a lot of oposition from the management company. They have been charging us $1600 a month and they have done nothing except come up with many excuses why things are not being done. Can someone recommend a reputable management company. We are in Central Florida. The members of this HOA are fed up.
NameW (Virginia)
Posts: 74
Posts: 74
Posted:
Can't directly help, but $100,000?
Yowza!
There possibly may have been some mismanagement. Ask them to produce the document that allowed them to decide which debts were to be pursued and which ones weren't. Likewise ask them for the documents leading to their determination that this debt was bad but that one wasn't. Have they ever initated any collection actions? Is there a legal hole in your By-Laws, Covenants or state code that made the debts unenforceable? If so then maybe it really is a bad debt. If not, then strongly suggested action is consider talking to and hiring an attorney to collect the 'bad debt' money from the management company. Let them prove it really was a bad debt. At the same time let someone else go after some of the money. Any money thus collected is potential proof it wasn't a bad debt and the management company simply failed to do the due diligence thing.
Yowza!
There possibly may have been some mismanagement. Ask them to produce the document that allowed them to decide which debts were to be pursued and which ones weren't. Likewise ask them for the documents leading to their determination that this debt was bad but that one wasn't. Have they ever initated any collection actions? Is there a legal hole in your By-Laws, Covenants or state code that made the debts unenforceable? If so then maybe it really is a bad debt. If not, then strongly suggested action is consider talking to and hiring an attorney to collect the 'bad debt' money from the management company. Let them prove it really was a bad debt. At the same time let someone else go after some of the money. Any money thus collected is potential proof it wasn't a bad debt and the management company simply failed to do the due diligence thing.
JamesP9 (Colorado)
Posts: 13
Posts: 13
Posted:
The Association has options to insure itself against bad debt. Your Board of Directors or members can google, "HOA Bad Debt Insurance" and find products that can help insure the Association against those losses.
BruceF1 (Connecticut)
Posts: 2,535
Posts: 2,535
Posted:
Quote:
Posted By JamesP9 on 11/11/2012 10:20 AM
The Association has options to insure itself against bad debt. Your Board of Directors or members can google, "HOA Bad Debt Insurance" and find products that can help insure the Association against those losses.
The Association has options to insure itself against bad debt. Your Board of Directors or members can google, "HOA Bad Debt Insurance" and find products that can help insure the Association against those losses.
Isee by the number of posts you are a "newbie." One of the mistakes newbies make on this forum is to resurrect old posts. It is usually advisable to start a new post rather that resurrect one that is two years old.
MelissaP1 (Alabama)
Posts: 13,836
Posts: 13,836
Posted:
Bruce this is a spammer person. He's trying to sell insurance to HOA's to protect themselves from unpaid debts. Which anyone in a HOA would know this is a scam...There's no need for such insurance. He's already posted another topic that I reported to the moderator.
Former HOA President
BruceF1 (Connecticut)
Posts: 2,535
Posts: 2,535
Posted:
Quote:
Posted By MelissaP1 on 11/11/2012 11:17 AM
Bruce this is a spammer person. He's trying to sell insurance to HOA's to protect themselves from unpaid debts. Which anyone in a HOA would know this is a scam...There's no need for such insurance. He's already posted another topic that I reported to the moderator.
Bruce this is a spammer person. He's trying to sell insurance to HOA's to protect themselves from unpaid debts. Which anyone in a HOA would know this is a scam...There's no need for such insurance. He's already posted another topic that I reported to the moderator.
Melissa,
Thanks. I noticed this after I posted my previous response to this old post. Nice catch.
TimB4 (Tennessee)
Posts: 21,059
Posts: 21,059
Posted:
MC4,
You need to read the management contract front to back and fully understand it. Then read it again!
The Board then needs to have a heart to heart with the management company and explain that this board will be expecting the contract to be followed and if that is an issue for the management company that you would appreciate them giving notice.
If your Association is writing off 10K to 15K per year, i don't see how you can afford a management company.
There are times when it's more prudent to stop the bleeding and forgive the debt then to spend more than the debt is worth knowing it's unlikely you will ever collect. However, this decision should come from the Board and not from the MC.
Tim
You need to read the management contract front to back and fully understand it. Then read it again!
The Board then needs to have a heart to heart with the management company and explain that this board will be expecting the contract to be followed and if that is an issue for the management company that you would appreciate them giving notice.
If your Association is writing off 10K to 15K per year, i don't see how you can afford a management company.
There are times when it's more prudent to stop the bleeding and forgive the debt then to spend more than the debt is worth knowing it's unlikely you will ever collect. However, this decision should come from the Board and not from the MC.
Tim
TimB4 (Tennessee)
Posts: 21,059
Posts: 21,059
Posted:
Ahh shoot.
I failed to look at the date of this thread and see that it was over 2 years old.
I failed to look at the date of this thread and see that it was over 2 years old.
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