Reducing Delinquency Rates

Nick - I have two suggestions - the first of which you probably already have implemented.

First, make sure you have a standard collections policy and process in place. You may want to look at accelerating the process to catch things earlier. Of course that would increase the frequency and number of accounts turned over to your attorney, so that is a factor to consider. Where I live, most HOA attorneys that do collections do a "deferred" fee basis - not contingency, but at least deferred.

Secondly, I would look for ways to make your current collections practices more "impactful" on delinquent owners. One "impact" that usually doesn't happen with HOA collections is credit bureau reporting of the delinquency. As such, there's really not much in the way of consequences beyond what you described on the delinquent owner. However, if you can facilitate having the delinquent debt reported to credit bureaus AND the owner knows that's a consequence, the will be impacted in their ability to obtain credit in many, many consumer areas in the future.

There are a number of online "virtual" credit collection agencies that will report to credit bureaus. For a very reasonable fee (less than $25.00) you can have a series of increasingly strong collection letters sent from a dreaded "Collection Agency" AND have the credit bureau reporting as well.

One such service (I have absolutely no connection with them) is at www.olddebts.com There's one or two others I've seen as well, just can't remember them right now. They're somewhat of a "self-service" deal, so someone has to commit the time and energy to it.

Anyway, hope that helps.

Brian raises an excellent point regarding FDCPA.

This regulates the actions of debt collectors. In the case of using the "virtual" agencies I suggested, the burden is largely on them. However, because the system is self-service, it's incumbent on you to stop the series of letters if payment is received.

Nick, I attended a seminar put on by my local chapter of CAI to learn more about this problem. We have delinquent rates higher than 15% as well. It's a sad state of affairs but don't stand by and let someone get a free ride. Unfortunately, you need to get tougher. Your BoD can pass aggressive collection policies to stop further problems. If collectors are not getting you anywhere, you need to get creative with wage and bank account garnishment. I googled one delinquent owner and found out where he worked.

Here is a snip from my seminar:

Community association homeowners will continue to default on their mortgages and, more importantly for our associations, become delinquent in the payment of their assessments/fees to their associations. This impacts other owners who have the means to pay their assessments. Unfortunately, we are seeing some associations defer maintenance, and most associations had to increase their assessments (budget for bad debt) to make up for the deficit. This trend is seriously impacting those owners who bought at the height of the market, and those units are not worth what they paid for them.
Reports show that many owners believe their properties will not increase in value to the level of the equity in the property for years to come. Many of these owners, despite their ability to pay their assessments, are going into default, taking advantage of the free ride. And as long as they are not paying their lender, they are not paying their association either.

The situation is further complicated by the fact that lenders are slow to foreclose. Recently there were some self-imposed moratoriums as lenders were dealing with legal issues such as confirming their ownership of the mortgage or deed of trust and/or adequate review of the documents (robo signers). The fact is that many lenders are not moving quickly to foreclose because they don't want the property in their inventory and they don't want to flood the market with too many properties, which would further drive down the prices of condominiums. While it is hard to challenge their reasoning, the fact is that there is nothing that community associations can do to compel the lenders to foreclose so that someone other than the non-paying owner owns the property, other than the association’s action by foreclosing. Does that always work? No. Does it work some of the time? Yes.

Associations are incurring large bills for legal services for lawsuits that have not netted any recovery. In many cases, the owners have disappeared, and even if they are still living at the property (rent-free), they have no money or assets. Associations are going to have to look at each of their delinquent accounts and determine whether it is better to move forward with non-judicial foreclosure. This may not result in a recovery of the assessments unless a third party bidder purchases the property, which may motivate the lender to finally foreclose or allow the association to put a tenant in the property and collect some of the money that was lost (subject to rent skimming laws).

Another option is to proceed judicially against the owner who may have money to pay a judgment. In the vast majority of cases, based on our experience, the association's best option is to proceed with non-judicial foreclosure, and actually foreclose, as at least the delinquent owner will be forced out of the property, and the association can exercise some options to hopefully recoup lost money or at least get a new owner that will start paying assessments.


I have much more advice too but this post is too long already! Sorry and good luck.
Dianne

Nick,
As for the towing, I don't think this will result in anything other than putting them farther behind in their finances. When dealing with our delinquent owners, I try to remember that the economy has taken a toll on otherwise nice people. Most people didn't choose to be in arrears.
Also something to think about, if the delinquent owner is letting the upkeep of their unit slide, it may be time to step in to help. If they have stopped paying their monthly assessments & mortgage, why should they continue to purchase condo insurance for example? Are appliances in poor repair (think fire or water hazard)? If so, that could affect adjacent units or even building integrity. Reaching out to help seems counter intuitive but it is thinking about the bigger picture instead. Talk to them with respect (without making concessions) and let the lawyers do the dirty impersonal collections work.
Question: Does your CC&Rs restrict a delinquent owner from voting or holding a seat on the Board? Curious.
Dianne

Do you rent the parking spots to each unit separately from condo dues? Or are they deeded and owned by the unit?

I'm guessing each unit has deeded parking spots. So the owner owns the parking spot, not the HOA. Therefore you cannot tow them unless you foreclosed on the unit, took ownership, then towed

Laura,

The main thing to do is be consistent. Have a clear policy and comply with it.

I've actually been successful in getting past assessments caught up by offering (with board approval) to waive all late charges if the member pays all past due assessments and the rest of the current years assessments in full. Otherwise, the charges would remain in place and the Board would escalate the collection process by turning the issue over to our attorney (at which point legal fees would be added to the amount owed).

Basically we do the following:

1) 30 day letter sent via first class mail by the bookkeeper
2) 60 day letter sent via first class mail by the treasurer
3) 90 day letter sent via certified mail by the treasurer
4) Notice of intent to accelerate payments and File lien sent via certified and first class mail.
5) Notice of agenda item and invitation to attend the board meeting sent via first class mail. This is basically a courtesy informing the member that the issue is on the board's agenda to decide to bring in the legal team. Part of the letter says:

"Perhaps there are mitigating circumstances that are preventing the payments from being made. If this is the case, the Board does not desire to escalate the collection process if a satisfactory arrangement can be made.

I would also like to extend an invitation to you to attend the meeting of mm/dd/yyyy. Attendance at the meeting is not required but would provide you an opportunity to discuss the issue with the entire Board of Directors. If you would like to accept this invitation, or if you desire to attend but the time/date is not convenient, please contact . . . . ."

Once this policy was implemented our delinquency rate went from 8% on Jan 1 to 3% on Nov 1.

Yes, knock on wood, we know that even at 8% our delinquency rate is low.

8 percent? I'd love to have 8 percent.

We are at 25 percent. People complained because we had to raise the assessment 10% for next year. It's not even going to scratch the surface on our costs with 25% of our residents in arrears on their dues.

I like the idea of putting a little report in each newsletter showing what is 30 days past due, 90 etc. Maybe explaining when I first do it what happens when you only bring in 75% of your budgeted income, putting it in terms they can understand.

I also like giving folks the opportunity to come to the board and plead their cases.

I'd really like to turn folks into the big three collection agencies, because I know tons of people who don't pay bills that they think won't affect their credit score, but they aren't going to miss the visa bill.

I would love to have other folks' thoughts/ideas/comments on this. I'd also like to know what kind of delinquency percentage you are facing. I guess I'm hoping there's someone out there as stunned by this as I am.

When I signed the deed for my house at closing, they told me that my monthly assessment was X amount and that I mailed it to this address and if I didn't bad things would happen to me, including the possibility of losing my home. Does that not scare other people? Or are they not scared because they know we're not really going to foreclose on anyone?

Sorry about the duplicate posts. Not sure what happened there or how to delete them!

John,

My experience is different. When I took over as Treasurer we had several delinquent accounts, and 2 that had already gone to the lawyers and had liens outstanding. I spoke to each of the delinquents face-to-face, and found that some were simply confounded by the process and needed an someone to explain it to them. E-mail and letters had done little to open effective communication.

In all but one case, I worked out a payment plan with the homeowners to catch up their account. This personal approach also had lasting effect -- after finishing the payment plan, each homeowner has continued to pay on time (except for that one recalcitrant delinquent). Our delinquency rate is now 2% - one home out of 80.

Because every member of an HOA is a neighbor, conventional wisdom about collections may not apply. I recommend making an effort to meet each problem homeowner in person, and see what you can work out.

I’m also treasurer of our HOA, which has had a high delinquency problem for several years. Things we’ve done:

• Increased the late fee – it was $20 for several years, now it’s $30

• Changed attorneys – we like our original attorney, but felt the firm was too lenient on homeowners who were chronically late. The old attorney is closing out old cases (ironically the attorney who’s working them now is very good – if we’d had her all along, maybe we wouldn’t have had to make a change).

• Set up payment plan standards, such as requiring homeowners to provide income/expense information up front to demonstrate financial hardship. Basically, they send the information to our property manager or attorney and then the board is contacted with the proposal, which we review and decide to approve it. We took the payment plan approval away from the property manager and attorney because we found people were paying tiny amounts (e.g. $25 a month) when they had huge balances (over $1500) and they still weren’t paying current fees, so they’d fall further behind.

• Filed more liens and began pursuing our own foreclosures. It’s not a guarantee we’ll get anything, but if the house ever changes hands it gives us a slightly better chance of getting SOME money.

In a few cases we've been able to suspend our foreclosure when the mortgage company woke up and started their own action. The mortgage is superior to the HOA lien in this state, so I';d prefer they spend their own money because I'm not crazy about spending our money and still writing off a large debt. So, we we decide to foreclose ourselves, the primary objective is to get rid of the deadbeat - the sooner they leave the sooner a paying homeowner can come in.

It may take another 4-5 years before we know if any of this is effective – I’m cautiously optimistic because next year it looks like we’ll finally be rid of some seriously delinquent homeowners, one who has never paid on time (the board should have gotten rid of her around the time I moved here in 2001, but to some extent it was just as lenient on homeowners as our attorney).

Elsewhere on this website is a thread I started on the 1099-C that may be useful. I’d seen an article about this on a Georgia property management website that suggested Boards tell homeowners that if they didn’t pay, the 1099-C for the delinquent amount would be filed with the IRS – it’s then considered income that the homeowner would have to pay taxes on. The website suggested that the prospect of more taxes might persuade homeowners to come up with a payment, but if you do file it, you’ll have to write off the amount owed and cease any collection

We haven’t yet decided to try this as I’d like to talk to a tax attorney about the pros and cons.

Laura

as others have said have a consistent policy and follow it and be fair to all. We don't have any amenities either to take away and our dues are low but our penalties for late fees and administrative costs are punitive. We lien right away and when you reach a certain dollar amount you automatically get sent to a collection agent. We recently won a lawsuit against a former owner who had his house foreclosed on and we couldn't get all the back dues. We have made it a point to let our membership know that collections and lawsuits are headed your way if you don't pay.

Laura

another option, go to small claims court, get a judgement and garnish wages. There are options other than foreclosing to get the money.

Typically the governing documents provide for collecting the assessments. However, you need to read them as they may provide an either/or type of action.

Example:

Our Association may file a lien but,we have to choose between forclosing the lien or bring an action at law against the owner (seek judgement to garnish wages, etc.). The language does not allow us to do both.

"The Association may bring an action at law against the Owner personally obligated to pay the delinquent assessment or foreclose the lien against the property . . . "

had the document used "and/or", instead of "or" the association could use both options to collect.

I think so, too. And from what I've been reading, we should be able to go after rental income until assessments are caught up.

I have mentioned it to our board and property manager. Hopefully the MC's legal department will pursue it.

Why is your board sitting on its hands hoping that your MC's legal department will pursue it?

Your board has all the legal authority you need to seek your own legal advice from your own attorney and then make your very own decision as to what to do.

This is a new board, and this is our first month. I just came on the board and looked at the reports and realized how bad the delinquencies are. Our new board does seem interested in taking a more active role in getting our assessments, and I think that will happen. The way things seem to work is that we tell the property manager, he tells legal, and she works with our outside counsel to make sure things get taken care of. It sounds like a lot of steps, but when things get done it works well. That being said, I think our number one issue is that our former president made it clear to residents that foreclosure was not on the table to get assessments and there's no real incentive for these folks to pay in a timely manner. Yeah, they have gotten judgments against people and can garnish their bank accounts, but it seems like many of them don't have accounts for us to take money out of.

We just have to make it clear to the residents that there is a new sheriff in town and nonpayment has consequences. For some folks, there is a legitimate financial hardship, but most appear to not pay because they are insolent.

For every person who just doesn't pay for whatever reason, we have one person who pays only when it gets out of hand. You can look at folks' payment history and it is like they don't pay for three months, then pay all the fines and such, and then repeat the process. They have told me that there are several homeowners that for whatever reason just do not pay until you threaten them.

What we really need, as much as we need to collect from the folks who owe us for years of non-payment, is to drill into people's heads that this is a bill, just like your mortgage, light bill, car payment, etc. that has to be paid every month. It's clearly spelled out in our covenants. It's made clear when you close on your house. Where is the disconnect?

As a sidenote, another board member and I have been talking about ways we can welcome new residents into our community. So, for future new homeowners we will explain why they need to pay their assessments on time, every time. But how do we back up and engage our current folks. I have been told that some do it because they don't see the point in paying for the HOA, but they had the option to look for homes that weren't in a covenant community, so that argument falls on deaf ears with me.

Also in future issues of the newsletter I plan to publish how many units are in arrears by 30 days, 60 days, etc.
Maybe once people realize it is a huge problem, they will want to help deal with it.

We just need to start acting on all of this because we don't have our delinquencies budgeted for next year to deal with the amount of folks not paying, and we can't afford to dip into the reserves.