HOA collections, loan shark style

I have a question about late payments and collections. Please understand I am using round numbers to make it easier to understand the point I am trying to make.

Monthly assessments = $100
Late fee= 25.00
Interest = 10%
Due date 10th of each month

A member gets behind one month and our management company sends them a coupon in it, it reads is..

Amount due: 125.00 plus interest. Please pay now to avoid any other charges.

Now, just imagine a member, for whatever reason, cannot or does not want to pay for a period of four months. This member gets back on track and wants/ can start paying again. By this time there balance is 590.00 plus interest.

The member cannot pay all of the back dues and interest at one time, but starts to make extra payments, let’s say $150 per month.

Does your HOA keep charging your members an interest and late fees every month that there account is in the arrears? Or do they charge a late fee just once for every month the payment is late?

At my HOA, someone that is in arrears and they make a payment, half of that payment is put towards the late charges and interest, then the rest is put on this month’s assessments. Therefore, their monthly payments are not really monthly assessment payments, but payments toward a debt. I am just curious how others handle this, I find it a bit loan shark. At this rate, no one will be able to catch up.

I just became a board member and realized all this while looking over an account that asked for his fees to be waived. This gentleman had tried for 18 months to get this situation cleared up, to no avail. First of all, this guy was never late, the first payment he made to the HOA was done through his bank during closing and on paper it looked late, even the PM said that because I dug around I found a mistake in the accounting system. He never recieved a late notice for 18 months, and no one would listen to him and his pleas for almost 18 months after that. After I became a board member, he came to my house and explained and we both looked over his account, and low and behold the management company was the one to blame. We have since gotten this cleared up, but the liens on his house remain with a release of lien.

But after saying all that, we have over 40% of our budget in payments that are in the arrears, who is to say others are not like this. If I knew that there was nothing that could be done to reduce the debt, I might just walk away. Just like many have had to do.

As a BOD member, I want to propose, to the other BOD members, amnesty for a period of two months, with late fees and interest waived and some kind of repayment plan for some that can’t get it all in at one time.

Thoughts? Suggestions? Ideas for future collection practices to avoid this dark hole? Our last BOD never put thought into any of this and were completely against the idea of waiving anything, EVER. But, it’s time to start moving forward and avoiding bankruptcy of our HOA.

People dont know how to sacrifice anymore. I've had people with iPhones, new cars, boats, HDTV's, all kinds of toys tell me they cant pay the bill.

Well if your going to lose your house, you need to sell something on craigslist or cut the $80 iPhone bill, take out food and get a prepaid phone.

I just have no pity for people who say they cant pay yet have no problem paying other bills.

What I mean by "waiving late fees" is those people that are in the arrears, and having them pay only back dues. Not the entire community.

I have a good friend and last night it came to my attention that she is also in the arrears. Problem is her husband lost his job and there is no way for her to catch up the way the system works. I am just thinking that if someone were to sit down with them and look over there account, we might be able to get some of these back dues.

I understand that this is a business and should be treated as such, but the fact of the matter is these people are my neighbors and I am concerned if this amount of late fees continue, our business will go under. I will say this again 40% of what are annual budget is equals the amount of money that is owed by people.

I need creative ways to collet this money, any ideas?

Heather -- you are going through what our HOA is also experiencing. I have been the HOA Board President for the past two years and I acquired a "nightmare". The previous board (about 4 years ago) approved a contract with a new management agent. The contract specifies a massive listing of charges against the HOA and homeowners. One of these was the monthly fee of $15.00 (later changed to $20.00) for each month the assessment is not paid. In addition to the monthly fee, our declarations require a late fee of at least 10% per annum on top of that month fee. Issues is the $20.00 monthly fee goes to the management company for processing the late payments and the percentage fee go to the HOA. Each month the company provides the board a listing of overdue homeowners; however, all we see on the report is the amount of the late assessments and our percentage fees. The other fees are not visible to us. Yes, they have a lot more fees -- such as after three months on the listing, they charge the homeowner $50.00 for a title search to start lien action. This is in addition to all the other charges for certified letters, postage fees, and lawyer fees. When I took over we had over $6,000 in overdue assessments on the book, but now we are only talking about $200 - $300. Previous boards did not push the management company to take action, where it was necessary.

For our HOA, we only charge $80.00 per quarter for assessments fees. We finally raised the fees from $75.00 which had been there for the past 12 years. As we have found out, we will need to start raising our assessment fees every year for the next 5-6 years to get money in our kitty to defray costs for common use areas (fences, road, sidewalks, curbs, driveways, etc). Past boards never though about it.

Yes, as of Friday I waived the extra monthly charges and interest fees on one homeowner, since the management company had made several mistakes in their billing and they and the HOA failed in their responsibilities to properly notify all homeowners of the monthly overdue fees. I am also getting ready to do the same for two other homeowners.

Lynn --- do you have a management company that takes care of all your actions? If so, that would be their responsibility. If not, my recommendation would be to hire a laywer familiar with liens against properties in support of a HOA. These are actions to exact for a novice to be doing them.

1. Write a letter to all owners why dues need to be paid and warn that liens will be placed and they will be charges $xxx for this cost on top of what they owe. If they still fail to pay, legal action under small claims court will happen and wages could be garnished. Include a list of the address of each homeowner and how much they owe, no names. Include a way for the delinquent members to contact you to work something out. Yes, this needs to go out to every HOA member. People need to know the HOA is in trouble. Once the HOA is in "real" trouble from non-payment, you wont be able to hide it. You might as well tell everyone now.

2. Place the liens

3. Start small claims court procedures. The judge will look at their finances and decide how much they can afford to pay.

You don't need a lawyer to file a lien. You may want one the first time around to learn the ropes on how to do it but it is NOT required. Some states liens are free to file and other's there are administrative costs. Sending out the certified letter to a member is one of the steps. Also there may be the need to place an ad in the local newspaper in the LEGALS section for an official "PUBLIC NOTIFICATION".

Will give you a warning about lien/foreclosure. Make sure you have the RIGHT address to contact that owner. Their official address is of course the HOA's address. However, there have been a few owners who have fought foreclosure by using the excuse they weren't notified because it's their rental property etc...Just make sure you have the right owner of the property. This may be done at the courthouse by contacting the TAX department. It should be free as long as you know the lot/plat number of the property. They may not go by address but by plat.

If you do hire a lawyer, make sure it is one familiar with CONTRACT/BUSINESS laws. Your dealing with CONTRACTS even if it involves real estate. Hiring the appropriate lawyer for your needs is important. Some specialize in HOA's much like a doctor specializes in podiatry. Ask questions on their familiarity of HOA laws. Be careful when you do hire one. They will charge you for each phone call or email once you give them a retainer.

Liens are filed at your local county courthouse. While your there you may want to go to the records department and verify the copy of the CC&R's they have on record there. You may be surprised at the differences. It may be important to make sure they reflect the rules you have now.

Do not let emotions for a "sob story" come between you and the homeowner's dues. The homeowner signed a contract to pay association dues when they bought the home. While some people put their monthly dues last on the list, there is still the legal, contractual requirement for paying. Be sure your Association has a published collection policy and such policy is part of the documents each owner receives when purchasing a home. Liens are a valid part of contract enforcement and provide leverage to collect past due amounts. A contractor (plumber, electrician, etc) will place a lien on a property if the owner does not pay their bill. In most states, a lien must be settled before even the bank can sell the property.

Lastly, I want to add: DO NOT go to small claims court. Why not?

+ Small claims court has very little enforcement power. A favorable judgement does not mean payment.

+ In small claims court, you must state the exact amount owed. Future past due amounts cannot be added on later to the same case.