Delinquent Association Dues-Texas

What appropriate process is used in Texas for delinquent dues. We only know of filing a lien. But I heard today that we should have a collection agency to try and recover the delinquent amount. I need to know the legal way to do this. Thanks, Marsha

Margo -

Melissa is correct that you need to carefully review your governing documents about this topic. However, I don't necessarily agree with Melissa that (a) a collection agency usually steps in after and lien/foreclosure/judgement, nor (b) that the lien/foreclosure route is the best one for the HOA to take.

It really depends on:

1). Your governing documents
2). Your particular state laws
3). The individual situation of the delinquency.

As you know, liens generally prevent title transfer of the property and it's that leverage that usually results in payment when the current owner wants to sell. However some states essentially render liens useless if the home falls into foreclosure and the bank/mortgage company takes possession of the property. Some state laws do not allow HOA liens to prevent title transfer in this situation so it would be an excellent idea to find out the particulars for your state.

A collection agency can be engaged earlier than lien/foreclosure if your HOA records are well kept. Of course if you use a traditional full-service debt collector, you can expect to pay a significant percentage of the debt to them in fees (which may or may not be recoverable from the delinquent owner). But their letters and phone calls can be effective.

Another option is to use one of the "do it yourself" or "virtual" collection agencies online. For a very reasonable fee they will prepare and send a series of collection letters to the delinquent owner. But their real leverage is that after 60 days, they can (and for a small fee will) start reporting the debt to all 3 major credit rating bureaus - and they can/will continue to report the outstanding debt each month for as long as 7 years. This can have a significant impact on the owners' future ability to obtain credit, employment, etc.

The unemployment angle is a consideration. Here's how we handled situations where I knew people were struggling. We had a policy that at 6 months behind in dues, we would file a lien. At a year or more (depending on the situation) we may start the threat of foreclosure or follow through with it. A foreclosure STOPS as soon as the debt is paid...

I worked a deal with the owners who were struggling to not get officially behind. They could pay 1/2 the dues for that month without late fees attached if paid on time. The next month or when they could pay, they could double the payments and catch up. It allows the accounting to balance the books better and we still had their money coming in. We wouldn't lien if they were trying and living up to their end. However, if they did stop paying, we could then lien them with proof of money owed. This also allowed the owner to keep their voting rights as a member in good standing. We pretty much said anyone without a lien on them is a member in good standing as there was always an amount of some kind showing up on the collection reports that wasn't always owed.

A HOA can indeed make payment arrangements. Just keep in mind even if a person files bankruptsy, HOA dues are not part of that and is still owed. It's much like utilities...You can't get out of them..