Insurance for Bad Debt

Started by JamesP9 • 30 replies • 3417 views

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JamesP9 (Colorado)
Posts: 13

Posted:

Homeowner Associations Boards have a fiscal responsibility to their communities. They should make sure to review a monthly financial statement, insure the property, pursue collections, etc. It has been industry practice to turn in a claim when the property has a fire or flood that affects the community, however many communities have not insured one of their most valuable assets, their balance sheet. When a community suffers a loss due to an outstanding receivable they often times write it off as bad debt at fiscal year end. It is important for Homeowner Associations to know that there are products available to insure their receivables.

Many communities suffer large losses because of homeowners not paying their fees to the community. The consequences of this may range from denial from FHA, raising fees on paying owners to cover the losses, inability to take a loan, among other consequences.

If your community struggles with collection issues you or your Board may want to google, "HOA Bad Debt Insurance" and find ways to insure your Association against bad debt.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

This is SPAM...Should read the rules of this forum before posting.

Former HOA President

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I have reported this to the moderator. There is no need for a HOA to purchase such insurance. This is a scam. A HOA has legal rights to collect debts and would NEVER need an insurance policy to protect itself in this way. HOA insurnace protects the property, the board members, and helps pay out in lawsuits. Liens and foreclosures are the legal way to collect debt NOT through insurance claims. Don't fall for this!

Former HOA President

JamesP9 (Colorado)
Posts: 13

Posted:

To all and the moderator,

Prior to marking this post as SPAM or deleting it I would suggest researching it a little farther. I am a industry professional and my company does provide this kind of service to our clients, but I am not an insurance broker, nor do I sell insurance. I am not here to promote one company over another. I am here to let Associations know of a product that is available to them.

Now for a further explanation of the insurance. I agree that the Association should use a professional collections service such as their HOA attorney to pursue the outstanding debts to the Association. However, I think we can all agree that at some point there are collection efforts that can not be resolved and the unit in question goes into foreclosure. Some states do provide a super lien option, which helps collect up to 6 months that is in arrears, but sometimes collections go on for years and the outstanding debt is well over the 6 months. Others states the Association is out 100% of the money owed to them. In this instance, at the end of the year the Association has the option of writing it off as bad debt, or using an insurance product to help protect the Association.

The auto industry has used a similar product for a long time, so accounts receivable insurance is not a new product, it is just something that hasn't been a standard practice in the HOA industry. I think this is a powerful product that will be very helpful for many Associations that have collection problems.

I'm not sure how many Associations are aware of other insurance products that are important for HOA's, such as Cyber Crime Coverage, or to make sure that their D&O policy has a lifetime tail to add continued protection to their HOA Board of Directors. The purpose of the Bad Debt post is to explain options, not to SPAM, mislead, or scam Associations or their Boards. I would hope that the community let the post remain on the website because of the benefit it could have for HOA's that need it.

I do appreciate the community being aware of possible scams, and to your point the Board should do their due diligence in making sure they are not being taken advantage of.

With Respect

JamesP9 (Colorado)
Posts: 13

Posted:

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By MelissaP1 on 11/11/2012 11:20 AM
I have reported this to the moderator. There is no need for a HOA to purchase such insurance. This is a scam. A HOA has legal rights to collect debts and would NEVER need an insurance policy to protect itself in this way. HOA insurnace protects the property, the board members, and helps pay out in lawsuits. Liens and foreclosures are the legal way to collect debt NOT through insurance claims. Don't fall for this!

I do not see this as spam. James is not selling anything or directing us to anyone who does.

I have never heard of this product and have my doubts about its cost-to-benefit ratio. I would like to hear more about it, though.

TimB4 (Tennessee)
Posts: 21,062

Posted:

I will say that I looked for bad debt insurance on the internet. I only saw one company offering it (as bad debt insurance). Using their math from their power point slides, it's a net loss to the Association that actually is on top of things. These are the issues I saw with it:

It won't do any good for properties that are already going through the foreclosure process.

They only pay once the lender takes possession of the property (so it won't pay if a short sale happens and the bank never takes possession).

It only covers actual assessments (the presentation was silent on late fees and I suspect that they are not included)

Special Assessments are not included.

It does not cover any past due assessments already owed when the policy starts (so if the Association is looking at such a policy to cover monies already owed, forget it. that money won't be covered).

They only pay up to $200 of the collection costs (they claim more but that is applied to filing liens and to start foreclosure proceedings.) We all know that costs of collection typically are more than $200 and may become more than the actual assessment.

Premium: .5% of the annual budget (like magazine subscriptions, it's automatically renewed until the Association cancels).

LarryB13 (Arizona)
Posts: 4,099

Posted:

Quote:

Posted By LarryB13 on 11/11/2012 2:56 PM
I do not see this as spam. James is not selling anything or directing us to anyone who does.

I have never heard of this product and have my doubts about its cost-to-benefit ratio. I would like to hear more about it, though.

Based on Tim's post both here and in another thread, I think I may have been, uh .... er .... um .... wrong. First time, I swear!

MelissaP1 (Alabama)
Posts: 13,836

Posted:

I didn't need to look at the site to know the results. First off the poster's suggested site would be the first one to pop up if you googled it. That's because you can pay to have google results pop up your site if you have one.

There's no use for such a policy for a HOA. The legal system isn't that much flawed. Filing a lien can be free in some states to a few hundred dollars. No one can guarantee you will ever see that money not even an insurance company. Some states do offer a "Super lien" that puts the HOA lien on the same level of the bank but most liens/foreclosures the bank gets paid first. Giving the right to collect a debt to an insurance company would disallow the HOA to to be next in line to collect. They'd only get what they paid this "Insurance company" to collect for them. Which would be only the amount insured for. The debt could be larger.

There are alot of things like this out there. You have to be careful and know your rights. It's like paying a fee to protect your credit report when you can get your credit report for free once a year AND can put a 60 to even a 3 year fraud alert. Why pay the $19 to protect your credit when it's legally within your power to do so? Same here with this "Insurance policy" offer. You have more power NOT having such an item than having it. Read the fine print and what Tim stated...

Former HOA President

JamesP9 (Colorado)
Posts: 13

Posted:

It is great to see people like Virgina do their homework on a subject before posting. There was one inaccuracy about the policy not covering A/R or Legal because the policy would. But I would like to thank her for her professionalism, and for researching the product.

There are some other posts where the post is inaccurate and the person seems to be misinformed.

I don't think that the poster went as far as to find out if the top three paid for Google search results yielded results for the product discussed here. However, I went ahead and took the liberty of doing it myself. Now Google AdWords will shift around, but here are my results:

1) www.ariglobal.com/

2) www.usinsuranceonline.com/

3) colorado.netquote.com/

I would challenge anyone else to call these three companies and find out if they do assessment coverage for Homeowner Associations. I think that some are misinformed and quick to jump to a few conclusions. The poster goes on to say that "There's no use for such a policy for a HOA. The legal system isn't that much flawed. Filing a lien can be free in some states to a few hundred dollars. No one can guarantee you will ever see that money not even an insurance company." It is important to understand that we aren't discussing a flawed legal system. The Association has its documents that will tell the Board, Owners, Management Company, and Law Firm how collections will be handled. I'm not the insurance agent, but as I understand it the owner has full right to redeem all the way up until the foreclosure takes place. After the lender repossession occurs the policy will pay out. So either the owner pays, or your insurance policy will. The way I understand the posters comment is that the Association should file a lien, if the delinquent owner doesn't pay then the Association should collect the 6 month super lien (or nothing depending on the state) and continue to chase the owner. I would much rather have a policy pay the Association and not continue to pay a collections agent to pursue a collection against someone who doesn't have any money. And remember that the Association will only get a percentage of what is collected, and the other percentage will go to the collections agency. I think if you weigh the options between paying a premium on an insurance policy, and what the Association would be, "out of pocket," you would be pleasantly surprised.

To discuss "No use for such a policy." There are many Associations that have not only a use for it, but it has given them great benefit. I have been talking about this product at great length with many people over the last year, and it seems "too good to be true." So it doesn't surprise me that some are skeptical and call it a "scam."

The poster goes on to say there are a lot of products out there like this one. I think that if you do a search, you will find that this statement is incorrect.

If you have questions regarding the product or policy, you can again do a Google search and give a company a call, or call an HOA law firm and inquire. On my screen there is one up and to the left, I know they are well respected and I think you would find that the product works for those who need it. I would remind Association Boards to have their attorney review the policy, I would ask the company to provide references to other Association Boards that have used the product, and perhaps even talk with your CPA. I think it is very important for Association Boards to protect themselves and their Association.

Kind Regards

TimB4 (Tennessee)
Posts: 21,062

Posted:

Quote:

Posted By JamesP9 on 11/12/2012 7:00 AM
It is great to see people like Virgina do their homework on a subject before posting. There was one inaccuracy about the policy not covering A/R or Legal because the policy would. But I would like to thank her for her professionalism, and for researching the product.

James,

First it's Tim. I'm from Virginia.

Second, I'm using your own power point slides:

The covered amount for each Unit is the actual monthly assessment up to
$1000 per month.
The sub-limit of $1000 for Collection Costs includes:
• $200 for Collection Costs
• $300 for the recording of the Claim of Lien
• $500 for the commencement of Foreclosure Proceedings.

Granted, costs of collection does include filing the lien and starting foreclosure proceedings but typically once the issue goes to legal for collections, an Association likely spends more than $200 prior to filing a lien. Heck, when we last turned an assessment issue over to the attorney it cost us $250 just to have them send a letter. So we will just have to agree to disagree as I'm going by my interpretation of the information your company provides.

Your Companies site identifies itself as offering various Management services for Associations. If you were really concerned about the Association's you represent, I don't see how you could offer this policy.

Third, I'm starting to believe like the others are, you are spamming the site and have added my voice to reporting you to the moderator.

TimB4 (Tennessee)
Posts: 21,062

Posted:

Quote:

Posted By TimB4 on 11/11/2012 3:25 PM

Premium: .5% of the annual budget (like magazine subscriptions, it's automatically renewed until the Association cancels).

I made a mistake on my math. The actual cost is .05% of the annual budget

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Essentially your selling your right to lien/foreclose to this "Insurance company". It's more like a collection agency than insurer. You pay them X amount of dollars and they will pursue this on the HOA's behalf. However, they only guarantee the HOA back a percentage of what they collect. This also means the HOA can no longer pursue this debt legally.

No matter how you skin this cat, you still have a dead cat with no skin...Why pay a company to give up your rights to pursue legal recourse when it doesn't save you any money or time? The better option is to stay with the system and not "buck" it. This is a scam no matter if the poster believes it is or not.

Former HOA President

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By MelissaP1 on 11/12/2012 11:42 AM
Essentially your selling your right to lien/foreclose to this "Insurance company". It's more like a collection agency than insurer. You pay them X amount of dollars and they will pursue this on the HOA's behalf. However, they only guarantee the HOA back a percentage of what they collect. This also means the HOA can no longer pursue this debt legally.

No matter how you skin this cat, you still have a dead cat with no skin...Why pay a company to give up your rights to pursue legal recourse when it doesn't save you any money or time? The better option is to stay with the system and not "buck" it. This is a scam no matter if the poster believes it is or not.

Mel

Overall I do agree with you.

I personally believe most "insurance companies" sell plenty of products that when sold to one "type" person could well be a scam, but depending on ones needs when sold to another "type" person they might be a good fit.

As an example: I say a foreclosure by my association is not in my associations best interest and it is this side of stupid. That said, in some associations it could be a wise move.

Salt or no salt?

TimB4 (Tennessee)
Posts: 21,062

Posted:

Quote:

Posted By JohnC46 on 11/12/2012 1:14 PM
That said, in some associations it could be a wise move.

John,

I actually agree with you that depending on the development and the number of foreclosures, this type of insurance could be a good decision. My concern on what James is offering is that it only pays once the Bank takes title. We have all read news articles where banks are delaying taking title to foreclosures because they don't want to be saddled with paying the Assessments as the new owner.

For our Association, it wouldn't be worth the cost and, as James said, "it appears to be too good to be true" which makes it appear to be a scam.

CindyB5 (Maryland)
Posts: 9

Posted:

I read and enjoy this bulletin board because, as a new HOA board member, I learn a lot of helpful stuff. Now I know don't need insurance for bad debts

.
~Cindy

CindyB5 (Maryland)
Posts: 9

Posted:

Now I know *we* don't need insurance for bad debts. Too bad there's no 'edit' choice on this board.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

There is an "edit" choice on here. You have to select the "Help" and report a post if you see one that violates the rules. This one has been reported but may have remained due to the educating factor it has created. I am afraid many new HOA board members or those with little HOA knowledge would fall for such offers. I hope that we the regular posters here have provided enough information on the subject to recognize what to look for when you see such offers or HOA is approached. The fact that if you can google something with these certain key words is always a dead give away... Hope others have read this post and recognize this isn't something that a HOA needs.

Former HOA President

RyanH1 (Colorado)
Posts: 2

Posted:

This is real... I am an independent insurance agent and have begun using this coverage to address the exposure an Association faces when delinquency rates are high. I believe the example was made earlier, but to reiterate the point, an uninsured fire loss (say $20,000 of damage to the club house) would create quite a uproar in the community. Why isn't the same mentality applied when a budget falls $20,000 short due to delinquencies? In either situation the Association is facing a $20,000 deficit.

If a Community had the opportunity to insure their annual budget, just as business would insure their accounts receivables, why wouldn't an Association take advantage of such insurance? There are many variations to these types of programs and each Association comes with their own unique set of circumstances. Finding the right program requires an in depth analysis of the financials and accounting practices. Not all HOA's need this coverage, but for those who struggle to cover their expenses this could be the solution to that problem.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

An HOA does NOT need such "insurances". You can't protect a HOA from deliquent accounts nor can you improve the rental conditions by having such insurance. The legal and cheaper resource for a HOA is to LIEN or FORECLOSE. Some states it cost no money to file a lien and others a few hundred dollars. A lawyer may or may not even be needed. A foreclosure is NOT a money making process and just stops the bleeding of the HOA budget.

I don't see how having an insurance policy such as this one is any benefit for a HOA. It just isn't. You may have the "product" but doesn't mean the product is any good for the application. It's NOT worth the money for the benefit if any to have such an "insurance" option.

Former HOA President

TimB4 (Tennessee)
Posts: 21,062

Posted:

Ryan,

I'd be willing to admit that for a huge (not large but huge) Association that has a million dollar or more budget and a small number of lots requiring huge assessment payments, that this insurance may or may not be beneficial. Personally, if you have an annual 20K delinquency rate based on foreclosures, there's a larger problem then deciding on an insurance policy.

However, for smaller Associations with minimal foreclosures such a policy would not be beneficial. We have 130 lots with monthly assessment installments of $75 for 2013. Because we are self managed, our assessments are lower than other similarly sized associations in our area. In the last 10 years we have only had 1 foreclosure that went to the bank. The other foreclosures were settled on short sales which the policy being discussed wouldn't pay on because the bank never took possession.

Since it can take years for the foreclosure process to be completed, it appears that the insurance doesn't cover late charges and limits the payout on aspects of the collection process (read the earlier posts) I don't believe that a policy like the one being discussed would be a prudent investment on behalf of 90% of the Associations in the U.S.

That's my opinion. Based on posts on this thread, it appears to be the opinion of those willing to post on the topic.

I think we have beaten this topic to death. Please let it rest in peace.

JamesP9 (Colorado)
Posts: 13

Posted:

I think I will need to agree to disagree with Melissa.

Melissa makes mention of 90% of Associations not needing this product. The United States just suffered a housing crisis, and imagine how many Associations would have benefited from an insurance product that would have paid fees to a community when they suffered as many foreclosures and short sales as they did. As I understand it, the product pays even if a short sale occurs. These kinds of products are here to help. I hope those Associations that feel it could be a powerful and useful product take it into consideration. I will agree with Melissa that it isn't for everybody. There are many Associations that will have no need for an insurance product like this one.

I have to disagree with the assumption that you have to have a million dollar budget for a product like this to work. I think smaller communities who would struggle more because of a few delinquencies may find that they benefit equally to that of a larger Association.

So I agree that we need to put this to rest, and let individual Associations decide if it is a product that would benefit their community.

To all:

I apologize for what seems to be bantering back and forth between myself and others posting on this site. I assure you that I am not here to lead you into a "scam" nor am I trying to "break the rules" of this site. I have experienced being a manager for HOA's that struggle so bad because of collection issues that they can't afford to keep their pool open, get denied FHA certification, have to use their Reserves to pay their Operating Expenses, and many more issues. There are many people in this industry including myself that work very hard trying to find reliable solutions to every issue facing HOA's, and it's tough to hear someone call it "not worth it," or a "scam." We (meaning the management community) are here working hard to bring you professional and reliable services.

With all my respect and devotion

James

TimB4 (Tennessee)
Posts: 21,062

Posted:

Quote:

Posted By JamesP9 on 11/15/2012 9:08 AM

The United States just suffered a housing crisis, and imagine how many Associations would have benefited from an insurance product that would have paid fees to a community when they suffered as many foreclosures and short sales as they did.

The housing crises was 4 years ago. Rules were put in place to try and prevent that crises from being repeated. Associations who had liens filed would have likely had the lien paid in short sales (in order to clear the title).

Granted, had an Association who had huge foreclosures had such a policy in place, they may have minimized some of their losses. Of course, this policy wasn't available then and with the new rules would hopefully not be needed in the future.

Quote:

Posted By JamesP9 on 11/15/2012 9:08 AM

As I understand it, the product pays even if a short sale occurs.

I suggest that you look at your power point presentation. The policy only pays when the bank takes possession. In a short sale, the bank never takes possession. Therefore the policy would not pay.

RyanH1 (Colorado)
Posts: 2

Posted:

Melissa,

I think it is safe to say that delinquency coverage isn't a good fit for you or your Association(s). However, it may a bit irresponsible to make a blanket statement citing no HOA could benefit from such a program.

I agree with you in that not all HOA's need delinquency coverage. Many HOA's have members who pay their dues and delinquencies are minimal with little effect on the overall financial stability of the community. There are also many HOA's that do have delinquency issues and struggle to make payments to their landscapers, insurance carriers, and management company. These are the Associations that need delinquency coverage.

To say that HOA's do not need delinquency coverage is similar to stating they don't need umbrella liability in addition to their general liability or that their crime policy doesn't need a cyber/EFT fraud endorsement.

I'm not trying to argue or create unnecessary conflict I'm simply attempting to provide information/solutions to the delinquency problems we face in our area of the country.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Ryan

You are also not being as altruistic as you claim as you sell the stuff.

Stop insulting my intelligence.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

This insurance is just "Snake oil" for HOA's. No benefit and all paid to the insurance company who is trying to sell you on fake fear/reality. Assuming too much and perpectuating urban legends. You don't even know how a HOA works to sell such a product to a HOA. If you did, then you would see the snake charmer in the backroom putting baby oil into "Snake oil" bottles.

The court system holds the power for a HOA to collect on debts through liens or foreclosures. Some states even offering a "Super lien" that puts HOA's on the same level as banks when getting paid debts. Those super liens are what HOA's should be fighting to have in their states. NOT buying some insurance that will cost more in the long run than any money they could ever get back. Snake oil...

Former HOA President

JamesP9 (Colorado)
Posts: 13

Posted:

As much as I was shocked at the response to the product that was presented here, I also understood that there is a need for a different product. Many Associations are taking part of the valuable Bad Debt Insurance products for Homeowner Associations, and I felt it necessary to talk about what is new on the Market.

The newest product to help Associations with delinquency issues is not an insurance product, but a funding product. In Florida and Colorado there is currently a product that will pay HOA assessments when owners fail to. This has several advantages.

1) No more collection issues

2) If the Association is trying to take a loan, but has over a 10% delinquency issue, often times the banks underwriters will deny the loan. If a company is paying all late assessments, they could become a lendable community again and obtain that much needed loan.

3) Reach FHA certification standards.

4) Fulfill the Boards fiscal responsibility.

This product is not a loan, but rather a company purchasing the right to collect the HOA fees and in turn the funding company will pay the HOA fees to the Association.

Think of it like this... Currently you pay an attorney or collection agency to recover late assessments. If the attorney is unsuccessful in collecting the HOA fees, then the Association is entitled to collect the super lien! But wait... Doesn't the Association then turn around and give the money they collected in the super lien to the attorney for their collection efforts?

Now there is a product on the market that will pay the HOA fees to the Association. This is not a loan, but rather a transfer of risk. If the collection company is unable to collect the fees, then they assume that risk and will never ask for the money they fronted to the Association back.

The funding company will send a check for the full amount agreed on to the Association the day after the Associations late date every month.

No more underfunded budgets, no more bad neighbors, if you have neighbors in Colorado or Florida that aren't paying their fees, there is a solution and you can get a new neighbor who will guaranty payments.

Cheers!

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Still Snake oil...Florida a renter can pay the back dues of the owner. It is the only state that has that law I know of. Better to pay for a lien against an owner than pay insurance. Fact...

Former HOA President

TimB4 (Tennessee)
Posts: 21,062

Posted:

Quote:

Posted By JamesP9 on 02/08/2013 3:05 PM

This product is not a loan, but rather a company purchasing the right to collect the HOA fees and in turn the funding company will pay the HOA fees to the Association.

Sounds like your selling the note.

It also sounds like your repackaging the same product you were selling earlier.
However, instead of hiring the collection agency the Association is selling the note to them.

Associations need to plan for the potential of delinquent accounts.
Not by purchasing insurance or selling notes but by properly drafting a budget and having a cushion for the bad debts.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By FarehS on 04/12/2013 10:49 PM
Thanks for some info.We all know that debt is basically bad and money is essentially bad. Ergo, one should have more of the latter than the previous but few are able to stick to that concept. A recent Bankrate survey found up to one quarter of the country has more credit card debt than savings. Source of article: Debt Settlement

I REPORTED THIS AS SPAM.

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