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Debt Collection Agencies

Started by SteveH20 • 19 replies • 3472 views

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SteveH20 (South Carolina)
Posts: 32
Posted:
We have about 16 homeowners who owe back dues in the range of $100 to $1,000 who show no interest in paying promptly. Does anyone have any experience in hiring a debt collection agency to collect these back dues?

I would guess (like everything else) there are plus/minus considerations to choosing to go this route.
BradP (Kansas)
Posts: 2,640
Posted:
you have a range of options...

1. your documents should allow you to file a lien on the property, you can do that and then just sit back and wait for it to try and sell and that would protect you in that case. Downside is you may not see the money for years, doesn't solve the immediate problem and if they get foreclosed on you probably see nothing.

2. You can hire a debt collector, they typically only get paid if they collect money and that can be up to 40% of the original debt. Check your documents it may allow you to add on their fee to the amount they owe. People don't like their credit screwed up so it may be enough of a nudge to get them to pay. Downside, you aren't obligated to a collection agency as a citizen, they only power they have is to ruin your credit.

3. You may be able to with a debt that small go to small claims court, once you get a judgement you can explore garnishing wages, etc.

A lot of options, the key is you need to develop a policy and be consistent across the board.
SteveM9 (Massachusetts)
Posts: 3,699
Posted:
Quote:
We have about 16 homeowners who owe back dues in the range of $100 to $1,000 who show no interest in paying promptly.


You should have an established process and timeline of what happens and estimated costs of being late, and inform the homeowners. Late fees, fees for filing liens, immediate foreclosure and eviction and personal lawsuit for all the fees associated with this process. If people are late, and show no interest in paying, the HOA isn't doing its job. Debt collection service is useless in a HOA setting.
JohnC46 (South Carolina)
Posts: 14,265
Posted:
We have tried several ways to collect back dues in that we talk to people, try and arrange payment plans, waive late fees ,etc. but it get to a point where they ignore us or do not honor their promises. We felt that by this time we had no "weight" with them so we needed an alternative.

We have had discussion with a real estate law firm that has a division within it that specializes in owner associations. They use a multi step process to collect. To the best of my recollection it will go like this:

1. After 30 and 60 days late we send polite letters from the HOA. In the next quarterly bill, the HOA sends notice reminding the owner they are 90 days late and asks for back and present dues or a payment schedule acceptable to the HOA within 30 days or we will turn the account over to a law firm for collection. It is now almost 150 days since we have seen a payment.

2. The law firm sends a letter informing the homeowner that they have received the case and are prepared to file a lien and commence to foreclose unless owed dues are paid or a payment schedule is arranged with the HOA within 30 days. The firm charges the HOA $65.00 for this letter.

The law/collection firm then back off and awaits further notification from the BOD. It is now back in the BOD's lap. The BOD then tries once again to reach an agreement. In several case, not all this was enough for them to make arrangements to pay. If no arrangement are made thent we turn it over to the law/collection firm again.

3. Law/collection firm sends a letter saying a lien has been filed (which it has)and foreclosure has commenced. It will now cost the homeowner $495.00 (to the law firm) plus owed dues to the HOA to stop the process. No charge to the HOA.

4. Law/collection firm files some paperwork with the court about foreclosure and notifies the homeowner that foreclosure has begun and it will cost $995.00 (to the law firm) plus back dues to the HOA to stop the process.

5. The next step would be the HOA pays the law firm $400.00 and foreclosure commences. The process is completely stoppable at this point by the HOA, the HOA would still have a lien, and the law/collection firm is owed $995.00

We do not want to be in the real estate business as in we have no wish nor desire to foreclose. I am not saying all should not foreclose but our decision is not to.

We have not gone past Step 3.

We have had three foreclosures. Two took about one year to settle and both units were sold but the HOA saw no money from our liens as there was none there to be had. Our present one is a result of the owners death. He had a 100% VA loan and the home is tied up in his estate.

Hope this helps.

MelissaP1 (Alabama)
Posts: 13,836
Posted:
I agree that an official timeline needs to be established and acknowledged before the collections process. $100 isn't much of a back dues considering the possible legal costs associated with collecting that.

We had a policy of 6 months we would lien. Our dues were only $50 a month. So at 6 months that was a good time to weed out those in financial trouble, protesting, or just don't want to pay. Without that time line established it made it too lack a daisy on collecting.

Each state is different with filing liens. Some it requires an attorney while others it can be free. I can't tell you for sure what your state/county requires. You will need to call the courthouse to find out. The good news is that if you do hire an attorney, that money/filing fee is added to the lien amount owed.

Keep in mind that fines are NOT lienable in many states. So don't confuse them with unpaid assessments. Avoiding small claims court is always your best option. Liens are time consuming but hold the strongest power when it comes time to get your HOA's back dues paid up.
Former HOA President
BradP (Kansas)
Posts: 2,640
Posted:
Quote:
Posted By MelissaP1 on 12/03/2012 10:24 AM
I agree that an official timeline needs to be established and acknowledged before the collections process. $100 isn't much of a back dues considering the possible legal costs associated with collecting that.

We had a policy of 6 months we would lien. Our dues were only $50 a month. So at 6 months that was a good time to weed out those in financial trouble, protesting, or just don't want to pay. Without that time line established it made it too lack a daisy on collecting.

Each state is different with filing liens. Some it requires an attorney while others it can be free. I can't tell you for sure what your state/county requires. You will need to call the courthouse to find out. The good news is that if you do hire an attorney, that money/filing fee is added to the lien amount owed.

Keep in mind that fines are NOT lienable in many states. So don't confuse them with unpaid assessments. Avoiding small claims court is always your best option. Liens are time consuming but hold the strongest power when it comes time to get your HOA's back dues paid up.

I disagree on small claims court...if you get a judicial judgement it can open the door to garnishment of wages to collect. Small claims court is cheap, it is easy and in your case should be a slam dunk. The only thing liens do for you is prevent the property from being sold until the lien is released but that does you no good in a foreclosure situation. A judicial judgement is more powerful
MelissaP1 (Alabama)
Posts: 13,836
Posted:
No BradP a judgement in small claims is NOT stronger than a lien. They are BOTH "Judgements". A lien is much better option as it goes along with the property. One can't sell their property without settling the lien. The lien will also go with the property even if in foreclosure by the bank. Doesn't mean it will get paid off of course but it will be part of the process. Considering some states allow for "Super liens" that put the HOA's lien on the same footing as the bank.

A small claims judgement in reality does NOT guarantee you the money either. If you take someone to court you better have their social security number so you can process garnishment of wages. Social security numbers are NOT required information to provide in a HOA nor in the court documents. So that makes it very difficult even if you have the judge ruling.

Another consideration...What time line do you suspect this person has to pay the judgement? It's NOT after the gavel falls. This person can just sale their property and leave without paying a dime of that judgement. Plus a judgement may need to be renewed in 7 years if it's not paid. Are you going to have any board members who are going to remember 7 years from now there's a judgement NOT paid by a member who sold and moved away years ago?

A lien accumulates over time and includes legal and filing fees. A small claims court judgement does not usually accumulate over time. You sue for 1K and it takes 6 months to go to court and they still haven't paid dues, then 1K is all you sue for. Plus you may or may not get court costs back depending on the judge and situation.

Small claims is too risky if I am trying to collect a debt as a HOA. It's okay to counter sue if the HOA is sued but not to sue any member. It's just expensive and gets you even less of a result in the long run.
Former HOA President
BradP (Kansas)
Posts: 2,640
Posted:
Quote:
Posted By MelissaP1 on 12/04/2012 1:38 PM
No BradP a judgement in small claims is NOT stronger than a lien. They are BOTH "Judgements". A lien is much better option as it goes along with the property. One can't sell their property without settling the lien. The lien will also go with the property even if in foreclosure by the bank. Doesn't mean it will get paid off of course but it will be part of the process. Considering some states allow for "Super liens" that put the HOA's lien on the same footing as the bank.

A small claims judgement in reality does NOT guarantee you the money either. If you take someone to court you better have their social security number so you can process garnishment of wages. Social security numbers are NOT required information to provide in a HOA nor in the court documents. So that makes it very difficult even if you have the judge ruling.

Another consideration...What time line do you suspect this person has to pay the judgement? It's NOT after the gavel falls. This person can just sale their property and leave without paying a dime of that judgement. Plus a judgement may need to be renewed in 7 years if it's not paid. Are you going to have any board members who are going to remember 7 years from now there's a judgement NOT paid by a member who sold and moved away years ago?

A lien accumulates over time and includes legal and filing fees. A small claims court judgement does not usually accumulate over time. You sue for 1K and it takes 6 months to go to court and they still haven't paid dues, then 1K is all you sue for. Plus you may or may not get court costs back depending on the judge and situation.

Small claims is too risky if I am trying to collect a debt as a HOA. It's okay to counter sue if the HOA is sued but not to sue any member. It's just expensive and gets you even less of a result in the long run.

Can you garnish wages by liening their property? As we look at pros and cons lets examine liens....What teeth do they really have? it is just a tool to prevent a sale from happening. If the home gets foreclosed on you are more than likely out of luck. Liens are not always forever, sometimes they need to be updated, sometimes they get overlooked.

A court judgement gives you options. First option is you can lien property just as you would in the above scenario. Second option is it allows you to look into wage garnishment which you can not do with a lien and would allow you to get paid. YEs, judgements are not forever, however, if you have let something go seven years and haven't collected a dime that to me is a poor functioning HOA for letting it get that far.
BradP (Kansas)
Posts: 2,640
Posted:
I speak in kansas terms and i speak generally but a judgement can also be used to go after personal property such as bank accounts. I don't know all the ins and outs of it but you can foreclose on a property through a judgement lien...so court while it can get more expensive to collect it is also can be a lot quicker than a normal lien. you have to weigh the pros and cons of each situation seperately.
MelissaP1 (Alabama)
Posts: 13,836
Posted:
What is the use of suing in small claims court so you can place a lien? I'd skip the whole court and just go for the lien. Sorry but just don't think going to small claims court is the best option for a HOA to do. It is an option but one that should not be the first on the list. Remember a HOA has to have a lawyer represent them in court. A lien doesn't always require a lawyer to file. It's faster to file and put in place. No proving one's case because unpaid dues are the basis. There's a better chance for collection but no option is 100%. Not being able to sell and move out until they pay the debt seems to have enough teeth in it on it's own.
Former HOA President
PaulT6 (California)
Posts: 409
Posted:
Steve,

After briefly re-reading all the posts I suggest you meet with an attorney and establish a consistent, detailed policy, as JohnC has, if you haven't already done so. Over many years our Committee found that being consistent was very valuable when defending our decisions. We considered collection agencies but that concept gave our whimpy Boards too much heartburn so we just eat the unpaid fines.

Paul T
BradP (Kansas)
Posts: 2,640
Posted:
Quote:
Posted By MelissaP1 on 12/04/2012 4:20 PM
What is the use of suing in small claims court so you can place a lien? I'd skip the whole court and just go for the lien. Sorry but just don't think going to small claims court is the best option for a HOA to do. It is an option but one that should not be the first on the list. Remember a HOA has to have a lawyer represent them in court. A lien doesn't always require a lawyer to file. It's faster to file and put in place. No proving one's case because unpaid dues are the basis. There's a better chance for collection but no option is 100%. Not being able to sell and move out until they pay the debt seems to have enough teeth in it on it's own.

Melissa again i will try to simplify. A lien has one option, wait for a sell, if that day ever comes. A court judgement has several options, including wage garnishment, seizure of assets, and a lien. Not every case is suitable for court but wage garnishment and asset seizure to satisfy a judgement will get you paid a lot faster than waiting for someone to sell. both have pluses and minuses.

Btw, not all states require a lawyer to represent an hoa in small claims court.
MelissaP1 (Alabama)
Posts: 13,836
Posted:
I know not every state or any state requires a HOA to be represented by a lawyer in court. However, who here is going to allow a board member or their own HOA president represent them in court? I'd go with legal council everytime if I had to choose who is representing me in court. Which is what the board and the lawyer would be doing. Representing the HOA as a WHOLE.

Again...You can ONLY do wage garnishments IF you know the person's social security number and where they work. That is information that does NOT and is NOT provided to a HOA nor is it in the court filing documents. So when you get your judgement in hand how are you going to proceed to that step without that information? I know first hand as I sued my tenant for back rent. Don't have his social security number and he owned his own company. Just giving his company name wasn't enough.

Threatening to go to court just has a better ring to it than I am going to lien you! However, when the rubber meets the road when it comes to unpaid dues in a HOA. A lien is the best choice. Even my lawyer told me that when I wanted to file a suit against an owner we eventually foreclosed on. You would think a lawyer would advise the opossite. He explained to me that they are BOTH judgements but the lien is the stronger of them.

You do the best for all not as an individual. Lawsuits are great as an individual to take to court. However, when it's a HOA and a group of people, the better legal instrument is the lien.
Former HOA President
SteveM9 (Massachusetts)
Posts: 3,699
Posted:
Quote:
Again...You can ONLY do wage garnishments IF you know the person's social security number and where they work. That is information that does NOT and is NOT provided to a HOA nor is it in the court filing documents. So when you get your judgement in hand how are you going to proceed to that step without that information? I know first hand as I sued my tenant for back rent. Don't have his social security number and he owned his own company. Just giving his company name wasn't enough.


Seems like you missed a bunch of steps. Citation to Discover Assets Proceeding, then a Wage Deduction Proceeding. If that information is needed, it will be provided to the court, under oath. There is more, but only a judgement doesn't cut it. There are many more steps.
BabetteM (Hawaii)
Posts: 12
Posted:
JohnC46, what has been your success rate? Do you turn ALL delinquencies over to the attorney? Our Association in Hawaii just liens everyone once they owe $135, but we have a large amount of Accounts Receivables. If your HOA is out only $65, that makes more sense to me, especially if the letters from the law/collection firm gets people's attention.
BradP (Kansas)
Posts: 2,640
Posted:
Quote:
Posted By SteveM9 on 12/04/2012 9:25 PM
Again...You can ONLY do wage garnishments IF you know the person's social security number and where they work. That is information that does NOT and is NOT provided to a HOA nor is it in the court filing documents. So when you get your judgement in hand how are you going to proceed to that step without that information? I know first hand as I sued my tenant for back rent. Don't have his social security number and he owned his own company. Just giving his company name wasn't enough.


Seems like you missed a bunch of steps. Citation to Discover Assets Proceeding, then a Wage Deduction Proceeding. If that information is needed, it will be provided to the court, under oath. There is more, but only a judgement doesn't cut it. There are many more steps.

Correct...if you are going to do a wage garnishment or go after assets you will need an attorneys help....At the end of the day you have to weigh what is in the best interest of the association. I have lived in my home for 8 years and have no intention of moving anytime soon, what if I didn't pay and you just filed a lien on me? Maybe i will be here through retirement and death, is the HOA willing to wait 30 years for its money?
ScottK1 (South Carolina)
Posts: 32
Posted:
I have been looking into ways of collecting back dues for our small HOA and I found a company that will take steps to collect as far as the BOD wants to go and each step has a flat fee. This company will also report the person to the three credit agency's. I have not used this company or have any knowledge of them besides finding their web site. I think for a small amount owed,reporting to the credit agency's would be a strong deterrent.
http://www.olddebts.com/index.php
Scott
JohnC46 (South Carolina)
Posts: 14,265
Posted:
Quote:
Posted By BabetteM on 12/04/2012 10:34 PM
JohnC46, what has been your success rate? Do you turn ALL delinquencies over to the attorney? Our Association in Hawaii just liens everyone once they owe $135, but we have a large amount of Accounts Receivables. If your HOA is out only $65, that makes more sense to me, especially if the letters from the law/collection firm gets people's attention.

Babette

The letter from the law firm makes people wakeup versus just another letter from the HOA. It does get their attention.

Our late payers are getting less and while the economy is helping, there is no question that the letter from the law firm is also helping.

Sorry I cannot give a specific figure as I do not have such as my fingertips.

I can only think such a service is available everywhere. One just has to look for such. Keep in mind, we use a law firm not a collection/debt firm.

Hope this helps.

MelissaP1 (Alabama)
Posts: 13,836
Posted:
Spam... This is an old post...Ignore.
Former HOA President

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