Help with accoounting

We recently billed several homeowners in our small community for past dues with interest due to their unwillingness to pay. Since I'm the treasurer I am tasked with handling this. We have offered to work with them by offering them the option of a payment plan. My question: If some decide to take us up on this, how would I do the accounting with the principle and the interest? As an example: A homeowner owes three years back dues with interest plus this years dues with interest (our annual dues are only $150/year and we can only charge 10% simple interest): 2010 - $207.53, 2011 - $192.53, 2012 - $177.53 and 2013 - $162.53. If a homeowner agrees to pay $100/month until caught up, how do I account for the first payment. Do I subtract from the 2010 dues first, leaving a balance of 107.53. Since there is still an unpaid balance for 2010, do I recalculate interest from 2010 up to this point on the new unpaid balance of $107.53? Help would really be appreciated. I need it.

Mike

Michael,
I suggest your Board first establish Rules and Regulations (Policies and Procedures) on Delinquent Accounts and after having these approved at the appropriate level distribute them to all homeowners. After that follows those Rules. I suggest the payment be applied to the oldest outstanding amount; and those who agree to a payment plan be waived from any late charges and interest so long as they comply with that agreement.

I would send a letter from the HOA attorney laying out the back dues and due date. I would also outline the date the debt will be sent to the lawyer to start the foreclosure process and estimated costs to the homeowner. $4800 legal, $200 filing fees, $300 late fees, etc. Once that process has started on such and such date, those fees will be owed, or the foreclosure process will continue. The home will be awarded to the HOA and the homeowner will still be responsible for the mortgage. etc, etc. Sometimes you have to tell them the process in order for them to understand.

Michael, usually Covenants are not detailed enough for dealing with delinqent accounts. Attached is an example which DARCO helped develope for many of the HOAs we manage. Seldom has a delinquent account had to go to an attorney and never has any gone to Court.

I established a policy when I got into office. That was that at 6 months we would lien. After a year of non payment we would discuss foreclosure proceedings. The foreclosures was the very last step and only done in special circumstance. Most of the time we just kept the lien which was a better option just slow. Our HOA we paid monthly so 6 months of unpaid dues added up pretty quickly.

You need to establish the breaking even point of when filing/legal costs is worth the effort. A lien for $100 when it costs about $400 may not be a good idea. Setting up a payment plan is a better option. We charged late fees and could additionally charge a 6% interest on top of that to people who owed. Take in account also the filing/legal fees are factored into a lien/foreclosure as well.

We established a payment plan for people that was affordable. Our dues were $50 a month. $20 in late fees after the 15th of the month. If you fell behind a few months, we had you pay your current dues plus 1/2 until you caught up to the full amount owed. We could waive the late fees. This way we could avoid the 6 month rule if they attempted to pay up. Had one person who did this.

Having a set time limit weeds out those with intentions of paying, doing it out of protest, and those with claims of ignorance. Remember that if your HOA does foreclose it is doing the work of the bank. The bank ALWAYS gets paid first and foremost. It takes about a year of no mortgage payments before the bank forecloses. So keep your time line in respect to the bank's process. Hence why you should not just start willy-nilly do a foreclosure. If the bank is doing one, it's best to keep your lien in place. If the bank isn't doing one, then do the research. Keep in mind that military personnel some of the rules of collection don't apply.

Not accurate. The HOA may kick the person out but no money is made. Whatever is owed the bank is paid to them firsf. The HOA only gets the leftovers if any. So even the money owed is not guaranteed. It is just a stop the bleeding measure for the HOA.