Amnesty program for delinquencies (sort of)

In light of so many HOAs struggling with rising costs and delinquencies, I started to think about the current push to have some sort of moratorium on foreclosures so lenders and homeowners can sit down and come up with a way the homeowners can pay a rate they can afford.

I then thought about the number of delinquencies our community has and how we can cut down our legal fees while somehow compelling these folks to come up with a payment plan. So, I was wondering what everyone thought about setting up an amnesty program - maybe along the lines of

For one year, the Association will do partial to complete waiver of late fees if homeowners who are delinquent with their assessments bring them current within 12 months.

This program will only apply to homeowners who (1) haven't been referred to the Association attorney and (2) haven't had a collection against against them during the last 24 months.

If the homeonwers becomes current with ALL fees within 12 months, the Association will waive 50% of the late fees, 75% if brought current within six months and 100% if brought current within 90 days. Homeowners must agree to an automatic deduction from their bank account and must be paid by the 15th of the month (our fees are due on the 1st and considered late if paid after the 15th) If the deduction does not go through even once, the agreement will be cancelled.

Now, I haven't talked to our attorney (yet) about this to see if this is even legally possible, but given our current rate of delinquencies, a "slow nickel" is better than a "fast dime" and our board (of which I'm a member) will try almost anything at this point. If a program like this could make a significant dent in our accounts receivable (say, 30%), maybe we could offer it again the following year. As for the people already at the attorney, well, it's really too late for them (in fact there are at least four accounts that I will recommend foreclosure)

What say all of you? Has anyone tried something like this? If so, how sucessful were you, what were the terms, etc.

Sheila, I admire you for thinking like this. You are to be congratulated.

One suggestion: simplify the terms as much as possible and waive 100 percent of the late fees. The more you have to explain the details of the program, the more likely it is that people will choose to pass on the opportunity.

We waive a first fine when dues are 30 days late but paid within 60 days after our Prez sends a friendly reminder. After 60 days, 1st fine & 2nd fine remain on the books.

But if you want an amnesty, I think the proposed tier approach is best. Carrot and stick.

If they have been referred to the attorney, then there have probably been some costs to the HOA as part of the collection process. Typically those costs are passed on to the homeowner. Before waiving those hard costs (attorney fees, process server, certified mailing, ...) for the homeowner the Board will have to decide if it was worth it to pay those fees to collect the dues.

In our case, if it gets to the attorney then the hard costs are almost as much as the annual dues amount. It wouldn't make any sense to waive those charges. But if it means that the homeowner will actually pay, then yes, we will waive the soft costs (late fees or interest). Those charges won't really cost the HOA anything.

Our bylaws say that fines MAY be levied by the HOA. That gives the option. I'm all for waiving late fees and interest, IF the homeowner contacts the treasurer and agrees to (signs) a payment plan. Too many of our late payers hide (like this is all going to go away)

Involving the attorney should be the last step.

From my experience with working with families in crisis (about a whole lot of financial issues) was that:

1. Often, the "terms" offered were still not do-able by the family, so it was a set-up for failure

2. Unless someone sat down and did a financial analysis of the INCOME vs. EXPENDITRES of the household, it could not be determined if they can, in fact, even get out of the "hole" so they can operate in the future on a level keel.

3. Taking a part of the amount owed and tacking it onto the current monthly (or quarterly) payment sometimes worked, IF the additional amount was not too much.

4. Waiving ALL late fees, interest and fines is an incentive.

5. Send them to the local church or social service agency to apply for help, since this affects their place of living. Sometimes these agencies can help the family come up with a workable budget.

SusanW1, you’re right about the pitfalls families in crisis face, but sometimes, I wonder how many of our delinquent homeowners are in that situation, although Indiana is one of the top states in foreclosures, bankruptcy and assorted financial mayhem. I realize it can be scary and embarrassing to go to a creditor and say “I can’t pay this off right now and need a hand”, but one would think if the roof above your head is at stake you’d at least make an effort to save it before it crashes.

We’ve published in our newsletter (more than once) that our property manager is authorized to negotiate payment plans, as well as information on the state’s foreclosure prevention program and the local consumer credit counseling service (the one that’s supported by our local United Way). When the attorney sends out his initial letter, HE even tells the homeowner a payment plan may still be worked out if they respond to his letter. Still nothing.

As for waiving ALL of the late fees, I could live with that – we’ll see what my fellow board members have to say.

I suppose the primary reason I would like our attorney’s take is because I’m paranoid – I don’t want us to mess up when putting together this plan, only to see it fall apart because some deadbeat homeowner’s owner picks the thing apart in a lawsuit and the judge says “yup, you’re right”

(This is what happens when you work for lawyers like I do – nothing like georgewilliamsw, but just as hairy. That’s a topic for another day)

Sheila-
Our amnesty is for a short defined period of time and there isn't even an assessment payment due during the program (quarterly dues, amnesty is 2 months long ending the day before the next assessment is due) so nobody can simply wait and pay their next quarters dues late because thinking they wont have to pay a late fee.

Our attorney advised us that we cant settle for less than what is owed in dues, but the late fees are a different issue that we have the power to waive. He told us all of the homes are obligated to pay the quarterly assessments and if we tried to waive them we could be sued because it wouldnt be fair to the other homeowners.

He did give us permission to go collecting door to door from our delinquent homeowners though. He said as long as we only visit 1 time and are courteous it is not harassment. I actually visited 1 last week that was right on the verge of having a lawsuit filed (statute of limitations is running out on their oldest dues in January) and we got a check from them today! Quite exciting.

I am hoping to visit another 10 homeowners this weekend. I have made up a list of our 10 largest delinquent accounts to go say hi to. =)

I will relate to you what we recently did with one of our owners. The owner had previously been referred for foreclosure before the turnover. They made arrangements to pay off then didn't pay. We sent them back to the lawyer.

In the course of things they proposed a new payment that would take longer to pay out, but sounded like it might be doable. The owner was requesting that some of the fees be waived. (They owe $400 in dues and nearly $800 in fees.) They also related that they are negotiating with the mortgage holder for a new payment plan because they are nearly $10,000 behind there.

After mulling it over I proposed and we went with the following: They offered us $150 a month. We will credit their account with $200 for each $150 payment made.

Basically my thoughts were: if we foreclose we will not recover a single dime of what has been spent. Further, with them $10,000 behind if we foreclose the bank will surely take the property from us in short order and then we have no claim at all. The slim chance that we would get money back after the bank sold was better then the 0 chance if we foreclose.

Come to find out one Board member had purchased two houses from foreclosure. One was in "pre-foreclosure" and the other was from the bank. In both cases the last the thing the bank threw in was that he had to settle up with the HOA. So even though the bank could have left one HOA with nothing they still got their money. To me, it just seems to be a better chance. I don't care to spend another dime chasing the money.