cancellation of collection agency

Started by JackieB • 26 replies • 2227 views

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JackieB (California)
Posts: 198

Posted:

We asked our PM to wipe out 2 accounts that were in the hands of their long standing collection agency. Time to write it off (3 years) and quit looking at it
every month. The collection agency never was able to connect with this account so
nothing was ever paid. Well our PM forwarded the "closing costs" to the tune of $800. We were stunned because we have been repeatedly told the collections "won't
cost you anything.....they collect from the HO." LOL..........even though they
never connected, charges have occurred and now we are billed for them in order to
clear the account. To add insult to injury, our PM says that we need to "consult
with legal counsel" ($$$$$$) to determine what can or can't be said to negotiate
down the $800. This feels like quicksand!! Please help!!
Jackie

DanielH1 (California)
Posts: 482

Posted:

I'd call the collection agency directly and ask why the HOA is being charged when there are supposed to be no fees. I wouldn't argue: just ask the question, write down the response and let the Board know what they said.

The theory behind hiring a lawyer is that no individual Board Member can speak for the entire Board. So, according to the theory, the Board should hire a contractor (such as a lawyer) and imbue that contractor with the power to negotiate on the Board's behalf. Which is a lot like hiring an electrician to screw in light bulbs. Sure, you can hire contractors at premium rates to do simple tasks that anybody can do. But, if it were me, I'd save the money and risk asking a few questions. I would use my own judgement to determine when I need a professional to get involved.

JackieB (California)
Posts: 198

Posted:

Sounds good to me, except I am 1/3 of the BOD. Actually the collection agency
didn't say "no fees". Our PM passed the "no fee's" to us and now suggests having legal do "the talking." I think I am going crazy!!

GlenL (Ohio)
Posts: 5,491

Posted:

Quote:

Posted By JackieB on 05/21/2010 1:10 PM
Sounds good to me, except I am 1/3 of the BOD. Actually the collection agency
didn't say "no fees". Our PM passed the "no fee's" to us and now suggests having legal do "the talking." I think I am going crazy!!

This is no excuse for the Board not reading the contract before they signed it.

Studies show that 5 out of 4 people have problems with fractions

JackieB (California)
Posts: 198

Posted:

a prior BOD signed it.

GlenL (Ohio)
Posts: 5,491

Posted:

Then they should have known what they were obligating the HOA to. Just because a "prior Board" did it doesn't invalidate the contract nor the current Board's responsibility to know what is in it.

Studies show that 5 out of 4 people have problems with fractions

MicheleD (Kentucky)
Posts: 4,491

Posted:

Quote:

Posted By GlenL on 05/21/2010 2:02 PM

This is no excuse for the Board not reading the contract before they signed it.

Careful, Glen, you'll be accused of lecturing.

Guess I will, too.

Yes, in many cases, the collection fees are collected from the homeowner with the delinquent account once the money is received. That seems to be standard operating procedure for most HOA collection agency/attorneys.

Of course that varies with the collection laws in your state and what your controlling documents say regarding what sort of fees you can hold the homeowner responsible for.

However, if the HOA "forgives" the debt, (the debt the homeowner has with the HOA due to the assessment delinquency), the collection costs still exist because the collection firm/attorney did incur costs in the course of the collection.

SOMEONE has to pay those! Even without reading a contract, it simply makes common sense that if the HOA dismisses the delinquency, then it is by default assuming the cost of collections.

In other words, yeah, the homeowner pays the collection fees when/if he pays the delinquency, but if the HOA makes the delinquency "go away," just who do you think is going to pay the collection agency/attorney for the work already done?

So basically, when an HOA forgives the debt, it is then voluntarily taking ownership/responsibility for any fees that have accumulated to date in order to collect the forgive debt.

JackieB (California)
Posts: 198

Posted:

rather than "shoulda-coulda", do you have any concrete advice? If I felt the
contract was invalid I wouldn't using this website. I am trying to gather ideas on how to handle it, not wipe out the past.
Jackie

MicheleD (Kentucky)
Posts: 4,491

Posted:

Quote:

Posted By JackieB on 05/21/2010 2:26 PM
rather than "shoulda-coulda", do you have any concrete advice? If I felt the
contract was invalid I wouldn't using this website. I am trying to gather ideas on how to handle it, not wipe out the past.
Jackie

How to handle it?

Pay it. You have to pay it. You've assumed responsibility for their costs once you forgave the debt.

My guess is that if you don't pay it, the collection agency/attorney will then sue you for it, and those costs will be even higher.

I don't think you'll find a collection attorney/agency anywhere on the planet who will forgive their costs associated with collections of debts on your behalf if you simply decide to cancel the debt.

They have to make their money somewhere. And they are due their money.

JackieB (California)
Posts: 198

Posted:

Michelle,
Would you consider "negotiating down" the fee since nothing was done the past
year, and their monthly report shows wrong names and addresses?
Or not???

JackieB (California)
Posts: 198

Posted:

I think our responses are crossing each other. Thanks for your comments on this
and I am sure the bills will be paid. But it is true, that the HOA is caught between a rock and a hard spot. If we leave it in the hands of the collection
agency, their fees go up and they can ask for them to be paid at any time.
If we say "enough is enough".....we get billed for dubious work.
Again,
Thanks
Jackie

MicheleD (Kentucky)
Posts: 4,491

Posted:

Quote:

Posted By JackieB on 05/21/2010 2:31 PM
Michelle,
Would you consider "negotiating down" the fee since nothing was done the past
year, and their monthly report shows wrong names and addresses?
Or not???

Jackie, you can always try, but my guess is that these attorneys have heard it all before. One never knows, they may be in a generous mood. But technically, they really don't have to negotiate anything. Whether anything has been done by them in a year, two years, or three, they do already have sunk costs that they are legally entitled to, either from the homeowner, or from the HOA if the HOA decides to terminate their interest in the debt.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

So....

- No cost if you don't forgive the debt and do nothing?
- $800 if you forgive the debt.

Pretty simple to me, tell the homeowner you cant forgive the debt because you sold it to a collection agency. If the homeowner has any questions he will have to deal with the collection company, you have nothing to do with it anymore.

JackieB (California)
Posts: 198

Posted:

I wished that was true.......but if "unforgiven" debt the collection people
keep tacking on ??bogus charges and eventually they will send us the bill.
Also, the HO is long gone.....for about 3 years.
J.

MicheleD (Kentucky)
Posts: 4,491

Posted:

Quote:

Posted By JackieB on 05/21/2010 3:56 PM
I wished that was true.......but if "unforgiven" debt the collection people
keep tacking on ??bogus charges and eventually they will send us the bill.
Also, the HO is long gone.....for about 3 years.
J.

I respectfully submit that the charges aren't necessarily bogus.

It probably would be in your HOA's best interest to actually go meet with the agency/attorney who is working your collections and have them walk you through what is involved in their process.

It may help your HOA understand what's involved in the charges, and it might make it easier in the future for your HOA to determine when a debt has reached a point where it would be more reasonable to cut it loose instead of keeping it open as an active collection, which likely will incur charges.

In our case, if the homeowner has a lis pendens or is heading into foreclosure, before we file a lien, unless they owe us a certain amount of money, we cut it loose, which reduces the costs to us at that point.

Once liens are filed or once something goes to small claims, for example, then the legal fees can escalate considerably.

That's why I say it might be in your HOA's best interest to meet with the collection people to see what they do in these cases.

In our relationship with our collection attorney, whenever ANY account goes to "the next level" (meaning moving forward in a way that will add fees), the attorney always contacts us first to let us know. At that point we decide if it is worth it to us to take the risk (roll the dice?) to see if that next step may or may not yield the homeowner paying.

Just a thought.

CarolineS (Georgia)
Posts: 5

Posted:

The fees are probably for "skip tracing" work. I would negotiate with them directly asking for a 50% discount, due to the finances of the association (if problems exist) and accept a 25% discount if offered.

RickW (Illinois)
Posts: 169

Posted:

I agree with the others that you are probably responsible for the fees due to the collection agency.

That being said, I would work to put in place some sort of check to prevent this from happening again.

We are in the process of putting together an association collection policy so that every homeowner will be insured they are treating equitably regardless of the board members in place at the time. This is a bit different from you situation, but something I feel is important for all associations to think about.

Unfortunately, each delinquent case is individual on its own and that makes it difficult to achieve a decision that seems fair to all. Depending on the amount that was due to the association, it could be in your best interest to stop all colections, pay the fee, and write it all off as bad debt.

Your board should find out the fees charged from the aganecy so that you can make a decision based on amount owed vs. the amount the agency would charge if the delinquency is written off.

Just my 2 cents

JackieB (California)
Posts: 198

Posted:

Great advice and very appreciative. What are your thoughts on starting the lien process and say "5 months delinquent". In our association that would be
about $520 dollars. (140 homes). Just bypass collections completely.
Again,
Thanks
Jackie

JohnO6 (Georgia)
Posts: 424

Posted:

Even if you skip the collections process and go straight to liens, you'll still have to provide a demand notice of the owner. Also you will need to be mindful not to violate the Federal Fair Debt Collection Practices Act.

You may want to consider some of the online collection agency services that will deliver a series of escalating collection letters that have already passed muster legally, and do so for a very reasonable fee.

Some examples are www.olddebts.com and www.ecollectionletters.com

There are many others too, I suspect.

JackieB (California)
Posts: 198

Posted:

again, thanks for great advice. My next email will be ordering a California
Collection policy book on line.......as soon as I find one. I need to understand this in more detail.
Jackie

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

olddebts looks good.

$6.95 start and account
$5.00 report to 3 major credit bureaus

So for $11.95 I can report it to the big 3 credit bureaus. I like that! That will provide some incentive to unit owners to pay.

TimB4 (Tennessee)
Posts: 21,062

Posted:

Steve,

If your governing documents don't say that you can do this (policy resolution), you should do this first and publish it to the membership prior to implementing.

Tim

MicheleD (Kentucky)
Posts: 4,491

Posted:

I would be very leery of turning the HOA into a collections agency, which is essentially what you are doing.

There are very strict laws and guidelines that follow what a collections agency can and can't do, and it might impact the board's ability to enforce against certain things, such as covenant violations, if they then put on the collections agency hat.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

There are very strict laws and guidelines that follow what a collections agency can and can't do,

True. But those laws were made specifically for "collections agencies" If your collecting a debt for yourself you are governed by very different laws, not collection agency laws.

MicheleD (Kentucky)
Posts: 4,491

Posted:

Quote:

Posted By SteveM9 on 05/26/2010 5:42 AM

There are very strict laws and guidelines that follow what a collections agency can and can't do,

True. But those laws were made specifically for "collections agencies" If your collecting a debt for yourself you are governed by very different laws, not collection agency laws.

This is very bad advice to disperse. An individual carries an entirely different scenario than a corporation, which is what HOAs/COAs are. The minute you get into some of those gray areas, the rules of the game change considerably.

I would not recommend following this advice without clear guidance from a reputable attorney.

JohnO6 (Georgia)
Posts: 424

Posted:

Interestingly enough, I agree with both SteveM and MichelleD - go figure

Steve correctly points out that there is a substantial legal difference between a creditor and a debt collector. One example from our HOA's experience may serve to point this out nicely.

We amended our covenants regarding leasing of homes that required leases to contain a stipulation that if owners became delinquent on HOA dues, that the HOA could collect them from the tenant which would be deducted from the rent the tenant paid the owner. Since this had to be contained in the lease, it became a contractual obligation for both the owner and tenant.

One of our owners became delinquent and the HOA wanted to collect the dues from the tenant. We asked our attorney and our property manager about sending a letter of notice to both the owner and tenant. Our attorney advised that such a letter had to come from the Board of Directors, because either the management company or the attorney would be considered as debt collectors and giving knowledge to the tenant about the owner's delinquency would violate the Federal Fair Debt Collection Practices act. However the HOA is merely the creditor, not a debt collector per se. Obviously this was a learning for our Board, but it also speaks to Steve's point in his previous post.

On the other hand, I also agree with Michelle in that this area of the law is quite complex and frought with pitfalls that lead to serious consequences for those who may unknowingly violate the law in attempting to collect a legitimate debt. I also think that a qualified (emphasis on "qualified") legal opinion would be wise to seek.

Finally, being the one who originally pointed this thread to www.olddebts.com, I still think that is a very viable option. They are a licensed collection agency, but unless you pay for additonal services like phone calls, etc; their primary business is sending a series of letters to the debtor. These letters have undoubtedly passed legal muster, and I think merely engaging them in this service is a low risk proposition.

There's just something about getting a letter from a collection agency (along with the optional "threat" of credit agency reporting) that I would imagine can cause a significant "pucker factor" in most delinquent home owners.

Just sayin .. .. .. ..

JackieB (California)
Posts: 198

Posted:

I think we can put this to rest, knowing we won't be turning into a collection agency. Our property Management company is sending us a contract/proposal
for a new agency that other associations have been quite pleased with.
This conversation took on a life of its own......which is why I love this website. My main point at the beginning was inquiry into why send to a collection agency when small claims could produce a judgement/lien?? Our PM
goes to small claims with a board member. You all are great........and I
appreciate each bit of knowledge.
Thanks,
Jackie B

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