How Does an HOA Collect During Volatile Economic Times?

How does an HOA collect during this volatile economic time? Nana says, “You Get More Flies With Honey Than You Get With Vinegar”

We know and may have personally experienced the economic downturn of the past few years. When the downturn hit, many families were literally choosing which bill to pay and which bill to forego. In many cases the HOA payment was put to the bottom of the pile.  Attorney, Beth Mulcahy of Mulcahy Law Firm told me a long time ago “Homeowners need to understand that HOA assessment payments are very important and should be one of the top 5 bills they pay.” Homeowners fail to realize the ramifications of delinquent assessment payments, such as property liens and foreclosure. As Board Members and Management Company representatives it is our duty to instill this understanding.

The financial forecast “seems” to be on the upswing and the truth seems to hold with whomever you ask or what news station you tune into. Recent newscasts indicate a 6.2% increase in home sales recorded in June 2015, the national unemployment rate dropped to 5.3% (June 2015) and 223,000 new jobs were added to the economy as of July 1^st, 2015. However, HOA’s continue to struggle with delinquent debt.

HOA Collections in and of itself is not a welcome phrase. Mention the word, “collections” and that old cartoon comes to mind; you might remember it with the craggy old debt collector, holding a bag of money in one hand and a hammer in the other hand. Not a very pleasant thought. Not a very pleasant position for anyone to be in, including an HOA Board.

Since HOA Board members are also community members, neighbors and friends with many delinquent homeowners, the thought of initiating collections action is often a sticky wicket. The HOA must collect money due, yet the collections actions will often be toward a friend or neighbor which is a tough choice for sure.

That said; I encourage anyone who is collecting delinquent association debt from a homeowner to do so respectfully and responsibly. Kindness and flexibility go a long way when collecting past due balances for HOAs.

Many HOA managers and Board Members have come up with solutions that will eventually get the delinquent owner out of debt and back in good standing.

A payment agreement between the HOA and the homeowner is a good first step. The homeowner will have to agree to an amount that will work with the homeowner’s budget. A good tip is if the owner proposes a payment that is so low the debt will remain open for an inordinate length of time, counter-offer with a payment plan that will reduce the timeframe of the debt. What I have found is that in most cases the owner is able to meet a counter offer which is a win for not only the homeowner, but the HOA as the debt will be paid in a reasonable timeframe which means any lien filed will be removed and the owner will be in good standing again.

Some communities have implemented an amnesty plan which looks something like this:

Re: HOA OFFER OF AMNESTY PROGRAM

Dear Homeowner:

The board of directors for your homeowners association is excited to offer you a way to resolve your outstanding delinquent account and bring it to a current status. This is a onetime offer that may never be offered again. Please read the terms and conditions of this program as outlined in this letter very carefully as they all must be met fully before the amnesty will be granted.

Your current account balance with (Name of) HOA is: __________________

The breakdown of your balance is as follows:

                  Assessment (HOA Quarterly Dues) ______________

                  Late Fees __________

                  Administrative Fees _________________

                  Fines ____________________

                  Collection or Attorney Fees _______________

The amnesty program will offer you relief from all fines and late fees conditionally. As of the date of this letter your offer of amnesty is: _____________. All hard costs to the Association which are assessments, administrative fees, lien fees, and attorney fees must be paid by the homeowner. The amount that you must pay upon acceptance of this offer is:____________. (These 2 above amounts would equal their total due).

The terms and conditions of this amnesty program are as follows:

• Across the board waiver of all fines if lot is now in compliance and assessments are current regardless of the balance owed in fines.
• Requirement that owner stay in compliance (no CC&R violations) for six (6) months in order for amnesty to be granted.
• Collections would be put on hold if the owner accepts the plan to obtain a waiver. Owner would sign an Acceptance of Amnesty acknowledging amount owed and need for lot to stay in compliance for six (6) months.
• The waiver would not include any hard costs like administrative or legal fees. Hard costs and assessments would have to be paid first or an acceptable payment plan drafted before fines are waived. A broken plan will invalidate the waiver of fines.
• An owner under an amnesty plan would have the right of appeal for any CC&R violation sent by management after acceptance of the plan. If the violation is deemed an error or invalid in any way, the amnesty plan remains intact.

Please find attached an Amnesty Acceptance Form which you must fill out and sign in order to apply for acceptance into this program. The board of directors will review these forms and notify you if you have been accepted. Once you have been accepted, all collection action on your account will be stopped as long as you meet the terms as outlined above. The Acceptance Form must be returned to the address at the top of this letter no later than _____(date) in order to be considered.

We trust you find this offer a clear demonstration of the board’s concern for the overall welfare of the community and each individual homeowner. It is their desire that each and every owner now in the community brings and keeps their individual financial account in a current status.

 

Unfortunately there are owners that will not respond to delinquent letters, demand letters, pre-foreclosure letters and the HOA must continue with the collections of assessments and assessment related fees per the letter of the law. As hard as that step is, I have seen debt paid, in full, after the receipt of a foreclosure letter.

I encourage managers and board members to try creative collections strategies. Work closely with the HOA attorney who may also have some proven yet, innovative approaches to HOA collections.

Remember, respectful and responsible collections will result in reduced Association debt and foster a sense of Community. My nana used to say, “You get More Flies with Honey than with Vinegar.”

-Dawn Engel
Community Association Manager and Education Director with Planned Development Services