Collections of delinquent assessments in community associations are always a troublesome issue. Board members feel pressured to collect anything at all as quickly as possible, and homeowners often feel like they have no alternatives but to be made homeless or bankrupt. That’s because the traditional way to collect has always been to hand off the file to an attorney, let them file a lien, and eventually foreclose. 

No community association looks forward to confronting the issue of delinquent assessments, and it’s not surprising that many search for streamlined options to address the problem. Not every choice is the right one, however, and some may even be harmful to struggling homeowners, and to the association itself. Axela Technologies, a leader in helping community associations simplify the assessment recovery process, has written extensively about why foreclosure is not an effective way to collect, for example.

Unfortunately, while direct-to-foreclosure is the most common high-risk collection practice used today, it certainly isn’t the only one.

Abusive HOA Collection Tactics 

To start, it’s very important to remember that “legal” does not always mean “ethical.” Complying with the FDCPA is a requirement, not a stamp of success or of fairness. Many predatory HOA collections companies are focused on generating revenue, nothing more. For these disreputable collection companies, keeping an owner in collections can prove to be lucrative, despite being extremely unethical. But these tactics don’t always look abusive or predatory at first blush. 

Predatory HOA collections companies will likely try to convince you that it’s standard to charge monthly fees for outreach and communication (a flat-out lie), or that foundational collections tasks like skip tracing and arranging payment plans warrant additional charges (another fabrication). These fibs are designed to bully you into thinking that all collection efforts are costly. Don’t fall into their trap! Learn to spot these big warning signs.

Signs You Are Engaging with a Predatory HOA Collections Company

1. Fee structures that scale out of control for delinquent homeowners. Burying delinquent owners in extra fees is a very common tactic used by predatory HOA collections companies to inflate their profit margins. Collections fees should only ever total a small percentage of the total balance; they should not force delinquent homeowners deeper into a desperate situation. When reviewing the fees presented by a collections agency, be wary of the following: 
   1. Any recurring monthly fee. These will often be justified as ongoing “outreach” efforts, but the fact is, this is the clearest sign that a collection agency is incentivized to keep an account in collections and allow fees to balloon out of control. Conducting outreach and engagement is a sign of a reputable collection company, so if you encounter any itemized charges for these types of actions (especially recurring ones), run! 
   2. Fees for arranging, overseeing, and enforcing payment plans. Someone requesting a payment plan is likely having trouble meeting their immediate financial obligation. Charging any sort of fee-related to a payment plan only makes it more difficult for a homeowner to satisfy their balance. Any modern collection agency should be able to automate all payment-plan functions, so there are no real “costs” that can be justifiably charged to the owner. 
   3. Itemized fees for tasks such as skip tracing, document preparation, mailing, and postage, etc. Again, these tasks are at the core of what any collection agency does. For example, running a skip trace costs a collection company a few cents, and takes all but 30 seconds. Does that justify an additional itemized charge? We think not. 

1. Contract termination clauses that leave the association on the hook for those out-of-control fees. This is the biggest red flag of them all and speaks to the fact that predatory HOA collections companies rely on a business model that cares only about their bottom line. They aren’t interested in recovery, let alone in making a community association whole. Their entire business model is designed to drive profit, regardless of what happens with an association and their homeowner, so they aren’t concerned with which outcome they get. And if they can increase the odds of guaranteed profit by shifting those outrageous fee structures onto the association, and if you allow this shift to take place, they’ll take advantage. This kind of contract forces the association into a hostage situation where the only one who wins is the collections company. The termination clause of any collections agreement is the most important contract component (along with the fee schedule), so be sure to review and scrutinize it carefully. A termination clause that forces the association to pay all collection fees is a flashing sign that you’re engaging with a predatory HOA collections company. 

1. The collections company is the defendant in multiple lawsuits. This is surprisingly easy to discover, even as these companies will try to hide bad press from you. Most of this information can be obtained with a simple search online. Here are the two types of lawsuits that predatory HOA collections companies may find themselves in: 
   1. Lawsuit between a collection company and a homeowner. Regardless of the allegations or merits of the suit, there is a very high likelihood that an association and/or management company will become involved in the suit as well. Most lawsuits, even those that are settled or won, are a massive drain on the time, money, and well-being of all those involved. Being sued is difficult, period, especially when you had nothing to do with the issue at hand. 
   2. Lawsuits between a collection company and an association and/or management company is the ultimate red flag. Most collection companies are compensated based on their aptitude and merit, and any lawsuit with a former or existing client demonstrates that neither of those expectations were met. If you’re looking to speak with unsatisfied customers, look no further than the counterparties of these lawsuits (and feel free to contact them and ask questions). 

Four Tips to Consider Before You Engage an HOA Collections Company

1. Review the fee schedule carefully and watch for any of the excessive fees mentioned above. 
2. Closely review the termination clause of the collections agreement.
3. Search for any lawsuits involving the collections company. A simple online search of {Company Name} + Lawsuit may yield surprising results. 
4. Ask for references! And not just a handful, but dozens, if not hundreds. Even the most predatory HOA collection companies will have a few satisfied customers to use as references, so ask for a large sample and contact them at random. If you’re deciding between more than one collection company, ask for references that have experience working with both (e.g., provide a reference for a customer of “company A” that previously worked with “company B.”)

At Axela Technologies, we believe that delinquent owners deserve to be engaged respectfully, not gouged by collection costs that double (or triple!) the original debt. Collections are difficult for everyone involved, and there are predatory HOA collections companies out there looking to profit from that hardship–from your homeowner AND from your community. 

Unfortunately, we hear these horror stories all too often, and we’re working to eliminate them from our industry. If you’re concerned that your community association is being taken advantage of by predatory HOA collections tactics and questionable contracts, read more about what signs to look for, and how to get help: