A relatively recent addition (2016) to the community association collections toolbox is credit bureau reporting.
In previous decades, HOAs and Condo associations only had one option to enforce collections, a lien on the property, which could lead to foreclosure. That’s a pretty big stick.
But when you have homeowners who are just falling behind, or in a rough patch, it’s pretty extreme to kick them out of their homes over a couple of months of unpaid maintenance fees.
With credit reporting for Condo & HOA assessments, communities can now apply a less egregious option to homeowners who are delinquent, as well as offer a carrot to the homeowners who pay on time. Here’s how it works:
Credit Bureau Reporting for HOA and Condo Assessments
What is Credit Bureau Reporting?
The goal of credit bureaus and credit reporting is to inform creditors as to important information they require to make financial decisions when they have to extend consumer credit. The clients of credit bureaus may be mortgage lenders, credit card companies, banks, insurance companies, and collection agencies. Credit bureaus collect information and provide it to various institutions.
Can Condos and HOAs report delinquent assessments to a credit bureau?
Yes they can. It has been determined that assessments for HOAs and Condos are consumer debts and payments, non payments and slow payments may be reported on behalf of community associations, similar to how it is done for credit cards.
What is the benefit of credit reporting to HOAs and Condos?
Credit bureau reporting is a new tool given to collection agencies in their efforts to recover delinquent assessments for community associations. Combine it with demand letters, trained collection specialists, outbound calls, riders, and state of the art technology, and there is no doubt that the community association will see a significant reduction in delinquencies. Credit Bureau reporting is potent and it works.
Which credit bureaus report on Condo or HOA assessments?
The three main credit bureau reporting agencies are Experian, Equifax, and TransUnion. At present, only Equifax accepts reporting on delinquent assessments. Find an accredited community association collections agency to report delinquent assessments on your Condo or HOA’s behalf.
What information can an HOA or Condo submit to the credit bureau?
The information reported to the Credit Bureaus on behalf of an HOA or Condo is quite simple. If an owner is late or has completely defaulted the credit bureau will be notified and most likely that will result in a reduction of their credit score. Read on and see what these consequences can be.
Does Condo/HOA credit reporting apply just to assessments, or does it include fines and fees as well?
If an owner has paid all of their assessments and only has fines and violations on their ledger this cannot be reported to credit bureaus as they are not consumer debt. In community association matters only assessments fall under the purview of consumer debt.
A consumer debt is “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transactions are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.” (Fair Debt Collection Practices Act)
Is there any benefit to a homeowner if the HOA reports their assessment payments?
Yes! If a community association chooses to report delinquent members to credit bureaus then they must also report the good-paying owners as well. Just like credit cards, if you pay late, you are reported as late, and if you pay on time, that gets reported as well.
What makes this a great solution is that those who pay on time will get a bump up in their credit scores. Credit Bureaus count the different types of debt that are paid on time, such as revolving credit, car loans, and mortgages. Adding assessments to that group can really add up on your credit record.
Does my community association board have any control over when or what gets reported?
Credit Bureau Reporting is a serious matter and there are very strict laws regulating it under the Fair Credit Reporting Act FCRA.
The association’s board of directors has absolute control over whether to activate credit bureau reporting for the community. However, the board may not decide who does and does not get reported. Once reporting has been activated, your collection agent must follow the procedures set forth in federal and state laws, as well as the association’s governing documents.
How much does it cost to activate credit reporting for my Condo or HOA?
Credit Bureau reporting is part and parcel of the suite of services provided by Axela Technologies. It is included in the fees that are charged through to the delinquent owners. These collection costs are only recovered by Axela if we have a successful collection event. There is no cost and no risk to the community association.
How it Works for the Consumer: FICO Scores
When a consumer applies for credit, or even buys insurance lenders need a quick, reliable, and consistent method to determine the consumer’s credit worthiness. In most cases, they’ll look at their FICO Scores. A FICO Score as a summary of a consumers credit standing and if it is lowered due to poor payment activity there are consequences.
What Does FICO stand for?
FICO is an abbreviation for the Fair Isaac Corporation (originally called Fair, Isaac and Company), the first company to offer a credit-risk model with a score.
How does credit reporting affect FICO Scores?
Institutions require a quick and easy way to determine a person’s ability and history regarding the repayment of obligations. The FICO score is a quick index that gives an immediate indication of a person’s credit history.
• <580 is a poor FICO score that will indicate a greater risk to a lender.
• 580-669 is a fair FICO score and is generally acceptable to lenders, landlords, condo associations, and credit card companies.
• 670-739 Is considered good and puts you where the average American consumer is scored.
• 740-799 is very good and is a score that is highly regarded by creditors.
• >800 is an exceptional score that is above the average of most U.S consumers. Hitting these numbers will make borrowing less expensive for the consumer.
What are the consequences of a low credit score?
A reduced credit score can cost a consumer in many ways:
• The interest that a consumer pays for loans will increase with a lower credit score. This includes car loans and home loans.
• A consumer may even be denied credit to purchase on credit or obtain credit cards.
• A consumer may pay higher rates for insurance if their credit score is low.
• The options that a person may have on credit card offers will be reduced and they may wind up with lower quality revolving credit (annual fees, higher interest, annual and monthly fees).
• If a person is engaged in a profession that requires a security clearance, a reduced credit score could be considered a risk to their standing in the organization they work for.
So you can see that credit reporting is a serious matter.
What Your HOA Collections Attorney Won’t Tell You
It is very unusual for a community association attorney to report delinquent owners to credit bureaus. Very few community association collection agencies report delinquent owners to collection agencies. Please ask them when they are presenting their service to you. It’s very rarely done.
Axela Technologies has the ability and relationships to report delinquent owners to credit bureaus, and it makes a big difference in the results. It means that Axela Technologies recovers more money than any other community association agency, and they do it faster.
The best news is that credit bureau reporting is part of Axela’s suite of services and does not cost the association anything. As a matter of fact, all of our collection services are merit-based, risk-free, and the burden of the costs are on the delinquent owner. If we don’t collect the association doesn’t have to pay us anything.
To learn more about how you can add credit bureau reporting to your collections toolbox, sign up to get a Free Collections Analysis here.