Since the Real Estate meltdown in 2008 there has been a debate in the community association world about which is more effective, an attorney or a collections agency when it comes to collecting delinquent assessments. Effective collections must be “results orientated,” and by that we mean recovering the association’s money as quickly as possible at the least possible expense. Condominiums and Homeowner Associations cannot afford anything less than a perfect cash flow scenario. This brings us to the concept of “The Value Chain.”
Your ‘Collections Process’ isn’t collecting!
The most common approach to recovering delinquent assessments in community associations is sending courtesy letters, and if that does not work sending the file to an attorney to lien and foreclose. Perhaps the owner will pay and possibly not, but the die has been cast and a great expense has been incurred. With an attorney, there is no discussion or connection with the delinquent owner, only the threat that their property can be foreclosed upon. If such coercion is successful, then the association recovers its money, and the delinquent owner is slammed with an exceptionally large legal bill. Not so community-friendly. However, in some cases, associations have no choice as some delinquent owners are intransigent and will not respond until they are on the edge of a cliff. What makes matters worse is when the delinquent owner does not respond, and the association’s attorney has a successful litigation. In this situation, the condo or HOA winds up with an intervening deed to the property that is still encumbered by the first mortgage. This is not a successful collection event because in a foreclosure no money changes hands except for the association paying the attorney.
To be sure the community associations should consider a new approach that is more likely to result in the recovery of funds. Boards of directors and management companies need to consider the utility of a proper “value chain.”
THE VALUE CHAIN
When a property goes delinquent in its obligation courtesy letters are sent out to the owners. Here they are politely asked to make the payment/s that they have missed and hopefully they get the message and pay their obligations. Today, the custom is (if the delinquent owner does not respond to the courtesy letters) to send them straight to an attorney. Attorneys do not do collections work as they are built to do litigation. Attorneys enforce security interests in courts of law to foreclose. They do not make outbound calls, seldom engage delinquent owners with email or letter strings, and do not do credit bureau reporting. They lien and foreclose. The “Value Chain” in business (and make no mistake your community association is a business) is a step-by-step model for transforming the collection process from an idea to reality. The Value Chain helps increase a business’ efficiency so that the business (your community association) can get the most value for the least possible cost. The value chain for community association collections is to insert a collection agency (the right one) in between the courtesy letters and the legal process.
COMMUNITY ASSOCIATION COLLECTION VALUE CHAIN
- Unit owner defaults on payment.
- Management Sends Courtesy Letter to Delinquent Owner/Negligible Cost
- Property Remains Delinquent 30 Days.
- Management Sends 2nd Courtesy Letter/Negligible Cost.
- Property Owner Remains Unresponsive.
- Board Decides to Send the Delinquent Owner to Collections Agency/NO Cost.
- Collection Agency Engages with The Property Owner and 100% Of the Debt is Resolved. Ledger Released from Collections/Cost of Collections = ZERO.
- * If the Collection agency fails to recover the association’s delinquent dues the board must decide whether to engage an attorney to foreclose on the unit. Cost to the association can be from $1,500 to $10,000 depending on if the association/lien foreclosure is contested.
Don’t skip steps in your collection process
The point here is that any well-run enterprise will make business decisions and take into consideration the value they are receiving for the goal they are seeking. Your community association is no different. When you are having cash flow issues due to delinquent owners, action must be taken. However, no competent business will jump from a negligible cost solution to the most expensive course of action. The idea of the value chain is to engage the most cost-effective solution first (in this case courtesy letters) and then move the process along with the most cost-effective solution (a no cost, no risk merit-based solution), and if the results are not satisfactory move on to a legal process which is expensive either for the owner if they resolve the delinquency or the association if they obtain a judgment from the courts. Starting with the most expensive solution is not how enterprise level businesses manage their affairs.
Axela Technologies (a specialized collection agency focused solely on recovery for Condos and HOAs) can fit right into the value chain. Our advanced technology allows us to collect and charge the delinquent owners a fraction of what an attorney will charge. We have the tools, people, and technology to recover your association’s money at no risk and at no cost to the good-paying owners in your association. Give us a call for a free no-obligation collections analysis or set up an appointment to allow us to give you a demonstration. Your community association is a business so why not manage it like one?