We often hear the question, “What is an acceptable percentage of delinquencies in an HOA?” Banks and other lenders have delinquency thresholds they’ll accept before providing a loan, sure, and some Boards believe anything up to 10% is fine.
We respectfully disagree.
If your budget does not contemplate delinquencies and has a line item for bad debt, then the only acceptable delinquency rate is zero. One single delinquency can give way to a dangerous chain reaction.
There Is No Acceptable Number of Delinquencies in an HOA
If your HOA has any number of delinquencies, the community is at risk of succumbing to a domino effect. As services, repairs, and value in the community suffer, the problem grows, and slowly the dominos begin to tumble down:
Borrowing becomes harder
If your delinquency rate is 7% or more, any bank or lender willing to offer a loan or line of credit is likely to increase the rates on your loan (assuming they offer a loan at all). While loans are hopefully an infrequent safety net alternative for your community, it’s still nice to have the option to procure one if needed, especially because, as delinquencies rise…
Bills go unpaid
If it costs one million dollars a year to run your community, then you must collect one million dollars in assessments or another form of revenue, and not a penny less. If even a small part of that money is missing, the community will come up short and may not be able to pay its bills. Vendors may add late fees, or worse…
Vendors may walk away
Remember the friendly security guard who walked you to your car at night? Without enough money, his job could be cut. Parking attendants, management staff, and maintenance workers may also be reduced. To make up for lost income, boards often cut expenses in ways residents will notice. Without your vendors…
Amenities may be reduced or eliminated
The pool may not be cleaned properly. Landscaping visits may drop from twice a month to once a month. Over time, standards will slip and the community will begin to look worn down. Without proper upkeep in the community…
Property values fall
If the community loses its curb appeal, property values will fall, and all the homeowners will be affected. Potential buyers will look elsewhere or try to buy homes in your community for a steal. Desperate homeowners will turn to alternative solutions like short-term rentals – which can further drive down home values, and can lead to…
Buyers can’t get a mortgage
In condos, especially, a high delinquency rate sends a warning sign to mortgage lenders. If the property ends up on the (alleged) Fannie Mae or Freddie Mac “blacklist,” buying and selling can grind to a halt. These ‘zombie condos’ have a high vacancy rate, which can result in…
Even more unpaid assessments
As more and more owners feel stuck in place, they may stop paying as well—maybe out of spite or because of the rising costs of equity loss. Delinquency rates can rise greatly at this stage, leaving the association with even fewer dollars than ever. This can lead Boards to issue…
Special assessments
If you ever want to see the wheels fall off the association, a special assessment is the way to do it. The owners who have diligently paid feel slighted having to make up the difference for those who haven’t, and dissent will surely breed among your neighbors. And realistically, special assessments may not always be the answer. Even if they can be issued, it may be too late. By this stage of the domino cascade, communities are likely facing…
Delays to Important Repairs and Major Projects
This is the most dangerous result of growing delinquencies. As we sadly learned from the tragedy at Champlain Towers South, letting major repairs or maintenance go unchecked can cause catastrophe. Their special assessment came too late and at far too high a price. A high delinquency rate is not just a financial problem, it can be a life safety issue.
Stop the Delinquency Domino Effect
The bottom line is that any level of delinquency is a threat to your community’s financial health, physical safety, and long-term property value. The goal should always be to keep your delinquency rate as close to zero as possible.
At Axela, we build technology that helps HOAs and condos resolve delinquencies quickly, respectfully, and without upfront cost to the association. If your board is facing late payments or rising delinquencies, do not wait until the problem spirals out of control.
To learn more, contact us today for a free collections evaluation and let us help you protect your community, preserve your property values, and keep your budget on track.
