What happens if 5% or more of the members of a condominium association or HOA don’t make timely payments to the association as expected? What if one or more homeowners stops contributing altogether? How can condominium associations and HOAs protect themselves while not playing the role of the villain in the eyes of the delinquent homeowners? Here is the argument in favor of ethical collections.
Condo/HOA Collections is a requirement for good fiscal governance
No one can question the need for a condominium association or HOA to act against delinquent owners within their association. After all, successful collection and distribution of common fees and assessments are the only way a condominium association or HOA can survive. Budgets are prepared annually. On one side of the budget are all of the known and anticipated expenses, contributions to Reserve Funds, and other expenses the association will face in the upcoming year. On the other side of the budget are the income items to pay for those expenses, namely the anticipated income from common fees and assessments from individual homeowner and unit owners within the association. A balanced budget can only be maintained if both sides of the equation are accurate.
Condominium associations and HOAs are typically not-for-profit businesses. The governing documents that create the bond between the unit owner and the association usually give the association serious clout when it comes to collecting common fees and assessments in a timely manner. Additionally, many associations engage an attorney to assist them in contract negotiation, interpretation and modification of governance documents, and much more. It’s not surprising, then, that many condominium associations and HOAs simply turn to their attorney when it comes to matters of collection of delinquent common fees and assessments. But boards should be asking themselves, is that wise? Is that in the best interest of the association or the delinquent homeowner? Is it the best way to protect the association’s assets and actually collect the money it is owed? Is it ethical?
Why homeowners fail to pay association fees
There are several reasons that a condominium or homeowner can become delinquent. The simplest reason is that they simply don’t have enough money to pay all of their bills. Credit card bills, utility bills, car payments, and even the mortgage all need to be paid. There are perceived repercussions from missing any of these payments, including having utilities turned off, a car repossessed, or a foreclosure action from missed mortgage payments. For these reasons, a person who is short of cash might make the decision to defer or miss payments on their common fees or assessments for the simple reason there doesn’t appear to be any repercussions from doing so. It is a mistaken notion that is all too common. Other reasons include an owner’s death or severe illness, a lack of receiving or paying attention to communications from the condominium association or HOA, and even plain forgetfulness.
Whatever the reason, once the unit or homeowner gets behind in their common fees, the goal should be to educate them and get them back up and current so that their lack of payment doesn’t hurt the other association members who are paying on time.
Legal Actions vs Collection Actions
There is a huge difference between attempting to collect a debt and simply taking legal action against the debtor. Both have very real consequences to both the condominium association or HOA and the delinquent homeowner. Simply referring the matter to an attorney isn’t an attempt to collect a debt. It is an action that will lead to a lien and eventual foreclosure if the debt isn’t settled. Used as a first resort, it is an unethical solution because it harms the homeowner and puts the association at risk of losing additional money as the attorney will get paid for the legal work regardless of the outcome.
Since the delinquent unit owner is encumbered to the terms of the association’s governing documents, the hefty and often burdensome cost of the legal fees is also lumped onto the delinquent amount the homeowner owes to the association. In some extreme cases, the legal fees can even outweigh the amount owed to the association. Can you blame the delinquent unit owner for crying “foul” when this happens? It is unfair and unethical.
Start with a specialized Condo / HOA collection agency
A far better and less expensive solution would be to work with a specialized collection agency that fully understands the plight of the condominium owner or HOA homeowner who has missed a few payments and become delinquent.
Axela Technologies is just such a collection agency. In addition to offering a no upfront cost to the condominium association or HOA, the fees for using a collection agency to service the debt is far more agreeable to the delinquent homeowner. They have the opportunity to address their delinquency and get themselves back in good standing with their association. A specialized collection agency can work with the homeowner politely and professionally, encourage a repayment plan, without involving the courts or threatening to foreclose on the homeowner’s home unless, and only unless, the debtor is unwilling to resolve the debt.
In our experience, that is a rare occasion that only happens about once for every 20 accounts referred. That means up to 95% of delinquencies are settled without the need for the hefty legal expense of an attorney. Not only is this solution far less expensive for all concerned, it’s also a far more effective method of collecting delinquent common fees and assessments.
An ethical collection strategy needs to be considered in all cases of homeowner delinquency and not just because it is the right or ethical thing to do. Many associations have felt the bitter sting of financial loss after pursuing a strictly legal “lien and foreclose” strategy. Savvy homeowners who get swamped with legal fees on top of delinquencies are far more likely to file their own bankruptcy leading to the association simply “writing off” the delinquency and the legal fees spent trying to collect.
Using Axela Technologies and their ethical collections strategy proves effective 19 times out of 20. Ethical collections save time, save money, and encourages a “win/win” for the association and the homeowner. Take a look at your current condominium association or HOA collections strategy today. If it isn’t ethical, it’s time to talk to Axela Technologies.