Predatory HOA Collection Tactics
Collections of delinquent assessments in community associations are always a troublesome issue. Board members feel pressured to collect anything 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.
Unfortunately, while direct-to-foreclosure is the most common high-risk collection practice used today, it certainly isn’t the only one.
It’s essential to remember that "legal" does not always mean "ethical." Complying with the FDCPA is a requirement, not a stamp of success or fairness. Many HOA collections companies are focused on generating revenue, nothing more. Keeping an owner in collections can prove lucrative, despite being extremely unethical for these disreputable collection companies. But these tactics don’t always look abusive or predatory at first blush.
These companies might 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.
Spotting The Signs
This is surprisingly easy to find, but these companies know how to sweep that lousy press under the rug. Because in many cases, these predatory HOA collections companies have dozens of settled cases where the judicial ruling is in their favor. But all this means is that the company has much experience being sued–not a good sign. And if you look at court documents where judicial rulings favored them, many names not only the collections company as the defendant but also the community association. This makes engaging with these kinds of companies a massive risk. Every lawsuit, even those that are settled or won, is costly and damaging to a community. And if the ruling does favor the homeowner, the cost to the community can be staggering.
Every collections company wants to get paid at the end of the day (yes, even us). The difference is how they make that money and the amount of profit they’re standing to clear. Burying delinquent owners in extra fees is a common tactic predatory HOA collections companies use to inflate their profit margins. If you’re considering or already working with a company that tacks on late fines or interest fees so significant that they are likely to match or surpass the past-due principal, run. Collections fees should only ever total a small percentage of the total balance; they should not force delinquent homeowners deeper into a desperate situation.
This is their most enormous red flag and speaks to the fact that their business model cares only about their bottom line. These companies aren’t interested in recovery, let alone in making a community association whole. Their entire business model is designed to drive profit, win, lose, or draw, 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, if you decide their services are cutting it, they’ll do that, too. This kind of contract forces the association into a hostage situation where the only one who wins is the collections company.
...And The Red Flags
firms that charge any recurring, monthly fee for "monitoring" or "outreach." This is the easiest way for collection fees to balloon out of control.
Be wary of a fee structure incentivizing the service provider to let a file drag on. A monthly fee is the most obvious example. It allows the costs to balloon and increase without requiring additional work or effort.
90% of what collection companies are hired to do is outreach and engagement, so this is not something that should be "itemized." This includes charging for call center access, repeated phone calls, etc.
Skip tracing should be a standard proactive for any collection company and costs the collection company next to nothing in terms of time and money (it takes ~30 seconds and about $0.05 to run a skip trace).
Anybody who requests a payment plan has trouble meeting their immediate financial obligations. Why would you add insult to injury by charging unnecessary fees to someone making a good-faith effort to get back on track?
Plus, any modern collection company worth its salt should be able to automate this process.
Companies that require exclusive contracts with strict termination clauses make the association liable for all the excessive fees mentioned above. In this arrangement, the collection company knows it will get paid, win-lose, or draw and has the mentality of "in that case, let's rack up as many fees as possible."
This is the enormous red flag of them all!
Companies live and breathe based on their reputation. Many of these Predatory Collections companies don’t have a positive standing with their current or former clients and refuse to list them as references. Always ask for a list of references when choosing to work with a collections company; if they only furnish 1 or 2 options, that doesn’t cut it!
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Not ready to break up with your Predatory HOA Collection Company?
Download our "How to Reduce Your Condo/HOA Delinquency Rate [ebook]"
Unlike a predatory HOA collections company would have you believe, there is no magic bullet to reduce delinquency rates. But some techniques work. For over 20 years, our team has been working to help communities reduce or eliminate bad debt, encourage homeowners to pay on time, and help communities recover delinquent funds.