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Eight Simple Rules for Collecting Assessments
Has your association seen an increase in assessment delinquencies in the current economy? Many of Orten &Hindman’s client associations have experienced massive recent delinquency increases, yet others report no significant problems.
Why do some associations succeed in collecting the funds they need to operate while others encounter problems? Of course, communities differ and factors like the state of the economy, including unemployment rates, layoffs, corporation relocations are beyond any homeowner association’s control. But Orten & Hindman’s experience in successfully resolving more than 2,000 delinquency disputes each year and collecting over 2 million dollars in the past 12 months, for hundreds of client associations, shows that associations can cut delinquencies and boost recoveries by following eight simple rules.
1. Implement a comprehensive collection policy and publicize it. If homeowners know what is expected of them - and the legal consequences of not paying - it becomes easier for them to move assessment payment up in bill-paying priority. The elements of a sound collection policy include everything from graduated steps in seeking payment to the application of payments received. You can view and download Orten & Hindman’s suggested collection policy by clicking here.
2. Act early to resolve delinquencies. Owners can often re-prioritize financial obligations to resolve a few hundred dollars of debt. If the amount has grown to thousands, they often cannot. Further, owners allowed to sink toward bankruptcy and foreclosure present problems of delay and ultimate collectability that can be avoided.
3. Keep informed about owners. Be alert to changes in ownership, address, employment, banking and the presence of tenants in a unit. If legal action becomes necessary, quickly and accurately serving process on the defendant cuts costs and delays. Rents paid by tenants can be garnished to collect delinquencies, as can wages and bank accounts. Some of this information can be obtained through court processes and publicly-available records, but expenses and the time involved can be minimized if you note what you hear about where an owner works, keep copies of checks by which an owner makes payments and envelopes which may bear an employer’s or offsite return address and pass such information on to your counsel.
4. Let your managers and attorneys do their jobs. Once an owner account is turned over to counsel, avoid discussing the matter with the owner. You may be unaware of current account balances or ongoing negotiations. Your statements, whether stern or sympathetic, may confuse an owner and form the basis for later arguments that delay or jeopardize collection. The association has paid for experience and judgment. Take advantage of what you have paid for.
5. Fit your objectives to your methods. Assessment collection procedures are designed to collect assessments. If your association wants to accomplish other objectives, other procedures may be more effective. The best way to get rid of a junk car stored in violation of your declarations and covenants may not be repeated fines followed by legal action to collect them. Seeking a court order allowing the car to be removed may more quickly and effectively solve that problem.
6. Consider foreclosure. One example of selecting the appropriate remedy is judicial foreclosure. Most associations have dual collection remedies of an action at law against each owner, personally, and of foreclosing against the property. In both cases, the association’s legal costs in pursuing the remedy are recoverable from the owner. While pursuing the owner personally is generally quicker and requires less cash outlay than foreclosure, foreclosure’s potential impact almost always resolves delinquencies when personal action is ignored. Your counsel can explain your options and the process in more detail. Click here for additional information regarding foreclosure as an assessment collection tool.
7. Follow your own procedures. Be sure your delinquency enforcement procedures are consistent with your governing documents. If you are sending delinquency notices by regular mail when your declaration requires certified mail for such notices, collection efforts may be delayed and may be more costly in order to cure the error. If you are uncertain about your procedures and requirements, consult your legal counsel.
8. Communicate. Let owners know the association needs to collect assessments from all residents if the community is to be healthy, and that there must be enforcement consequences in cases of delinquency. Keep in touch with community managers and counsel regarding association needs and expectations. Legal notices that come to the association and are not timely passed on to counsel for action can adversely affect an association’s collection rights. Demand such communication back from your managers and counsel so lapses are avoided.
These are difficult economic times but associations can navigate them more successfully by following these eight simple rules.
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