5 Common Collections Mistakes

Assessments are critical for community associations. Regular assessments allow the association to purchase liability insurance, maintain common property, and hire professional management. When an owner in a community fails to pay their share of the assessments, the other owners make up the deficit. Every condominium and homeowners association should have a collections policy that identifies exactly how the association will handle delinquencies.

Here are five common collection mistakes that board members often make: 1. Giving Up After a Foreclosure

Each community association has two enforcement routes to collect delinquent assessments. The first is the association’s right to lien the property or unit of the delinquent owner. The second is to pursue a personal judgment against the individual. The lien right and the personal judgment right are independent of each other. So, if an owner’s home or unit is foreclosed, the association still has a legal right to pursue the delinquent owner for the entire balance due to the association.

2. Failing to Timely Pursue Debt

There is a significant psychological component to debt. The longer a creditor waits to pursue collection efforts, the less likely the creditor will get paid. Each association should have a collections policy in place that explains to each owner exactly when collection efforts will begin after an assessment becomes delinquent. For associations with monthly assessments, collection efforts should begin 15-30 days after due. Associations with quarterly assessments should begin collections prior to the next quarter’s assessment.

3. Communicating About the Debt to Third Parties

Federal law prohibits collections agencies or collections law firms from communicating about an owner’s debt to any third-party. Board members should follow that same policy and never discuss an owner’s delinquency with other owners or third-parties. Discussion of deliquencies should be done in executive session during a regular board meeting.

4. Playing Favorites

Each association has clear guidelines on the amount of assessments, the frequency, interest rate, and late charges. The board should follow those guidelines with every delinquent owner and never make special arrangements with certain owners if those same arrangements are not available to all owners. Granted, when circumstances warrant the board may compromise on the total amount of debt in order to secure a settlement agreement. Legal counsel should be consulted prior to entering into a settlement agreement with a delinquent owner.

5. Not Allocating Assessments Correctly

In most planned communities each lot owner pays an equal share of the total amount of levied assessments. Some condominium associations allocate assessments based on square footage of the unit. In any case, always read your governing documents carefully to ensure assessments are allocated in accordance with the provisions in your Declaration or Bylaws.