BEST COLLECTION PRACTICES:
HOAs need funds to operate and maintain the property. We all know that. Timely collections is a vital part of a successful and healthy Association.
The following may seem basic to you but far too often Boards overlook steps they need to be taking to properly discharge their duties.. Here are some tips.
1. Adopt a Collection Resolution. A resolution will set forth how many letters are sent out? When will you file a lien; when will he account be turned over to Richards Law?
Key – uniform procedures against all delinquent owners – no favoritism.
2. Be careful about charging PRE-ATTORNEY legal fees. Often times, the debtor’s account gets too high from fees and charges that get added by the HOA making a realistic payment scenario very difficult. Further, it may not be authorized to charge such fees. Review: case-by-case with your manager and Richards Law.
3. Once turned over to attorney, ALL communication should be through attorney. We will instruct the manager and Board to NOT speak with the debtor. Often, the debtor does not like this but let us take the heat. REASON: when more than one party is speaking to the debtor, often time separate ‘deals’ are struck (or allegedly struck) and then statements, etc., get used against the attorney and the HOA.
4. If you’ve turned a file over to your attorney, don’t refuse money that comes in, but SEND TO YOUR ATTORNEY promptly so they can account for it as well. Please please please do not apply the money to the debt as this is how attorneys get paid on a “deferred payment system.” Our program is called COMMON SENSE COLLECTIONS and we hope you are all using it.
5. Accept the fact that if you turn over a file to the attorney that you should not have (they made a payment and you forgot to log it, or they made arrangements and your forgot about it, etc.), the attorney will open the file, do a property search, a bankruptcy search, and start the process of collecting. If you call to “STOP” the collections, there may be a small charge for that work that was done.
6. Decide your preferred course of action (1) lien and sit on it; (2) sue for debt after period of time; (3) foreclose your lien. You can pick and choose your remedies.
7. If you want to foreclose, be aware of 2 issues: (1) the debtor can opt for JUDICIAL foreclosure; and (2) you should be asked of the Attorney to have you expressly appoint you as the Trustee for purposes of the sale.
8. Decide in advance how long you will accept a payment plan – such as no more than 6 months as long as they keep their assessment current. Consider them in good standing if in a payment plan.
9. Please put up with the attorney as we call for updated ledgers frequently. It is simply necessary to know how YOU are accounting for the delinquency
10. As a Board, really think through the concept of: “A bird in the hand is worth two in the bush.” My point is made by an example:
Assume there is $6,000 debt to the HOA. The HOA wants 50% down and payments of $500/month plus ongoing monthly fees. Debtor just does not have the money – or so they say… Believe them or not – it does not matter, you have to make some decisions.
Further assume that the have offered $2,500 now, $250 a month until current and to keep on top of their monthly assessment. THE BOARD HAS SAID “NO.” Here is an interesting question – did the Board breach its fiduciary duty by being too strict? Then, this owner who could have handled a payment plan but now cannot because the HOA won’t accept what they could afford, files for bankruptcy? Does the Board share in some blame here?
These are tough issues. You need Richards Law to help you out and be your go to firm for all HOA issues; especially collections.
This is a real life scenario and I wanted to share it. I look forward to talking to each of you. Best regards, John Richards