Earlier this year, the Metro Denver Economic Development Corporation (an affiliate of the Metro Denver Chamber of Commerce) presented the 2010 Economic Forecast for Metro Denver, and it was not all bad news! Briefly stated, the EDC suggested that Metro Denver has the necessary fundamentals to bounce back from this economic recession.
For example, Denver was tied with San Francisco as the nation’s second-favorite place to live in 2009 (behind New York City). Additionally, NBC’s “Today” show named Denver the U.S. city most ready for a housing rebound. Unfortunately, unemployment, bankruptcies and foreclosures are still leaving homeowners in distress, and likewise, the associations in which they live. What can associations and managers do to gain control over their delinquencies in this (still) tough economy? Here are our suggestions for the top three ways to gain control over delinquencies:
1. Review your collection policy, or if your association does not have a collection policy (it’s a required document), adopt one.
Take a look at your collection policy. Does it address any of the following?
- Requires that a delinquent owner is responsible for payment of any management company service or processing fees;
- Requires that, immediately upon receiving notice of an owner’s foreclosure or bankruptcy, their account, whether or not delinquent, is turned over to the association’s attorney;
- Requires that the board may accelerate an owner’s dues (provided that the declaration allows for this); or
- Includes a rental intercept clause, enabling your association to collect rent from tenants if an absentee owner becomes delinquent.
If your collection policy includes some or all of these provisions, kudos! If not, consider revising your collection policy to include these and other provisions that will allow your association to rein in delinquencies in a timely manner.
2. Consider offering owners amnesty from a portion of their debt.
An amnesty often offers homeowners a one-time “relief” from late fees, fines, attorney fees, interest, etc. on their account if they pay their principal balance in full by a certain date. This solution can prompt an immediate influx of money for the association, which in turn allows it to pay for daily maintenance and building a sense of community. With the FHA certification deadline looming, an amnesty program could be a valuable solution to cure some of those delinquencies.
3. Write off bad debt.
With the number of foreclosures and bankruptcies higher than associations have ever seen, it is becoming commonplace for associations to be confronted with the task of writing off bad, or uncollectible, debt. The two most common instances when a debt becomes uncollectible are:
- When an owner files a bankruptcy and obtains a discharge from the court. In this case, all debt owed prior to the bankruptcy filing date is not collectible from the owner (i.e., the owner’s personal obligation is discharged).
- When the owner is foreclosed on by the first mortgage holder. When this happens, the association’s lien is extinguished, and the debt cannot be collected from the property.
When both of the above scenarios apply to the same property, then the debt owed is truly uncollectible.
In circumstances where the association has a judgment and simply can’t collect on the judgment through garnishment or other court action, the association may want to consider writing off the debt, especially if the property has gone through foreclosure.
The best way to minimize bad debt is to turn over your delinquent accounts to your collection attorney as quickly as possible.
For questions and answers to some frequently asked questions about reigning in delinquencies, please reference our webpage. If you’d like assistance in drafting or modifying your collection policy, or want to discuss other options regarding collections, please contact one of our attorneys at 303-432-999 or send an email to [email protected]