There are several universal best practices I find myself repeating over and over in discussions with managers and Board Members. The following are the top 10 points that I suggest all Boards consider. As you are navigating delinquent balances, keep the following pointers in mind:
10. Don’t throw good money after bad. Most of the time, your collections attorney should be able to collect the balance due. But sometimes circumstances outside our control make that difficult or impossible. Most frequently, this is because a particular property has been foreclosed on by the mortgage company and the homeowner has received a bankruptcy discharge. In these situations, there may be a small balance remaining due from the homeowner, but sometimes it makes more sense to waive the small balance than to spend attorney fees trying to collect it. Be sure to check in with your collection attorney regularly to remain on the same page with what is worth pursuing.
9. Understand the personality of the Board. Not all Boards are the same. Some have more or less patience for homeowners falling delinquent and/or willingness to waive soft costs (usually late fees and interest) in order to facilitate a settlement. The Board should come to a decision about these common collections situations and then be sure to convey the Board’s positions to the collection attorney so they can meet the Board’s expectations.
8. Make it as easy as possible for homeowners to pay their balances. People expect to be able to “set it and forget it” about many of their recurring bills and associations should meet those expectations to the extent possible. Allowing for ACH payments, credit card payments, on site dropboxes, etc. can make it more likely that more people will pay on time.
7. Communicate to homeowners what their assessments are used for. In newsletters or mailings, highlight some of what assessments are used for. Is siding being replaced? Did the pool get an upgrade? Are insurance rates skyrocketing? Providing more information to homeowners about why they pay and what that money is going toward not only increases transparency, but can also stop the “Where is all this money going?” questions from non-paying homeowners before they start.
6. Understand the difference between the balance due from the homeowner personally and the balance due on the lien. Even if a homeowner has received a bankruptcy discharge, the lien value is likely equal to the full balance due, including any pre-bankruptcy balance that was discharged. If the homeowner sells or refinances the property, the lien will need to be paid, so be sure to check with the collection attorney to confirm if any bankruptcy balances should be included in the status letter amount to the title company.
5. Share any information you know about the homeowner. If a manager or Board Members know where a homeowner works, notify the collection attorney. Even if you don’t know the homeowner, do they park a car in their driveway that has a business advertised on it? That information can be used for a garnishment or to serve the homeowner. Copies of any checks the homeowner has used in the past can also be helpful for garnishment information. Even information like the homeowner usually walks their dogs at 6pm every night can be great for a process server to be efficient with serving them.
4. Collections can be uncomfortable, but is necessary for the association’s financial health. Associations are required to maintain areas, provide amenities, insure portions of the community, and many other obligations. Associations’ only source of income is from the homeowners in the community. If some homeowners don’t pay their share of the money the association needs, it may not be able to fulfill its obligations. While the idea of sending neighbors to collections is uncomfortable for many Board Members, it is important to remember that the association’s financial wellbeing depends upon it.
3. Avoid selective enforcement. All homeowners in similar situations should be treated similarly. For example: The Board approves a settlement with a homeowner in collections that equals a waiver of late fees and interest. The next time a homeowner makes a settlement offer in a similar situation, they should be offered a similar settlement.
2. Notify the association’s collection attorney immediately if you receive anything bankruptcy related. The association’s deadlines can be very short for filing the required documents to protect the association through the bankruptcy, to the extent possible. Additionally, the collection attorney can advise the association how best to comply with notice requirements under Colorado law, while also not violating the automatic stay in the bankruptcy. Violations of the automatic stay can result in substantial sanctions to the association, so it is imperative to act within the association’s attorney’s advice.
1. Keep up with the law changes and make sure your collection attorney does also. This is easily the most important item on this list, at least it’s the most important to your association’s attorney. Colorado’s laws regarding association collections change in one way or another every year and it is imperative to be sure that the current laws are being followed at any time. Failure to do so can result in an inability to collect the balance and having to pay the homeowner’s attorney fees.
If you have questions about collections best practices or in any specific circumstances, it is best to contact the association’s attorney for direction. Please feel free to contact any of our Altitude attorneys at 303-432-9999 or [email protected] for additional information or guidance.