How do you know when you’ve won and achieved your goal in a collection action? Specifically, when should the Board consider accepting less than the total amount of the debt owed by a delinquent homeowner? How should you evaluate settlement offers to ensure the association actually gets the money it’s attempting to collect?
It’s always important to evaluate settlement offers from delinquent owners. But these days, with foreclosures and bankruptcies still frequent, it is especially important for the Board to carefully evaluate lump sum settlement offers. That’s because money in the door for an association can be used immediately, and the debt can be eliminated from the delinquency report. For example, the association would be in a better financial position if it accepts a $1,000 lump sum settlement of a $2,000 debt, than if it gave the same owner a 12 month payment plan, but then the owner defaulted after only two payments.
Increasing the Chances of Getting Paid
An owner who is delinquent in assessments is probably also behind on other bills. Often the owner wants to pay the balance, but when foreclosure or bankruptcy are looming, the owner may be overwhelmed with the amount owed. Settlements and waivers help owners who want to pay the delinquent balance but need a break to make that happen.
Using Settlement Guidelines
Our advice is for the Board to establish a range of permissible settlement options as guidelines for its attorney and manager, and then allow the attorney or manager to accept settlement offers within this range. If the offer falls outside the range, the attorney should contact the Board and ask it to consider the offer on an individual basis.
Here are some suggestions on how to set guidelines for your association:
- Designate when the Board will consider settlement offers and waiver requests: at each monthly meeting? Or between meetings by e-mail or phone? Ask your attorney for a recommendation on the owner’s offer.
- Possible guidelines for settlement options include : waiver of late fees or interest, but not late processing fees; or waiver of a portion of legal fees and costs, but no waiver on late fees.
- Consider offers outside of the guidelines on an individual basis.
- Create guidelines for payment. Must all settlements be paid as a lump sum, or will the Board consider payment arrangements for the balance, and if so, what payment terms are acceptable?
- Present counteroffers to the owner if or when the owner’s settlement or waiver requests are not acceptable to the Board.
- Any settlement discount should be processed upon payment in full of the agreed upon settlement amount.
Speeding Up Collections with Settlements
Once your association has set guidelines, you can quickly process settlement offers from delinquent owners and avoid stalling the collection process. Did you know your attorney cannot proceed with the collection lawsuit until an owner’s settlement offer has been decided upon by the Board?
Following these recommendations and accepting appropriate settlement offers will help associations improve their collections success and their overall financial position.