Collecting Assessments may be tough, but you have to do it if your association is going to survive.
Most associations struggle with collecting delinquent assessments, but it is a necessity. Assessments are usually the only source of income for an association, and any owner’s failure to pay requires all of the other owners to pay that much more to cover the gap this creates in the community’s budget. So what is a good strategy for each association to adopt to boost collection rates as high as possible?
1. Make your collection process automatic.
One of the easiest problems to avoid in collecting association dues is the issue of selective enforcement. Associations often give greater deference to owners that they like or who they feel sympathy for, and eagerly pursue owners they see as trouble makers. Unfortunately, this approach creates two problems. First, it sets up a legal defense that the rules of the Association are not being applied uniformly to all owners. Second, it promotes the idea that if you have a good enough excuse and stay out of trouble the association will let you slide on paying assessments.
Instead, every association should act dispassionately and automatically with regard to collecting assessments. As soon as an owner becomes delinquent, action should be taken. No owner’s account should be treated differently from another’s just because he lives next door to the president or is a really nice guy. Moreover, the association should not slow in its march towards resolution. If the owner misses deadlines to repay, the next step in the collection process should be taken without delay until the assessments are paid or the property is foreclosed. This avoids the defense of selective enforcement and gives everyone in the association the message that they must carry their part of the burden or sacrifice the privilege of owning property in the community.
2. Create policies.
Part of being automatic with your collection process is knowing when to take the next step and what that step should be. Some of the collections process will be in your association’s governing documents, like when you can charge late fees and interest and how much those amounts can be. Other requirements are contained in the Florida Statutes, like how much notice must be given before filing a lien or a lawsuit to foreclose on the property. An attorney can help guide you through deciphering those provisions and alert you to any conflicts between your documents and the statutes.
But what about all of the other stuff that is not contained in the documents or the statutes? How long should an association wait before referring a matter to the attorneys? Should the association send reminders before taking legal action? If so, how many and spaced out over how much time? These questions will usually be left up to the association to decide on its own, so why not create a formal policy? Generally, the board has the power to adopt rules (as opposed to amendments to the covenants) by a simple vote of the directors. So, why not create a formal set of rules outlining how collections matters will be handled which you and your successors can follow in every instance when someone becomes delinquent? Formal rules will make it easier for an association to stick to a collections policy because it is written as a requirement, it is available for everyone to see so nobody can legitimately claim surprise, and they will pass your intent forward to future board members so that your policies will continue to be enforced long after you step down from the board.
3. Follow through.
Finally, another spot where a lot of associations fail in their collection efforts is on the follow through. If your community threatens to take legal action against an owner it needs to actually see that action through to the end, be that foreclosure or payment by the owner. Too many associations stop after sending a demand and filing a lien against the property. Liening a property is almost useless on its own without some sort of legal action to foreclose that lien. Otherwise, the lien can sit in the public records until it expires or becomes so remote in time that a judge refuses to enforce it. Thus, an association should always follow through on its foreclosure powers in a timely manner if an owner continues to remain delinquent even after a lien is placed against their property. Doing anything less merely creates an inconvenience to the owner and a wasted expense on legal fees for the association.
If the association’s hesitation on moving forward with a case results from fear of large legal fees, there are several services, such as Assessment Recovery Partners (ARP), which can assist associations by “purchasing” collections accounts, usually by paying off some or all of the delinquent assessments for a particular property and agreeing to pay all legal expenses associated with collection. In exchange, the association gives the collection company the right to collect any interest or late fees on the account and the right to bid on the property at foreclosure auction. These services are usually best for associations with large amounts of delinquent accounts who are in dire need of improved cash flow, but may be useful for communities in less dire financial straits, as well.
Improving you association’s collections is as simple as following three easy steps. First, become automatic with your collection efforts. Second, adopt policies and make them into official rules for your association to follow. And finally, follow through with your collection efforts, never stopping short of payment by the owner. Following these steps should put your community on the path to improved collection rates and ease the burden on all other owners who regularly pay their assessments as they should.
This article has been adapted and featured on habitatmag.com