HOA collection practices

Well I checked my email this morning before going to work and boy howdy did it give me a headache. Our management company wanted permission to send an account to legal for a demand letter (at about $150 cost) to an owner. The heck of it all is that end of the day the only reason the owner owes money is very high collection fees being added to start with.

While I realize that all other owners should not have to bear the cost of collection for the few that don't pay, I wonder if the management company doesn't have a profit center at the cost of our members. The cost of sending a statement aside from the initial bill is $10. And things start going up from there.

Along the way we have our lawyer send a letter that costs $150. Then they do a property search before placing a lien. And by this time the cost to the owner is 4 to 8 times the amount originally owed.

While I recognize that people need to pay what they owe, this seems:

1) Beyond what is reasonable. No other organization does this kind of thing. I have seen lower costs for properties being sold for back taxes. And a year's taxes exceed our dues.

2) It just doesn't seem neighborly. Perhaps I am just wrong headed here. But I feel that a "neighborhood association" should try to treat its members as neighbors when possible. (There are times to get tough, but running up the bill seems vindictive.)

So I am wondering, is it possible to go to the lien without racking up high legal (and collection) costs?

Maybe Brian can tell us how he did this on the cheap, as compared to Kirk.

We as associations have to be aware of economics and economic times. What would be good today may not have been good 5 yers ago because of all the foreclosures, if your group is being battered. Innovation has to be the key to cut your loses.
But Kirk, the moral aspect is not your burden if you have good documents. What I mean is; when you file alien you are going to put a hurting on someone else. You might be required by your morality to to do the best you can but you will hurt someone, no matter how you slice it. It really is better follow your documents, innovate to satisfy them because of the circumstances. And if you don't act, you are hurting the association. "It's not your money" you are trying to save nor is it your money you are trying to collect.

George,
As you have posted George, "Be kind and cut me a little slack."

The issue at hand is not anyones moral conduct. Moral conduct implies a decision. Kirk could be just as moral following the documents in his decision as someone saying , "My morality doesn't allow me make to this decision." Seems to fit this country pretty well.
If you read I am encouraging folks to make immoral decisions, you are just plain wrong. But few of us go through life pure, so in that sense we are all or nearly all immoral. I don't think we can expect our BOD to always make moral decisions, that fit the definition of everyones conviction of morality. Is placing a lien on your neighbors property immoral. Is cutting a deal with a homeowner that will enable the association to cut their loses immoral?

I think I will just retract the statement and blame it on poor choice of words and I opoligise if I offended anyone by by carelessness.

Last night ceremonies I thought lacked visual impact, not because is wasn't spectacular, but because a lot was lost in the translation and limitations of TV. This morning, it seemed more people-ish (sic) and genuine. I am sure China has done what they wanted to do, but I am not sure it has much to do with the Olympic GAMES. But it has become in a small part of ,"Can you top this." It would be nice to see a small country Host one and cut off all the fat.

Better check state law first! In 2003 the AZ Supreme Court (which regulates the practice of law in the state) issued a rule modification redefining the "practice of law", which includes "preparing any document in any medium intended to affect or secure legal rights for a specific person or entity", which would include recording liens. Only a "legal document preparer" or a legal assistant under the supervision of an attorney can prepare and record a lien, among other legal documents. BTW, AZ is one of the only states in the union where the "unauthorized practice of law" is not against the law in the form of statute.

Roger,

In Florida an lien for HOAS must be filed by an attorney.

Brian,

I'm sure many are still breaking the rule. Besides, who would know except an attorney? The Co. Recorder doesn't can who brings in a document for recording, they don't even care if it's legal; their only job is to record it.

Just what I would have said. Right on target.

This is not true...anyone can file the lien..Board member, MC or HO...it cost $10.00...the attorney charges $325. I just called to see if there was a change.the answer was NO.

Here is the deal -

We have a collection policy which was written before the turnover. At a meeting regarding finances the vice president of the management company made the statement that we "need to let them do their job." I have no doubt that the collection policy was mostly written by the management company. But at any rate here is a breakdown of how things go:

1) HO receives bill in November for dues that are owed on Jan 1 and delinquent Feb 1.
2) A billing statement is sent out for those not having paid by Feb 1 at which time the HO is hit with a $25 late fee and a $10 fee for sending them the bill.
3) After 30 days a reminder notice is sent at a cost of $15.
4) Another 30 days and a demand letter is sent from the management company at a cost of $20.
5) The account is sent to the attorney who sends a demand letter ($150).
6) A title search is performed and another letter sent from the attorney ($450).
7) A lien is filed at a cost of $250.
8) Foreclosure is authorized.

Now before they get to step 8 the owner has not paid for more then two years. Our dues at $200 a year paid annually.

I have no issue with paying the attorney to file the lien. I do have an issue with paying the attorney $150 to send a demand letter. I have a problem paying $450 for a title search that is probably not needed.

In short, it would appear to me that the current policy is designed to help the management company and the attorney. It doesn't hurt the HOA (if the owner pays) because all the costs are passed to the owner.

I have a moral problem (regardless of the legality of the documents) of running up a larger bill on the owner. If we can lien without the title search and demand letter from the attorney it would seem a much better way.

As a note, I notices that the collection policy directly contradicts the covenants in stating that the monies owed does not pass with the land. I know that the covenants over rule, but that little tidbit bothers me.

Because the declarant owns three properties, they hold veto power over any changes so we may be a little while before we can change it. But I think the ownership would agree with buying at least two of the properties if that would allow us to fire the current management company. Nobody seems to like them.

Kirk, more than 2 years on a delinquent account is too long. Following are collection policy suggestions with foreclosure initiated within 5 months. These procedures usually may be established by the Board as Rules and Regulations. Does onership of 3 properties give them veto power? Do they control the Board?
1. Statement mailed November. Advise on statement that payment is due by January 1; account becomes delinquent after a 10 day grace period for receipt of payment; and there is a $25.00 per month late charge until entire balance is received.
2. If not received by 1/12 send a second statement which states if payment is not received within 30 days a lien will be filed. Offer the delinquent party the opportunity of a payment plan if they can not pay the entire amount due.
3. If no payment or response is received by 2/15 send a third statement that payment has not been received and if not received in 10 days a lien will be filed against the property at a cost of $$(high enough to encourage payment).
4. If not paid by 3/1 file the Notice of Lien and send the Owner a statement, demand letter, and a copy of the lien. Advise that if payment is not received by 4/1 forclosure on the property will be initiated (or consider personal garnishment of wages and other assets if there is not sufficient equity in the property).
6. If still not paid by 4/1 try to encourage their mortgage company to initiate foreclosure. If not sucessful then hire an attorney to initiate foreclosure. Send copy of all correspondence to the attorney for their review prior to filing.

In regard to your other comments:
* Remember that when an Owner is delinquent, an attorney may make the problem worse. Also, when an Owner can not pay and the property must be foreclosed then the HOA will be required to pay the legal costs and property values in the HOA will go down.
* A title search can be done by you OR require a copy of the warranty deed with each title transfer.
* Past due assessments do not carried forward to the new Owner when there is a foreclosure sale.

Just to add a twist on this, we've recently run into a situation regarding our collection process.

Our dues are $400/year. Bills go out the first week of January, and are to be paid by the end of January. If not paid by Feb. 1, a second bill is sent. No late fees yet, but a notice is included that if not paid by March 1, late fees will be assessed at a rate of 18%/year as allowed by the CC&Rs. This comes out to about $6/month. Statements are sent to any homeowner who still has a balance due in March, April, and May showing the late fees. If we hear from the homeowner and they try to make payments, we continue to charge interest on the unpaid amount, but we don't take further action.

If we don't hear anything from the homeowner, in June we send a certified letter demanding payment. This letter includes a notice that if payment is not received by July 1 we will file in small claims court. The certified letter also incurs a $20 administrative fee charged by our management company. When we file in court, another administrative fee of $285 is charged, plus a $35 filing fee. It may cost an additional $75+ for a process server. So with all of these late charges and various fees we are up to $770 after 7 months. All of those extra fees become limited assessments against the property.

Recently one of these homes sold in a short sale. The title company called our management company in early June for a payoff amount, but escrow did not close until mid July - after the $285 admin fee & $35 filing fee had been charged. They sent a check for the amount that they were told back in June. Since our docs state that assessments are "a charge on the land" and "shall pass to his successors in title", this means that the new owner is responsible for the balance due. In our opinion though, the title company screwed up - they should have called for a new balance closer to the actual closing date, so we feel that the title company should pay the balance. The title company of course disagrees. They plan on attending our Board meeting next week to discuss our process with us.

Dwight:

I think both parties are at fault...the title company in my opinion should have called closer to the date, but the the Board knowing this was a delinquent property should have kept closer tabs on things.

Brad -
I don't disagree - there should have been better communication amongst all parties involved. In this specific case the only thing we knew was that the dues had not been paid for this property. We were not aware that the property was on the market or that the mortgage was not being paid, leading to foreclosure. Since we were moving forward in the process with several other properties, this one was just included in the batch.

As a lame excuse, we just had another property where the owner transferred the title from a business name to his personal name, then transfer it back to his business name again. As far as we knew, this was just the same sort of thing (our unconfirmed suspicion is that he thought that by transferring title he could get out of paying the dues).

Just to tie a couple of threads together....

Looks like we had another home change owners in pretty much the same situation. After digging some more, it's starting to look like this issue may have been created when the title company called for the balance due. The MC gave them the amount as of that date, which included the HOA dues for the year, late charges, court costs, and administrative fees that had been charged by the MC. When the payoff check came in, the MC applied it to HOA dues, title transfer fee, late charges, court costs, and the administrative fees.

Notice the extra bit in that last list? It looks like the balance given to the title company did not include the title transfer fee since it had not been incurred yet. We had a discussion on this forum not too long ago about title transfer fees and what they are for. In my opinion, unless there is a cost to the HOA in the transfer, then that fee should not be charged. But since it is specified in our CC&Rs we do usually charge it. In this case, since the MC neglected to inform the title company of the charge when they called for the balance due, I think we are going to have to waive it. And I think I'm going to take a closer look at the transactions in the other transfer and see if the same thing happened there as well.