Collection of assessments/dues

We are an hoa in Missouri and have many, many residents who do not pay their assessments. I would like to know how other associations handle this problem or any helpful info on how to collect or enforce collection.

Julie,

We have a published enforcement policy but the Association also works with the individuals when they can.

Our enforcement policy states:

Assessments are for the year but may be paid monthly, quarterly, etc.
Monthly payments are due on the 1st of the month and considered late if not received by the last day of the month.
Late fee incur on the 1st day of the following month
Treasurer may waive up to three months late fees at their discretion.
Only the Board may waive charges, fees above the first three months.

30 days late - letter sent from bookkeeper via first class mail
60 days late - letter sent from treasurer via first class mail
90 days late - certified letter sent stating intention to accelerate payments (have the whole year due) and intent to lien.
Board votes on issue and, if there is zero communication from the member, the issue typically goes to the attorney for collections.
Attorney typically sends a certified letter prior to placing a lien on the property.

Now the Board has offered many times to waive late charges and other costs of collection if the member is showing some good faith. Typically in the certified letter, an offer is made to waive all late charges if member pays what is due plus the rest of the year.

As a past treasurer once said, the goal is to collect what is owed - not to make money in the process or cause undue hardship. Therefore, we will work with a member if they are willing to work with us and show some sort of good faith partial payments.

This has worked well. Out of 130 lots, we only have 1 at 90 days, 2 at 60 and 5 at 30. Typically we only have 3-4 members who consistently pay late or require the Association to jump through hoops. In the last three years only 2 have been sent to the attorney and of those 2, 1 went into foreclosure and the other settled before a lien was placed.

Tim

Julie,

In NC, we follow the state's collections law to a "T." It begins with a demand letter and ends with a foreclosure as outlined in statute. We previously sent a "friendly reminder" letter but they were always ignored. It's clear cut and any property owner can research the process and be assured that all cases are handled according to that protocol. Our property management company hires a competent collections attorney who, after a point in the process, becomes the ONLY entity with which a delinquent dues payer may communicate. HOA directors are private citizens and volunteers. We do not engage on collections matters after a certain point.

At any time, a delinquent dues payer may request and receive a credible and reasonable repayment or "catch up" plan. If they reach out BEFORE our property management turns to account over to the collections attorney, then the management company works with them in good faith. After that "line" is crossed, the attorney will, in good faith, craft a credible repayment plan. Only silence from delinquent dues payers makes the process move according to law.

Some of our citizens have questioned our board's willingness to complete the collections process and suggest it's cold-hearted. But here are the facts:

1. Our board, prior to my tenure and presidency, set precedent of following through on collections.

2. On any given month, there is a 9% delinquency rate (though people tend to pay more at year's end).....Therefore, current dues payers could enjoy a near 10% dues reduction and receive the same services and HOA cash flow IF everyone paid.

At day's end, people who don't pay don't believe the board will move aggressively to collect. Therefore, they're letting your diligent dues payers cover the costs of amenities that absolutely and tangibly support property values if those amenities and common areas are kept looking nice.

Good luck with collections. Chronic delinquency is a form of community gangrene that slowly spreads and is potentially fatal to cash flow. Serving on a board charged with maintaining community "health," it requires tough, business-focused decisions that leave NO ONE feeling good. In fact, it feels horrible and it's why state collections law is the proper path. It's crafted through the legislative process and not by whims of an HOA board or its directors' emotions.

In all seriousness as other have said the answer lies in your documents...we do the following:

1. send out notice of annual assessments with 60 days to pay
2. after 60 days send them another letter informing them they are late and late fees are now acruing.
3. 30 days later we send out a final notice that we will lien the home if not paid or arrangements made.
4. 30 days later we lien the home.

We are now in discussions of what our next step will be after this, do we go to a collection agent? Do we let it just accrue? Do we take them to court to get a judgement for possible garnishment? We don't have it all figured out quite yet.

So, bascially, if the people never try to sell, then we cannot collect?! Right. Frankly, some of our association dues are so far behind that they exceed the value of the property. What about small claims court?

Julie,

I had a real estate closing this week and I asked the attorney about placing lien vs obtaining a judgment. Basically, he said placing a lien is much easier because you attach the debt to the property. If it still doesn't sell, you can legally foreclose. With a judgment, you're more apt to engage in chasing the debtor. It's more "hands on" but can be effective.

If your HOA will not take the chance of foreclosure (and getting title to property you don't want), then a judgment might be your best path. But then who's gonna chase the debtor? Many states will not allow wage garnishment for debts such as these.

Collections is a hard process.

It sounds like your POA did the right thing just the wrong way...It was better for them to have pursued liens over lawsuits. Your POA also did not know the proper resources to find the owners or serving documents correctly. Notifications go to the address of the HOA owner's address NOT where they are actually located. Sending notification to their OUTSIDE adress may be a courtesy/message. Legally your serving the papers on the HOA property. Hence when those owners cry they weren't notified you can show the court a rejected certified letter delivered to the address of ownership.

Part of the process of a lien or foreclosure is that a PUBLIC source such as a newspaper in the LEGAL section serves as PUBLIC notification. That public notice serves as a legal notice no matter if they reply or not. (This is the same process used to issue divorces to a party that won't respond to the paperwork too FYI). I strongly suggest reading that section of the newspaper to find out information such as if a bank is foreclosing or other legal issues a property or person is facing. I've been able to find addresses or names this way. It isn't printed every day so find out your local paper's schedule. It's usually in the classified section.

There are two things certain in life...Death and Taxes. If you know the lot number or plot of the property you can call the tax assessor's office. The information may not be up to date but is usually accurate for about 3 to 6 months of the exchange of ownership. The point is if your HOA wants to collect money they have the right to. The information is out there and public if you know where to look and do the research prior to filing. I've found owners this way and liens were filed.

Agreed Kelly...I tended to take it as a case by case situation. No case was the same. Once I initiated the "6 month behind we lien" policy, it really weeded out those who just had financial issues. We could work with them by forgiving late fees or making it so they could pay half with no penalty until they caught up. NOT having a policy and an erroneous time limit set on collections really hinders the entire process.

However, you do have those who refuse to pay out of "Protest". Those are the ones I would take more of a lawsuit approach with as that is probably the way they would respond in kind. However, it is still a BAD option to employ but necessary to call one's bluff...Lawsuit talk seems to be the strongest language but not the strongest legal action.

We would place liens on those who tended to NOT respond at all or couldn't be found. It is more difficult to lien on an LLC type company or those who are professional flippers. I've had to deal with both and they seem to think they can afford the loss or are already in deep financial trouble. A lien is usually a wash once you deal with people already under the gun by the bank.

A foreclosure just does the work for the bank. If the property isn't in foreclosure by the bank, the the HOA is basically doing the work of the bank. NEVER foreclose on a property in bank foreclosure. It's best to lien and hope for the best. It's basically a wash and clean hands situation once the bank does it's job. The bank gets paid first and foremost if a HOA does do a foreclosure. Which means the HOA pays all the legal fees associated with the foreclosure while the bank gets paid off their loan if any. The original dues owed tend to get lost in the wash as if there wasn't any money to pay the bank then those lost dues won't get paid either.

Some states do have what is called "Super liens" which does have more strength. They are about equal with the bank. That means the HOA and other creditors don't have to wait for the bank scraps to fall to them. However, even with those it's like squezing blood from a turnip.

Pick your battles and do the research. It takes some leg work and don't expect your lawyer to do it for free or at all. They will file the paperwork for you but the burden of it's correctness may be on the HOA. Make sure you hire the correct type of lawyer to. A Real Estate attorney is NOT necessarily the lawyer you need when dealing with an HOA. A HOA deals in corporate and contractual laws not necessarily Real estate. So do research on the type of lawyer and your interactions with them. They will charge you for every email, phone call, or contact once you sign their contract. Limit your dependency as much as possible.