The lifeblood of any community association is the assessments paid by each member. As the sole source of income for most associations, they give the community the means to provide for the well-being of the community. Few things are more frustrating than members who fail to pay their fair share of those assessments. The best way to keep delinquent assessments from undercutting the association’s budget – and ability to function – is to develop common sense collections practices to set the Association up for success.
Avoid Legal Costs
One of the best collection tools in any community association’s arsenal is the personal touch. While it is important to have a good collection policy in place so that owners are treated equitably, it is also within the board of directors’ discretion to work with owners who are temporarily down on their luck. Offering reasonable payment plans to owners from the outset of a delinquency instead of waiting until the case has been turned over “to legal” can help not only the association avoid unnecessary legal fees, but also the owner. Similarly, a willingness on the part of the board to have conversations with owners before letting “legal” handle a case can obtain surprising results. Again, these less formal measures should be implemented in a way that treats all owners equally, but they can be a formidable, pre-legal tool to avoid costly fees and delay in obtaining payment.
Prep the Case Before it Leaves the Door
Some days it seems like the rare collection case where we do not have to reach out to the association for more information about a delinquent owner’s ledger – the primary piece of evidence used in collection suits. This extra time (and fees) can sometimes be avoided through directors tasked with reviewing owner ledgers before the account is turned over to legal. A few things to look out for include:
- The dreaded “balance forward.” If your association has recently changed management companies, treasurers, or accounting software, you may see a line item on the “new” ledger for an owner that is a lump sum with the description “balance forward.” This indicates that there is another, older ledger out there with a series of entries that add up to the balance on the new ledger. Judges will often throw out amounts that are described only as a “balance forward” – ensuring that the association has that prior ledger and providing it along with the new ledger will cut down on attorney prep costs and give the board a chance to make sure there was no mistakes in the balance transfer.
- Incorrect Late Fees and Interest. Most associations – but not all! – have the ability to impose ten percent interest and ten percent late fees on any unpaid balance. The “but not all” caveat is important, however, because some governing documents do not specify any amounts or specify other amounts. Make sure the Board has reviewed (or had an attorney review) the declaration to verify that late fees and/or interest are authorized and double check the amounts showing up on the ledger. If your community association attorney catches an incorrect amount, they will need to go back to you to get it fixed and it will result in additional time, delay and fees.
- Unexplained entries, double entries, etc. Sometimes, an entry on a ledger does not contain an understandable note describing it. Sometimes “fat fingers” result in an entry appearing twice on a ledger. Sometimes fines are placed on the wrong account. People are human – even treasurers and accountants – and make mistakes. Double checking the entries to make sure there aren’t any glaring errors or amounts that require additional explanation can avoid delay and expense.
During the Lawsuit
Sometimes, despite generous offers of payment plans and attempts to work out deals, a suit will still be necessary. There are a few things a board can do to greatly facilitate the lawsuit and even influence the end results.
First, the board should be responsive to requests from counsel. These usually involve requests for updated ledgers, decisions needed on settlement offers from delinquent owners, or requests for witnesses at hearings or trial. Staying on top of these requests and timely responding can ensure that cases move along as they should.
Second, consult with counsel before accepting payments from an owner that has been sent to legal. Few things can prejudice a case as severely as an owner showing up at a hearing or trial with “proof” they sent a payment for some or all of the amounts owed directly to the association without the lawyer’s knowledge! The same goes for any communication with a delinquent owner relevant to the collection process – let your attorney know if it occurs so they do not get surprised.
Third, be reasonable and treat the lawsuit as “business.” While owners who haven’t paid for years upon years can start to feel like a personal insult, remember that the association is a business and should be run like one. Leave anger, frustration and other unhelpful emotions outside the board room when making decisions about whether to accept a payment plan offered by an owner.
In conclusion, a healthy budget usually means a healthy association. Nothing is better for a budget than a low delinquency rate and streamlining the collection process is a great way to keep delinquency down.