Before the real estate meltdown five years ago, community associations really had it easy when it came to collections. When a unit stopped paying maintenance fees, chances were likely the owner was not paying the mortgage, and condo associations and HOAs could depend on the banks to advance any collection process by foreclosing the unit, and replacing a delinquent owner with a timely paying occupant.
Those were the days when the banks were partners with associations. Today, however, things have changed, i.e., the ‘partner’ has often packed up and headed for the hills. Banks are now stuck with a tremendous number of bad, non-performing real estate loans written during the real estate bubble.
Now, many keep those loans on their books rather than foreclose on the real estate they took as collateral. (The reasons for those decisions could be the subject of another column). Nevertheless, many banks simply are not foreclosing on delinquent units, leaving condos and HOAs holding the bag for nonpayment of dues and fees.).
So the question becomes: what should condo associations and HOAs do to protect themselves by recovering the funds that are legally due to them? IF unit owners fail to pay their unit dues and fees, innocent owners who pay on time must make up the difference…
For most boards of directors, the result is usually to turn over a delinquent owner to the association attorney because that’s where all problems are sent when a legal solution is needed.
However, in many cases, community association lawyers are NOT collection lawyers, and have little experience in collection matters, depending only upon what they know and believe. Unfortunately, for many associations, that can mean taking an unneeded loss – perhaps even a big one – especially if the attorney is not sufficiently creative or aggressive.
Condo and HOA lawyers for the most part depend upon what is known as the “statutory cap” (as defined by (a) the lesser of 12 months assessments or (b)1% of the first mortgage) as the standard for what the association can and should collect. This paltry amount is less than what attorneys usually charge for their services, often\n resulting in an association not only not collecting less than what it is owed but even charged for their attorney’s collection efforts. That’s not only is bad business — it doesn’t need to happen that way.
Whether utilizing an attorney or collection agency, association boards need to arrive at a collection solution that recovers not only the statutory cap but any legal cost involved, as well as accumulated interest, and fees that occur during the collection process. It can be done and it’s being done, every day.
Your association’s must also be sure its collection process it utilizes knows the bank involved has “standing” when it comes to a foreclosure. If it does not, the association is entitled to collect everything owed to them — not just the amount represented by a statutory cap. Ask the right questions to understand not only who best handles collections, but even more importantly, how well the individual or agency represents your association’s best interests.
Mitch Drimmer, a licensed CAM, is Vice President of Association Financial Services, an accredited collection agency specializing in finance, business process outsourcing and community associations. For information, visit www.associationfinancial. com or tel.305-677-0022 ext. 804.