The three phases of a delinquent unit’s life


Collections of delinquent maintenance fees for community associations have unfortunately become a reality these days, a process that can be broken down into three distinct phases:
(1) Action when a unit owner misses paymenment;
(2) The nitty-gritty of collection;
(3) How delinquency is resolved.

Step one is making contact with the delinquent unit owner in a timely manner, usually with a courtesy letter. (People forget, checks get lost). And there are times when people simply can’t afford the current month’s payment. That’s when they would welcome a friendly note letting them know a payment plan can be worked out.

In its early stage, sending a delinquency to a collection agency or an attorney is not the way to go. Only if the owner fails to contact the association directly is it necessary to escalate a recovery effort, such as calling a professional collections service that has the expertise, systems and resources to resolve such issues.

Professional collection companies will contact delinquent owners and advise them of the association’s intentions regarding collection, providing the resources and assistance to an owner to resolve a situation. If initial collection efforts are unsuccessful, the unit can then be scheduled for a lien notice in advance of a foreclosure. The plain and simple fact is that attorneys focus only upon two steps for an association: (a) a notice of lien and (b) foreclosure of title.

It’s a good idea for an association to enter into an agreement with collection professionals to defer legal costs and fees until the time when a unit ‘settles out,’ at which point such costs would be collected.

When it comes to the touchy subject of collection legal costs and fees once an association forecloses on title, new options open. With title in hand, the association has power and control over the unit. It can first decide whether or not to rent the unit, monetizing it for the association. A second option is to do nothing and await a bank foreclosure filing for the unit collateral value. The final ‘settle out’ phase is tied to timing in one of three ways:
• When the bank finally comes for its collateraeral;
• When the unit owner pays up (unlikely, but itit does happen);
• When a short sale is made before a bank foforeclosure.

If a short sale occurs, both new and old owners are jointly and severally liable for all funds legally owed to the association. Associations should resolve each case in the most favorable manner possible, and as soon as possible. This means maximizing the amount collected and eliminating any outof- pocket costs or risks to the association.

Association boards should also remember that when it’s time for a unit to settle out, it’s the title company doing the work for the bank (in most cases). Thus a collections firm working on a merit basis has a great incentive to battle it out with the title company in behalf of the association’s interests. That’s why collection professionals are best suited for collections — because of the time they’ll devote, their strategy and great negotiating skills, as well as their knowledge, experience and the incentive to do the job right.

Mitch Drimmer is a licensed CAM and is the Vice President of Association Financial Services, an accredited collection agency, specialty finance, business process outsourcing, and specializing in community associations. For more information, visit <> or tel. 305-677-0022x 804.

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