Doing Collections Yourself? Here’s What Your Board Needs To Know
Thinking of doing collections yourself for your community association? Here’s some advice to help:
What Are We Allowed to Do?
Your uniform collections policy should be your collections process roadmap. It will tell you when and how the association should engage a delinquent owner. These steps should already be outlined in your governing documents or rules and regulations. They must be enforced equally and without prejudice. No individual, regardless of their circumstances should be treated differently than another. The rules for payments must be applied fairly and equally. You don’t want your community association to be cited for ‘selective enforcement‘! That’s a lawsuit you do not want to fight for a problem you can easily avoid.
Don’t assume that if a unit owner is delinquent one month that this behavior will continue. Communication is the key to the proper governance of a community association. Reach out and see what the problem is. (This is why it’s important to have an up-to-date roster of your unit owners!) Courtesy letters are a common method of reaching out to gently remind owners of their obligation. Phone calls can be even more effective, but you must be careful!
Calling Delinquent Owners
If you, your manager or management company is making courtesy calls to delinquent units they should follow these guidelines:
- Speak only to the owner.
- Never demand payment, simply advise owners that a payment has gone astray.
- If nobody answers, just leave a message, identifying yourself and asking the owner to call back.
A Warning for Managed Communities
Never leave a message referring to a financial obligation or indicating that a debt is owed. That’s a lawsuit waiting to happen! A management company can accidentally cross a line by making a demand. Once that line is crossed, the management company is considered a debt collector, and are beholden to the laws that govern debt collection. If a management company acts like a debt col-lector, they are bound by FDCPA regulations. It could also be construed as unlicensed activity. There has been federal case law on this and it does not favor management companies.
Up to this point you’ve been kind and gentle, but your delinquent owner has been unresponsive. What’s the next step?
That depends. Can you suspend access to amenities and voting rights to delinquent owners? You should check your state statutes to see if you can suspend a member. Also, your governing documents may speak to this issue. If an owner is not paying, suspension of rights should be your first course of action when your warning letters are not heeded. This can be done in-house and very easily. It does not require the help of any third-party vendor or collections professional.
Best of all, denial of rights doesn’t cost the community anything. It’s a good option for the Board to encourage delinquent owners to pay right away. Carefully review your association’s documents and state statutes. If you can suspend an owner’s privileges, then do so, and be sure to let them know the action that’s been taken, and why. If you fail to advise them, this will not encourage better behavior. It may seem harsh, but why should an owner have access to amenities if they are not paying? Do it at your next board meeting once you are sure you have the rights.
Small Claims Court
If all efforts to get a delinquent owner’s attention fail, one option you have is to take the issue to small claims court. For a small price you can get a judgment on a delinquent owner. The process will involve a member of the board of directors going down to small claims court. There they must fill out a claim form (aka complaint form, or Claim of Plaintiff.) There may also be a small filing fee to file the small claims action. (If you win your case you may be able to recover this filing fee along with your judgement amount.)
Depending on the state, there is a limit to the amount you can file for in small claims court (look here for all 50 states). In most states this can only be a director of the corporation and that means only a board member can file. You cannot send the manager to file this action on behalf of the association.Most of the time they never show up to court and you can get a default judgement.
In small claims court the association can get a money judgement against the owner, but then what? When it comes to collecting the amount owed in a money judgment, you’re on your own.
You Won! Now What?
Even after you win a small-claims lawsuit, you still have to collect the money awarded in the judgment—the court won’t do it for you. Once again, even if you are successful and receive a money judgment, then there is the task of collecting. First, assets have to be found. Places of employment need to be identified. Then Writs of Execution need to be given to the Sheriff’s Department. You may even need to file a motion with the court for a Hearing in Aid of Execution. It’s not an easy task, but it is an option if you prefer to do it yourself.
Filing A Lien
In some state, one does not have to be a legal professional to file for a lien. However, because each state has different requirements, filing a lien to foreclose on a property is an action best left to professionals. Directors, Managers and Management Companies can get themselves into trouble if attempting to initiate legal proceedings improperly.
As the governing body for the association, it is the Board’s responsibility (aka fiduciary duty) to enforce the rules and laws, and act in the best interest of the association. Whether you are a manager or board member, a good understanding of the association’s documents and state laws is critical. But some of these answers require a level of understanding that not everyone can be expected to have.
Hire a Professional
It is incumbent on the board, or the board’s agent, to compile and maintain this information, but like any highly specialized task, you can, and should, call in a professional when needed. Compiling these rules & regulations, statutes and processes; knowing how to interpret them to best benefit the association; and implementing a collections process that focuses on maximizing cash returns and reducing delinquencies are tasks best handled by professionals. Understanding the data points hastens the collections process.
- An attorney is one option communities turn to for legal action against delinquent owners. While attorneys are well capable of gathering and interpreting all of the necessary data, their focus is on legal action (punitive) rather than on recovering funds for the association.
- Specialized Community Association collection agencies are a professional option that will work on behalf of the association to recover your delinquent assessments. Their actions often result in reducing delinquencies for your community association, as well.
With every delinquency, the board must be prepared to take immediate action. The longer you wait to collect on a delinquent account, the more you reduce your chances of collecting at all. Never allow a unit owner’s debt to accrue to a large amount. Collections delayed are collections denied. You are doing a disservice to both owner and the association if you do not act upon a delinquency right away.