If left unchecked, delinquencies can become a big problem for your association. It isn’t unusual for someone to miss a payment or two, but when left unaddressed these debts can swell and cause major (but not irreparable) harm to your community.
Collecting from your neighbors can be an uncomfortable task but allowing dues to go unpaid out of some misguided sense of kindness will only make the problem worse. The accounts receivable of a community association should be available to all owners, and if it gets out that someone isn’t pulling their weight, tensions can arise.
Fortunately, there is a very easy way to avoid this. It is imperative that a uniform collection policy be drafted and established in the association’s by-laws. The board has the ultimate say in what composes this policy, but everyone should be treated the same. Here are some best practices to get you started.
The Components of a Uniform Collection Policy
A uniform collection policy should first state the section from the declaration of covenants or articles of incorporation where the board of directors are given the authority to evaluate a delinquency and empowers them to take action to collect the past due assessments. This shows the homeowners that they did agree to this obligation and that the board has the authority and a fiduciary obligation to enforce the collection.
The collection policy should describe a plan of action and a strict timetable of action deadlines. You need to set a specific amount of days a unit can be delinquent before being considered “in collections” and when to sound out demand letters or if need be, file a lien.
The Advantages of a Uniform Collection Policy
A uniform collection policy does not just enforce action against those who are delinquent but also protects the community at large. Some of the policy’s advantages include:
- Communicating to homeowners how delinquencies are going to be handled. This will encourage homeowners to pay their dues in a timely manner.
- Clearly state the timeline for actions that will be taken by the board:
- Courtesy letter sent out the day after a unit falls into collections.
- When the file will be sent to a collection agency for action (typically when a unit is 75 days past due.
- When the initial demand letter will be sent out by the collection company.
- When a notice of intent to lien will be sent out.
- When to expect inbound calls and who to call when there are inquiries.
- When credit bureau reporting will commence.
- If the association will accept payment plans that are managed by the collection agency.
- How to best get your file released from collections.
- With a uniform collection policy, there will never be indiscriminate handling of delinquencies. This reduces the chance of a lawsuit between a homeowner and the Board. If the association sticks to its rules and regulations nobody can claim unequal enforcement.
- Ensuring homeowners are given a fair chance to settle their debt before drastic action is taken.
- Establishing clear guidelines for late fees, late interest (as per your governing documents), and other consequences so there are no surprises for delinquent homeowners.
- The collection policy can be transferred between boards so that there is no confusion or contradictions within the policy itself and how delinquent homeowners are handled. The uniform collection policy should be adopted by the board at a legally noticed meeting and memorialized in the association’s documents in the Rules & Regulations Section. It should also be noted in the minutes of the meeting that such a policy was established.
Eliminate risks associated with delinquent homeowners by crafting a written collection policy. This is the best front-line defense against a delinquent homeowner who decides to claim discrimination. To receive the maximum effect of a written collection policy, publish or issue the document annually to all homeowners and post it on the association website.
Click here for a template of a Uniform Collection Policy that you can customize to fit your community association.