CONDO & HOA COLLECTIONS… How to formulate a Uniform Collection Policy
All Community associations need a UCP (Uniform Collection Policy), but they are not as easy to formulate as you would think. Here are some suggestions on how to go about putting together a UCP and, more importantly, enforcing it:
The first thing that has to be done is for the board and manager to read through the governing documents to understand what you can and cannot do. From your governing documents you need to find the following:
- The due date of your association’s assessments (first of the month, fifteenth of the month etc.).
- The grace period allowed (10 days after due date, end of month etc.).
- See if your governing documents allow for a late fee.
- See if your governing documents allow for late interest.
With that information you are now prepared to establish a plan of action, but you have to make a few decisions first. These decisions really speak as to what your board of directors “expect” from collections. We all know that everybody wants total recovery of the money that is owed, but that is just the result.
- The single most important decision that the board has to make is if it is their determination that they should foreclose out on their liens. In my opinion there are only two reasons an association may want to do so. One, they have the intention, wherewithal, resources, and will to rent out the unit in order to recover their money. Also important in this aspect of the decision is where the bank is positioned in their foreclosure action. The second reason, is if the unit has no mortgage or other encumbrances on it. If such is the case then it is worthwhile to dedicate resources and foreclose on the lien for that property. If not, it could be a costly decision.
- Some of the most important questions a board needs to ask are: Does the board expect their collection solution to be as resolute as possible or a passive collection solution? Is the board concerned about hurting the feelings of delinquent owners by putting them into a system that will not only present resolution solutions, but at the same time present consequences for delinquent members who continue to be intransigent regarding their delinquency? Then the board should inquire about the following:
- Are outbound phone calls by a licensed and insured collection company, possibly the most effective way to get a delinquent owner on the right track, acceptable to the board of directors?
- Is the board comfortable having delinquent owners mailed certified letters advising them that a collection agency has taken on the file?
- Does the board have any objections to having owners reported to the credit bureaus?
- Does the board want liens placed on delinquent units?
- Are there any objections to making a demand to the delinquent unit owner’s first mortgagee lender for the delinquent amounts owed (if a PUD or Condo Rider was signed)? In my opinion it can be done and should be done.
- Is your board of directors prepared to work out matters with delinquent owners using a payment plan? Some boards absolutely object, and take a hard line stance saying that they are not financial institutions. It’s the board’s decision if no laws in your state require it.
What About payment Plans?
- If they are willing to allow payment plans, what is the maximum length of what they would accept?
Are there other things a board can do to compel an owner to pay their maintenance fees?
- Determine if your state allows you to suspend voting rights and use of amenities for delinquent payers. It can be a powerful incentive to get owners back on the right track. The board must follow up on their warning and send the file in when the time arrives. However, the key is to be determined and treat this debt as if it were any other consumer debt.
Once the board has reviewed all of the above and agreed to what they expect from collections, the next step is to establish a timeline for your action plan. Here is my suggestion based on a monthly payment period:
- Unit owner misses his/her first payment the management company should send a courtesy email seven days after the due date and wait until the next due date.
- If by the next due date the owner has not paid, send a letter advising that they have 15 business days to pay or contact the office or their file will be sent to collections.
- The board must follow up on their warning and send the file in when the time arrives. However, the key is to be determined and treat this debt as if it were any other consumer debt.
I hope that this gives you a good enough outline for your board to sit down and have a productive discussion on what has to be done.