HOA Collection Agency Fees and Services

Throughout this article, we’ll look at the various fees and services professional HOA collection agencies provide. We’ll take a closer look at the mechanics of how they work, what any associated costs are typically involved, and some helpful tips for selecting the best HOA collection partner for your association.

Why Do HOAs Use Collection Agencies?

For homeowners associations, HOA dues are the lifeblood of their community. These funds pay for everything from landscaping and pool maintenance to putting money aside in reserve accounts for future repairs. So when property owners fall behind in payments, an HOA’s is compromised either by severe budget cuts or having to raise dues for the entire community. This is where a professional collection agency can reduce an HOA’s financial stress.

Historically, HOAs and management companies have used their in-house efforts or attorneys to try and collect any arrearages in HOA dues. However, these methods fall short for the following reasons:

•  High attorney fees: Legal expenses can often be more than the amount an attorney collects.
•  Time-consuming in-house efforts: Such efforts are emotionally exhausting, especially when board members or HOA managers are directly involved in contacting members who owe back dues.

This is where a professional HOA collection agency comes in: they specialize in effective delinquent account management while assuring collection activity is in compliance with legal regulations. And the best ones offer a positive, non-abrasive approach to collections within the community. There are many benefits to hiring an HOA collection agency.

What Does an HOA Collection Agency Do?

An HOA collection agency does more than just collect debts. When done properly, they become your partner in maintaining the financial health of your community. The most important collection services should always include:

1. Locating Homeowners Through Actual Skip Tracing
   One of the biggest challenges HOAs face is trying to determine the most accurate contact information for delinquent homeowners, especially for those who live off-site or out of state. Collection agencies who utilize advanced skip-tracing technology get the best, most accurate contact information available, in order to facilitate effective communication and faster collections.
2. Sending a Series of Letters
   Structured communication enhances the chances of collecting dues. Rather than just sending a single notice or two, agencies should send out a series of letters that escalate in urgency, and that communicate a personal consequence for the debtor. These letters should be professional and polite, and keep homeowners informed about their delinquency and an imminent personal consequence, such as having their delinquent assessments credit reported.
3. Making Phone Calls
   Telephone calls are three times more efficient than letters in motivating homeowners to pay late dues. Professional agencies make polite calls, usually on weekdays and Saturdays. These calls inform homeowners what will happen if they don’t pay. And an inside tip is to always have homeowner’s payments made directly to the HOA board or its agent, in order to avoid “payment friction”. Payment friction refers to the natural antagonism caused when a third party collection agency demands members pay them, instead of the HOA Directly. Avoid this alienating practice at all costs!
4. Credit Bureau Reporting
   Easily the most powerful tool in the collection process is credit reporting. That’s why it’s so widely used by nearly every other consumer-related industry in America. Agencies should report unpaid balances after a reasonable period of time has elapsed in their collection effort—usually after around 90 to 100 days. And when they’re reported, accounts should be reported to all three major credit bureaus: Experian, Equifax, and TransUnion. This is a strong incentive. One that compels homeowners to get current and continue to pay on time, in order to avoid any derogatory marks on their credit.
5. Providing Payment Plans
   Payment plans help homeowners manage their dues while respecting unique conditions or situations a household may be going through. Having the board set any payment plan terms, and having homeowners make payment directly to their HOA board or its management company streamlines the revenue recovery process. This gets boards their funds faster, and avoids unwanted “payment friction”.

Understanding HOA Collection Agency Fees

The fee for engaging collection services is determined by the type of agency you select. The two most common models are:
 

1. A Flat Fee Agency
   Flat-fee agencies charge a flat rate for their services, no matter what the size on the debt is. A flat collection fee can legally be added to the homeowner’s balance when you submit it for collections. This is a very transparent model and is generally very cost-effective approach for associations. Flat fee agencies typically provide far more accurate and detailed reporting, because they never use “scoring software” to cherry-pick which accounts to work on. Every homeowner’s account they service is treated uniformly and justly, and this is reflected in these agencies’ more detailed and transparent reporting.
2. Contingency Fee Agency
   Agencies operating on a contingency basis take a percentage, often 30–50% of the collected dues. While this model may sound alluring, it reduces the association’s net funds received; funds they need for operating their community. Contingency-based agencies are also most likely to use strong-arm tactics that hurt the board’s relationship with their community. That’s because contingency-based agencies typically pay their employee collectors on a structure that is highly bonus-weighted. Such a structure puts weight on these collectors to “hit their bonus” in order to make enough money to pay their bills. And you can guess just who all that pressure ends up being exerted upon – your community members.

Key Things to Consider When Selecting a Collection Agency

The success of your HOA depends on ensuring you select the correct collection agency. Some of the essential aspects for consideration include:

• Fee Structure: Flat fee model—a system that keeps more dollars in your association’s pocket, allows each delinquent homeowner to pay their smaller collection fee, and has the added benefit of substantially reducing the stress factor.
• Credit Reporting: Ensure the agency reports unpaid balances to all three major credit bureaus.
• Ownership of Accounts: Never ‘assign’ your accounts. Maintain ownership of the delinquent accounts in your association’s name, to prevent issues during property transfers or short sales.
• Legal Compliance: Verify that the agency complies with all state and federal laws, rules, and regulations.
• Experience and Track Record: Choose an agency with years if not decades of experience in HOA collections – one that can also demonstrate they have a successful track record and ample references.

Benefits of Partnering with a Professional HOA Collection Agency

There are numerous advantages when working with a professional collection agency:

• Better Collection Rates: Agencies specializing in HOA’s do better compared to general debt collectors.
• Cost Savings: Flat-fee structures reduce (or can eliminate) the cost for the HOA, as each delinquent homeowner’s flat fee can legally be added to their balance..
• Time Savings: Collections are one less thing that board members and management companies have to worry about.
• Preserving Relationships: Respectful communication, coupled with the ability to pay your board or agent directly, preserves harmony in your community.
• Additional Protections: Professional agencies carry appropriate insurance coverages, and have their own attorneys in order to handle most issues that may arise.

Smooth Sailing During Collections

Collections can be delicate in a close-knit community. To keep peace in the neighborhood:

• Explain Clearly: Ensuring homeowners understand how their money works for their community goes a long way toward establishing a compliance mentality.
• Offer Support: Allow flexible payment plans to make repayment easy for homeowners to handle.
• Maintain Professionalism: Work with agencies that work as respectful, neighborly moderators, bringing you back into communication with members who are behind on dues.

Avoid Damaging Foreclosures

Foreclosure is messy, often costly, and injures community relations. It should be avoided and only be used as a last resort – and only when absolutely necessary. Even the threat of foreclosing can be provocative and highly damaging when presented early in a collections policy. Professional agencies offer alternatives such as credit reporting, payment plans, and repeated courteous yet firm communications in order to handle delinquencies without resorting to such strong and potentially damaging options as foreclosure. For those few cases where foreclosure is necessary, use a local attorney proficient in your state’s laws and statutes.

Simplify HOA Collections

Partnering with the right collection agency means your HOA will be able to recover more delinquent dues, without alienating your community’s residents. Use the following in determining the ideal agency that suits your needs:

• Flat-fee structure
• Association retains ownership of accounts
• Compliance with all laws and regulations
• Provides crystal clear reporting on every action taken
• Select an experienced agency that has good reviews (like with The Better Business Bureau)
• Reports to all three major credit bureaus

In Summary

HOA collection services are essential in helping maintain the financial stability of most community associations – especially those dealing with obstinate ongoing delinquencies. For this reason partnering with a professional collection agency simplifies the process, ensures higher revenue recovery rates, and maintains (and even fosters) positive community relations; and garners greater respect for the board. By selecting a strategic partner that focuses on being firm, friendly, and fair, your HOA will better handle the delicate matter of delinquent dues, while ensuring the community becomes a more harmonious and friendly place to live.