How to Collect Delinquent HOA Dues

Managing a homeowners association is more than enforcing rules and maintaining facilities and services. When a community has homeowners with delinquent association dues, it threatens their reserve funds and often forces maintenance cuts, raising the burden on paying homeowners, and eroding respect for board members. How to collect delinquent HOA dues is one of the most challenging financial tasks facing an HOA board.

Options are available for collecting late dues in a manner that’s effective, compliant, and preserves community harmony.

In This Article We’ll Cover Ways To:

• Protect Your Board And Maintain Fiduciary
• Maintain Community Unity In One Step
• Understand The Best HOA Collection Methods

1.  One Step To Maintain Fiduciary And Protect Your Board

The first step for an HOA board trying to collect unpaid dues is to determine a guideline for who should be sent to collections. Maintaining your board’s legal fiduciary duty is simple: draw a line of demarcation as to either a dollar amount, or an amount of time delinquent, in determining which accounts go to collections. In other words, every member whose account is over a certain dollar amount, or has been delinquent over a certain period of time, goes to collections. This way, no matter which definition you choose, you’re treating everyone equally, and therefore you’re doing your part to be in compliance with HOA state laws and regulations.

Professional HOA collection agencies will also add your community as a ‘Named Insured’ on their insurance policy. This policy addendum ads an additional layer of protection for your community and your board.

2.  How To Maintain Unity And Collect Payments

No one wants to pay a collection agency. No one. This goes double when the creditor and debtor are neighbors. However, the dynamic completely changes when homeowners with unpaid dues are instructed to always pay their board, or its management company or agent, directly.

This one subtle change has proven to nearly eliminate homeowner complaints over being sent to a debt collector. Always have your collection agency instruct homeowners to pay dues to your board, HOA management company, or your agent directly; and avoid the friction that’s always caused when a third-party demands payments. Professional collection agencies understand their sole responsibility is to locate and motivate each homeowner to make payment directly to their community.

As it turns out, there’s another key benefit in handling the flow of payment this way. Board member get to set any payment plan parameters. They can determine what’s best for each individual homeowner, and handle dues collections without causing friction, all while maintaining their fiduciary duty.

It’s key to remember that the Fair Debt Collection Practices Act (FDCPA) gives far more latitude and flexibility to the original creditor (in this case, the HOA and its board) than it does to a third-party debt collection agency. Original creditors can be flexible when setting payment arrangements or down payments. Another important key is to always require a down payment to initiate a payment plan. Studies prove that at little as $20 to $50 in down payment dramatically increases a payment plan’s successful completion.

3.  How To Spot Professional Collection Services

There are some pretty unscrupulous HOA collection firms out there, as a quick review of Better Business Bureau (BBB) and Consumer Financial Protection Bureau (CFPB) complaints reveals. Here are some things to look for when qualifying your community’s collection agency:

•  Do they use credit reporting to motivate homeowners? Or, do they threaten foreclosure to motivate homeowners? Credit reporting affects people personally, not their property. Threatening HOA foreclosure for an assessment debt is an intimidation tactic, and when it’s used, it ruins families and communities – not just property values. Even just threatening it hurts community relations. And if you have to take that toxic step, work with a local attorney who knows your state’s laws and regulations and can ensure they give notice in compliance with your governing documents.
•  Do they use all five ways to ensure successful communication with each delinquent homeowner? Different people respond differently to phone calls, letters, emails, voicemails, and texts. Utilizing all four ways when communicating with members assures your message gets through in the manner that motivates them most.
•  Does the agency standardly instruct homeowners to pay you, your community management company, or your agent directly? As we’ve discussed, this simple step eliminates 90+% of member complaints.
•  This is a big one: do they have an A+ rating with agencies like the Better Business Bureau? Beware: some firms market themselves as highly rated debt collectors. But when you get their service agreement, a different company’s name appears at the top. That’s who you’re really signing with. Ensure you check that company’s reputation with the BBB and CFPB before you sign anything – don’t fall for some companies’ bait-and-switch tactics!
•  Are there any hidden or ambiguous fees mentioned in their brochure or contract? This has been a raw pain point for many HOAs who send members to ‘no cost’ agencies. Law suits are not uncommon with these agencies.
•  Does your board get access to the agency’s internal notes on conversations with homeowners? The depth and detail of reporting will tell you a lot about how professional an agency is. You should be able to see when every letter, phone call, text, or email was performed, and the internal notes the agency keeps on their actions with your neighbors.

Protecting Your Community’s Revenue And Reserves

Lawyers, liens, and foreclosures used to be the only option for boards. However, today communities are looking for more affordable ways to get homeowners to make assessment payments. With modern methods like skip-tracing, ringless voicemail, texting, all now being coupled with letters, emails, and phone calls, associations are meeting with greater success than ever before. And are saving a lot of money in the process.

The sweet spot for these new methods (which are really time-tested methods in other industries) is to use them after your internal efforts stop working, and before pursuing legal avenues. That way you recover the majority of your funds quickly and inexpensively, and can use a portion of those funds for legal action on the few collections accounts that remain.

Modern Methods That Motivate Homeowners

Professional HOA collections methods today include resources like ‘skip tracing‘. Skip tracing finds the most accurate contact and identity information for delinquent homeowners. Skip tracing discovers a homeowners date of birth or social security number, along with the best phone number to reach them at, their primary residence’s mailing address, their main email address, and often their cell phone number.

Identifying each homeowner’s or debtor’s date of birth or social security number is a crucial step required by Trans Union, Equifax, and Experian in order to credit report late dues as a collection account. Discerning each homeowner’s most accurate mailing address is especially important when the property is a rental and not the owner’s primary residence. It’s also vital when the owner lives out of state or when the property is a raw, undeveloped lot that you can’t send mail to.

Skip tracing is also used to discover each homeowner’s main email address, and personal cell phone number in order to text and call them. Skip tracing is important in assuring clear communication of the consequence of being credit reported if dues continue to go unpaid.

Tools That Collect Unpaid HOA Dues

Next a series of FDCPA and CFPB compliant letters are sent to homeowners, properly spaced between a series of text messages, emails, phone calls, and ringless voicemail drops. This ensures the need to pay their dues, in order to avoide being personally credit reported, is clearly communicated.

Ringless voicemail is a new technique whereby voice messages go directly to homeowners’ voicemails without ringing their phone. All your members see is a notification that they missed a call, and that there’s a new voicemail awaiting them. Every advanced method available is employed to ensure the message to pay their dues hits home.

Credit reporting as a collection account. This is the main motivation that really works today. So many aspects of a person’s life are now affected by a tarnished credit score: interest rates on credit cards and other payment plans, insurance premiums – even the ability to get a new job – are all affected by having a collection account suddenly appear on your credit report. And, unlike a lien, a collection account will show up on even the thinnest of credit bureau reports. Whereas, a lien typically only shows up when you try to refinance or purchase a home.

The consequence of having a negative entry on your personal credit is widely recognized as the most impactful way to ensure people pay their bills. And now, this resource is easily in the hands of community association board members.

You can see a chart of these steps in this collection process timeline.

In Summary

Always remember: the earlier you submit accounts to a collections process, the easier it is to collect HOA fees. Time has always been the kryptonite for accounts receivables. And the longer homeowners are allowed to be late, the longer it takes to change their behavior. It’s as simple as that.

And lastly, look for a collection agency with decades of experience and who specializes in homeowners associations. An agency who understands the nuances of working with homeowners and the verities of community collection services is invaluable when you’re looking for a partner to help you collect delinquent assessments and interest payments. Whether you’re a condominium, homeowners, or property owners association, you’re entrusting your neighbors and the very fabric of your community when you put them in your agency’s hands. Be sure you have helping hands on your side.