Condo and HOA Collections….How to formulate a Uniform Collection Policy

All 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 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, and when you can do them.  From your governing documents you need to find the following:

1. The due date of your association’s assessments (first of the month, fifteenth of the month ect.).
2. The grace period allowed (10 days after due date, end of month ect.).
3. 3.    See if your governing documents allow for a late fee
4. 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 “expects” from collections.  We all know that everybody wants total recovery of the money that is owed, but that is just the result.  You have to actually determine what you expect from your collection solution.

1. 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 absolutely 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.
2. 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 harsh consequences for delinquent members who continue to be intransigent regarding their delinquency?
   1. Are outbound phone calls by a licensed and insured collection company acceptable to the board of directors?
   2. Is the board comfortable having delinquent owners mailed certified letters advising them that a collection agency has taken on the file?
   3. Does the board have any objections to having delinquent owners reported to the credit bureaus if they continue to be delinquent?
   4. Does the board want liens placed on delinquent units?
   5. 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)?
   6. 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 your call.
      1. If they are willing to allow payment plans what is the maximum length of what they would accept (I suggest 6 months to a 12 months to get caught up but perhaps 18 months is acceptable…5 years is out of the question).
      2. Is your board ready to enforce what may be in the governing documents such as charging late fees, and late interest that is due?
      3. Is the board ready to give discounts when a short sale occurs?  This policy should be set before a proposal is sent to the board from a subsequent purchaser or bank.
      4. The board needs to determine what resources they wish to dedicate to collections, and if they want the costs deferred, and if at all possible done in a manner that presents little or no risk of actual out of pocket expenditures.

Once the board has reviewed all of the above and agreed to what they expect from collections the next step is to establish a time line for your action plan.  Here is my suggestion based on a monthly payment period:

1. Unit owner misses his/her first payment the management company should send a courtesy letter seven days after the due date and wait until the next due date.
2. If by the next due date the owner has not paid send a second certified letter advising that they have 15 business days to pay or contact the office to discuss or their file will be sent to collections.  In this letter you should explain to the delinquent owner what “collections” means as it could mean being sent to the attorney for a lien to be filed, or it could mean you are sending it to a collections company who will perform a series of collection resolution actions.  Advise them of the cost of collections…don’t be shy.
3. The board must follow up on their warning and send the file in when the time arrives. However, the key is to be resolute 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.

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