Lots have been said and asked about the wisdom of working with delinquent owners in community associations, and allowing them to catch up using payment plans.  Some see it as a kind and wise decision and advocate that it is the correct approach.  Others seem to feel that it is unfair, and if a member of the association cannot pay on time they should be out.  Still others are convinced that most people who engage in payment plans wind up “falling off the wagon” and don’t finish up making the association whole.  My take on the subject simply is to consider the alternative.

Although our expertise is in community association collections our Senior Management Team are experts in money management, and after all when we recover association funds there are things you should know.  So here are some commonly asked questions and answers that we get from boards of directors regarding reserves:

1) What types of bank accounts are operating funds and reserve funds held in, respectively?

Answer:  Association funds should be held in financially stable, federally or state chartered banks and/or savings and loans that provide government guarantee on deposits.  As importantly, they should NOT be comingled and transferring money from the reserve account to the association’s operating account should not be a simply task to be accomplished by just one board member.  Therefore, the financial institution the association utilizes should have appropriate control procedures available to the association to make sure at minimum two active board members are involved with any transfers out OR between their bank accounts.

If you have purchased a condominium or property in an HOA, one of the documents you may be required to sign in connection with your loan is a “Condominium Rider or a Planned Unit Development (PUD) Rider.” This rider is an attachment to the document recorded in the land records to secure the note given by the lender for your purchase.  In most states including Florida, it’s called the Mortgage.

One of the most important items contained in the Condominium Rider/PUD Rider is the information regarding the maintenance fees for that particular community association. It is very important to the lenders that these fees are paid because they have an interest in the condominium unit or HOA property.  It is especially important to them if the unit has equity, because the community association has the right to foreclose on the title for non-payment of maintenance fees.

Community Associations such as Condos and Homeowner Associations often have good reason to report non-paying members to the credit reporting agencies. The only problem is that don’t have the ability to do so, and usually it is not a function of their community association attorney who has taken on the collection of this particular debt. Therefore, one of the most important and potent tools that exist for the purpose of effective collections is not being used. So what can a community association do to get credit collection services delivered to them and have delinquencies reported to credit bureaus?