Effective Community Association Collections…Law Firm or Collection Agency?

Written by: Mitch Drimmer
Every business has their share of those who are unwilling to pay what they owe, and this happens often in Homeowners and Condominium Associations. If you come across unresponsive members, you should be ready to act. Regarding community association collections one option is to hire a collections agency to do the work for you.

Many community associations will automatically punt this issue to their attorney but going with a collection agency is an option to consider.
What Should You do if a Debtor Refuses to Pay?
Unfortunately, sometimes individuals do refuse to pay owed fees, whatever the reason. In order to handle this effectively, we have provided some basic, immediate steps you can take to help you with your community association collections.

*Assemble and organize all paperwork related to this individual, especially their ledger with the association.

*Call the delinquent homeowner to remind him or her of the outstanding debt and the last date of payment. During this conversation, be clear and concise that you expect their payment. Please be cordial.

*If your state statutes and governing documents permit it you can also suspend owners from amenities and even voting.

*If the previous suggestions yield no response from the property owner, you can decide to hire either a lawyer or a collections agency.

*Professional help is mandatory because leaving this issue alone only makes it worse.

Hiring a Lawyer
The option of turning to an outside party for debt collection has its advantages and disadvantages. Here are some things you need to know before considering hiring an attorney:

*A lawyer has the responsibility of abiding by the debt collection laws in your state as well as Federal Laws (FDCPA).

*A lawyer will write a letter in appropriate, legal language emphasizing the degree of seriousness if they do not pay what they owe. This letter may produce a payment due to its official appearance.

*If the delinquent homeowner still refuses to pay, the attorney may file a lien and proceed to foreclose on the unit, property or lot.

The real question here is does the association want to take intervening title on a unit and then rent it out because foreclosure does not bring dollars but rather an invoice from a law firm. Regardless of the results, you will still have to pay legal fees, even if the money owed is never recovered.
Hiring a Collections Agency
Here are some things you need to know when considering a collection agency for community association collections:
If the delinquent homeowner is ignoring your calls, engaging in a community association collections agency is a compelling option for your board to consider. They have resources and techniques to follow up on the debt and are focused on that task alone.

*The first step will be an initial demand letter giving the debtor 30 days to dispute the debt and advising them that they should call into the customer care center to arrange payment.

*Also if the delinquent homeowner decides to evade the reminder letters, or the letters are being sent to an incorrect location a collection agency has ability of use skip trace techniques to find them.

*Inbound Calls are gold. Every collection agency has a dedicated inbound customer service center to talk to debtors to arrange payment or discuss the validity of the debt. Call your law firm and see how difficult it is to get a human on the phone to discuss this issue.

*A collections agency may also advise a debtor on how to settle the debt. They are able to make an evaluation of the home owner’s financial situation and try to negotiate a payment plan or even work with them to find sources of revenue to satisfy the debt. The idea is to be consultative and help the debtor.

*Collection Agencies can report delinquent unit owners to credit bureaus which law firms seldom if ever do. This provides a great bump in the recovery process as it presents a real consequence for continued non-payment.

Typically collection agencies operate on a performance basis, meaning they there is no cost or risk to the association and that they (the collection agency will only get paid upon a successful collection). They align their interests with the community and this ensures that they do their best for you. If the money isn’t recovered, the community association will not have to pay the collection agency.

Which Option is Right for You?
Both options have advantages and disadvantages. When deciding which solution is best for you and your association, consider the following:
A specialized collection agency for community association is focused on maintenance fee collections. This means that they have access to a variety of resources and solutions to handle delinquent homeowners.
A lawyer is usually unspecialized in this field and charges high rates for his or her services. Litigation is the “sport of Kings” and for community associations it does not necessarily lead to a recovery of money but rather a foreclosure brings a property that is temporally owned by an association which may bring revenue or in some cases more pain.