- May 18, 2020
- Posted by: Scott Setterlund
- Category: Article, associations, Business plans, communities, Community, Economics, Finance & accounting, HOA, homeowner association
Too many homeowner association Boards do not have adequate policies or procedures to run their HOA like a business. Most run their associations like a family community co-op. Foregoing Robert’s Rules of Order and gathering over a pot-luck. While casual gatherings are great for fostering relationships, the lack of business acumen can damage the organization.
“When inadequate procedures are followed, many Board members are too quick to shout for legal action or push their personal agenda, while others drag their heels to avoid confrontation. Without a formal process, the results undermine the HOA by negatively influencing the community’s culture. Members will quickly take advantage of it,” states Michael Madson, President and CMCA, of MGM Association Management in Meridian, Idaho who has over 21 years of experience serving HOAs.
“Poorly run HOAs divert the Board’s attention away from issues that affect the well-being of their community,” he reports.
That’s where, for example, a formal collections procedure comes in. It provides a step-by-step process for the Board and the membership to follow and leaves no question as to the expectations.
5 Simple Steps to Improve Your Collections
- Determine a delinquency timeframe. The first step for the Board is to determine a timeline when an owner will be declared past due on his or her assessments — after 30 days, 60 or 90? Madson suggests a two month or 60-day threshold.
- Create a courtesy letter process. The policy should designate when the association manager will send the first “courtesy letter” (for example, seven days after the due date or expiration of the grace period for the missed payment) along with an explanation of the subsequent timeline of events, a statement about the collections policy, who to call for help, and offer a platform for arbitration.
- Become the solution provider. Madson says managers have an excellent opportunity to position themselves as the solution provider. “Managers should avoid sending a demand letter, because then they’re in the practice of being a collector, and would be subject to the Fair Credit Reporting Act fines and regulations. Association managers should attempt to remain impartial and act only as a mediator between the homeowner and the HOA by offering solutions,” he reports.
“Instead, send a courtesy reminder that state the facts. Never make a demand, threat or use harsh language, just tell them that a check was missing. Most often, the homeowner forgot to make their payment or may have an appropriate explanation,” Mike says.
In most cases, though, associations will be better off trying a collections agency before bringing in an attorney.
- Institute penalties. A formal collection procedure should be clearly stated in the governing documents and define the interest and late fees if applicable. Madson states that Boards should take a hard line against waiving these fees. “A free pass opens you up to claims of unequal enforcement,” he says. “Instead, the Board might consider suspending voting rights or the rights to use amenities.”
Explicitly stating the penalties can help deter Boards from taking matters into their own hands or instructing managers to do so. Overly aggressive language or action will negatively influence the greater community culture, and result in greater resistance to Board activities, disenchantment with the HOA or in higher non-compliance.
- Consider payment options. The Board might consider payment plans. The policy should spell out the requisite conditions an owner must meet and how long plans can run (generally, plans should go no longer than 12 months), and any payment plan must be formally documented.
For more information on how to run your HOA like a business, call MGM at (208) 846-9189 or visit www.gomgm.com.