When HOAs Lack a Formal Collections Policy

When HOAs have no formal procedure in place, most Board members are too quick to shout for
legal action, while others drag their heels to avoid confrontation with neighbors. Poorly written
collection procedures result in a higher percentage of those who don’t pay and divert the
Board’s attention away from issues that affect their community.
A collection procedure provides a road map before turning to costly legal remedies.

How to Achieve a 100% Collection Rate

1. Determine a delinquency timeframe. The first step is to determine a timeline when an owner
will be declared past due — after 30, 60, or 90 days?  Mike Madson, CMCA and president of
MGM Association Management, suggests a 60-day threshold.

2. Create a courtesy letter process. The procedure should designate when the association will
send the first, second, or third “courtesy letter” (for example, seven days after the initial due
date or expiration of the grace period for the missed payment) along with an explanation of the
subsequent timeline of missed-payment events, plus a statement about the HOA’s collection
policy, who to call for help and offer a platform for arbitration.

3. Make the payment process easy. There are HOA-specific, smart phone-accounting programs
that are available to make online payments easier and many provide a plethora of tools to
communicate with their homeowners.

4. Be a solution provider; not a bill collector.  Madson explains, “Board members have an
excellent opportunity to position themselves as the solution provider and to not be perceived as a heartless bill collector. Association managers, particularly, should avoid sending collection letters. If they do this, they’re positioning themselves as bill collectors and are subject to the Fair Credit Reporting Act fines and regulations.  Board members and association managers need to
remain impartial and act only as a mediator between the homeowner and the HOA.”
“Instead,” Mike explains, “send courtesy reminders that state the facts.  Never make a demand,
threat or use harsh language, just tell them that their payment is missing.  Most likely, the
homeowner forgot to make their payment or may have an appropriate explanation.”

5. Institute penalties.  If clearly stated in the governing documents, the collection policy should
define late payment rates and/or fees. Boards should take a hard line against the practice of
waiving fees.  “A free pass opens the HOA up to claims of unequal enforcement,” Madson
says.  By explicitly stating the penalties in the collection policy can help deter zealous Board members
from taking matters into their own hands or from instructing managers to do so.  Overly
aggressive language or action will negatively influence the greater community culture, and
result in resistance to Board activities or higher non-compliance.

6. Consider payment options.  The payment plan should spell out the requisite conditions an
owner must meet and how long plans can run (i.e., no longer than 12 months), and any
payment plan must be formally documented.  The bigger picture is for the HOA and their Board to be a resource to solve problems. This
approach builds a positive culture, rather than one that appears to favor the bottom line.
For more information on how you can achieve a 100% collections rate, join Mike and MGM on a
live ‘Meeting’ on April 13 at 4:30 pm. You can also get more information
at www.gomgm.com.