Chris Majerle of Majerle Management Discusses the Impact of Over 3 Years of Credit Reporting

And as it turns out, about 25% of our communities were reporting.  And those 25%, in the first year under Sperlonga, collected 30% more of their delinquencies than the other 75% each month.

TRANSCRIPT:
Grant: All right, Chris. How are you sir?

Chris: I’m fine. How are you?

Grant: I’m doing great. Thank you, thank you. Appreciate you taking the time to do a little video testimonial for us. For all the folks at home, this is Chris Majerle, President and CEO of Majerle Management. A premier association management company in Maryland. And one of our earliest partners.

Chris: We are. I think we were in the first eight that went live.

Grant: Yes. 2016. So let’s start there. What were you doing with your collection process before Sperlonga and credit reporting became available.

Chris: Well, you know we’ve always had a delinquency problem. We’re on the north and east side of the D.C. area. Very liberal politics and judges that let people not pay and don’t penalize them. So it’s been, it’s always tough here. And we’ve always had a collection program where we’re monitoring what our attorneys are doing and reporting to the board. Often finding that they’re doing absolutely nothing. But sometimes they do a good job and we report that too. But keeping on top of the attorneys was about all we could do. We’d send out our late notices and then we’d send them over to the lawyer and try to do more than hope for the best. So we were pretty effective before, even though our numbers, for some people around the country they might say you’ve got to be kidding when you’re running 20, 30, 40% delinquency. But it was actually coming down, except in that 2007 crunch.

Grant: Right. And when you, you know, were you guys doing anything, were you providing any kind of, you know, incentives for homeowners who paid on time?

Chris: Not really. If they didn’t pay, we acted. I guess that’s I parent too. I tell them what they are doing wrong. But, not so good at telling them what they did right. Sperlonga gave us that ability where we were not doing it before. We didn’t send a statement, “Thanks for making your payment. Your balance is zero.” We didn’t do that.

Grant: Very good. Now what were you, you know, I know you’ve done a number of different tests on your portfolio. We have a chunk of it reporting. And then you’ve run tests on, you know on, these are the Majerle Management collection policy best practices. This is what we do as a company, we also advise you to use credit reporting.  Right? And then I know you had those two groups. And then you have the folks who listen to all of your advice. Right? And there’s still boards that at the end of the day that got their own free will.  Right? And don’t want to follow all of your best practices and advice. What did you see when you compared the two groups?

Chris: The last big study I did was about the end of 2017, so I look at what the numbers were for 2016 and then what were they 2017. And honestly, we’re in the middle of doing that again now for 2019, but it’s a big project. And it can skewed because one community in 2016 might have participated in our collection program, where we were monitoring attorneys and one might not. So, you know, they all use different attorneys. So I just wanted to see, all other things aside, what was happening in the communities that were in Sperlonga and what was happening in the ones that were not. And as it turns out, about 25% of our communities were reporting. And those 25%, in the first year under Sperlonga, collected 30% more of their delinquencies than the other 75% each month.

Grant: That’s awesome.

Chris: I thought so. You know our thing is to try to get delinquencies down. What works, what doesn’t. Doesn’t matter. Did the delinquencies come down?  So we also looked at what kind of collection costs did they have and we found that, umm, the 25% that were participating spent 6% less on legal fees that year versus the prior year. Whereas the other 75% of our communities paid 1.4% more. So that’s about a 7% difference in legal fees between participating and not. Assessment delinquency and total delinquency, we wanted to see those numbers improve. And it was about twice as a good when they were with Sperlonga as opposed to when they were not.

Grant: That’s awesome. That’s what we love to hear.

Chris: I thought you might.

Grant: And what…, how did you guys find us?

Chris: I’m sure it was at a CEO retreat for CAI. We go to a lot of those and we do talk to the vendors. They make you guys pay a lot to be there, so the least we could do is talk to you.

Grant: Appreciate that.

Chris: We talked quite a bit about whether or not it was legal to do this. You know, being an early adopter, we call ourselves that we are often on the bleeding edge, not just the cutting edge. So, do we want to be the first guinea pig out there to get sued for reporting debt that we shouldn’t be reporting. So we looked into that pretty heavily. You got us some legal opinions. We got some legal opinions. So it took a little while to get it going but you were still building your integrations with the software systems. So by the time you were ready to go, we were ready to pull the trigger and go too and we have not had any repercussions. We have some people who are upset. We’re in the Washington DC area so if you work for one of those companies that has three letters that would have to kill you if we tell you who we work for, you can’t have dings on your credit. So I think that plays a big part in Sperlonga’s effectiveness for us. If you’re in an area where you have a lot of government workers, whether they are state department, CIA or other workers, they’re checking the credit. They can’t have bad credit and keep their job.

Grant: Right. We were just talking to another CEO in Texas and that was one of his things that drove him the most crazy. You know he’s got FBI agents, military officers, folks that can make the payments, they just don’t. You know. It just drives him crazy.  Now have you seen your ACH, I don’t know if that’s ever a part of your study, have you seen your ACH levels rise, people that sign up for that piece to make it just like clockwork?

Chris: I have not studied that so I can’t answer that.

Grant: Very good. I don’t know if you can get a vibe for it.

Chris: Not really.

Grant: OK. And what’s it been like working with Sperlonga? I know we’ve had a couple different management software changes. Well, you guys are on that, on the bleeding edge. You know, we started with one and moved to another and then move back to a different one. Um, how, how has that process been for you?

Chris: You know, with Sperlonga I think being an early adopter, we had to go through some hoops to help you get the integrations built and more testing than others might have to do now. But now, um, I pay your bill each month. Otherwise, I don't know what happened. Well, I send out a bill where I mark it up and I make a little bit of money. I'm not getting rich off of it, I'm making some money on it. We have a little bit of work to do only in the sense that, um, if someone does challenge the reporting, it goes through you. They sometimes tried to bypass you and call us and we just refer them back to you. “I'm sorry I can't talk to you about it. You need to file your complaint with Sperlonga.” And they'll go through the proper channels to get it resolved. It's not cumbersome at all. And there's a little bit of money in it in the markup for us to cover our time.

Grant: Awesome.

Chris: We don't even know it's happening.

Grant: That's great. What, uh, now have you, do you have any, uh, you know, big wins due to Sperlonga? I mean, do you feel like this is a, you know, uh, another way to differentiate yourself in the marketplace when you're, when you're bidding on clients? I'm talking about the process that you can provide?

Chris: Yeah, I think so. Um, again, it's hard to measure because there are other factors, but I think if like any product that you're selling, uh, or any service within your program, you have to have answers to their questions. And one of the big objections we get is, I don't want to report my neighbors to the credit bureau. So you have to have an answer for that. Why not? They're not paying you. Maybe if you're reporting to the credit bureau, you won't be reporting them to anybody. Maybe you'll leave and let them have their parking passes in their full passes. Uh, and you have to emphasize that when they pay on time, it actually increases their credit score. So we're helping more people than we're hurting and the ones that we're hurting, you know, they're hurting everybody else. Yeah. Earlier that we're in a liberal political area. I went down and talked to a delegate. I serve on our CAI – LAC  and I was telling him the, the plight of our associations and how people who do pay have to pay 25% more sometimes to carry those who don't. And of course his answer was, “Well, they're not our concern.” Um, so I think for the board, for the board, it has to be our concern that they don't pay and the others are having to pay more. So we're willing to do whatever we can legally to get that to happen. And I think it has helped. There have been, I won't say we've closed a lot of deals because we have Sperlonga, but it has been an “Oh really” a moment when we talked to perspective communities. I guess they assume that others report and when they find out, Oh no, they don't unless they're working with Sperlonga, they're not reporting. I think that helps us.

Grant: Awesome. And do you have any, uh, you know, any sort of a big collection stories that come to mind where, you know, um, you know, we have, you know, some folks who, you know, we've been chasing this person for this many years. We turned on a credit reporting and paid their balance within…

Chris: I don’t have any specific examples of that, sorry.

Grant: OK, no worries, they’re fun to hear about.

Chris: I have lots of collections stories, but I can't tell them to Sperlonga.

Crosstalk

Grant: I'm sorry?

Chris: I'm saving them from my book. The one we're all going to write when we, when we give it up.

Grant: Well, and so, you know, talking to the folks at home, you know, how, how likely are you to recommend using Sperlonga?

Chris: I always recommend it, and in fact, you know, we're just finishing up budget season. This is being recorded just before Christmas. So everybody's getting their payment coupons in the mail now. And when we do our budgets, we put the Sperlonga cost in there, let them take it out, let them be, you know, reactive to it. We make the assumption that they would do it if they could. Um, and a couple of have signed on. A couple more have signed on because of that. Yeah, we were considering it and that's not all it takes to get signed on. They've got some paperwork, but at least if they leave it in the budget, we'll generate the paperwork and then it just gets, the switch gets flipped and they get reported. There's no more work to it and setting it up once we're already on board.

Grant: Exactly. I mean, that's what we like to hear. I mean, the idea is to run just automated in the background and you know. We’ll handle any inquiries and try to save some of that workload. Do you feel like it saves, you know, you know, for those associations using it and the managers, do they, you know, you feel like their time is freed up to manage the association rather than chasing down, you know, bad debt and, you know, sending out notices, you know, I mean, if, if we're reducing it by 30%?

Chris: I think anything, if we're reducing our delinquencies, then we're making it easier for the manager to get projects accomplished. Nothing's worse than having a budget of a hundred thousand or a million or whatever, and you say you're going to do certain things and then because of delinquencies, you can't do half of those things. And the next time we try to get an increase, well, why should we do that? You didn't do what you said you would do last time. So, anything you can do to cut delinquencies. And again, I think with Sperlonga, we've seen about a 6%, 7%, reduction in assessment delinquencies. So that's money in the pockets for our associations to actually work with. Uh, we do put a line item in our budget to account for the delinquencies. It’s like a collection loss would be on accrual, well, where a lot of ours are on a cash basis, but you can't spend the cash that you're budgeting if it doesn't come in. So we're showing delinquency costs are as a line item. And when you show them that and they see, well, we could add a little bit more and do the credit reporting and maybe reduce that delinquency. I think that's the way you need to get them to think, because that's, you have to do something. If you don't try to collect, people will not pay. As you were saying earlier, the, um, people are, are able to pay and they're not. And why is that? Well, because their bank for their car payment is reporting and their credit card company is reporting in their mortgage company's reporting. Why are we different? I think that it's been a sore spot with me because management companies are always different. If the, if the utility company charges a 75 cent late fee because they took 10 days to get us their bill, they yell at us for it because we should have dated it sooner. So we're always the ones that are responsible. And if I can put Sperlonga into effect and have a little bit more money coming in so they can actually accomplish something and I can show them that last month or last year we were budgeting for a 10% delinquency, and this year we're budgeting for a 6% delinquency. That's what they want to hear.

Grant: That’s huge. Absolutely. And I don't, I, you know, I, we, we were on the same page. I don't know why they want to treat the management company industry different all the time…

Crosstalk

Chris: They don't complain about how much the landscaper charges, just the management company. There's a lot more money and they don't complain about that. They complain about the management company.

Grant: Well, we're, we're, we're very happy to give you that extra tool in the toolbox and, you know, really are appreciative for, uh, you know, the years of partnership with you guys. And, uh, you know, I personally had gotten to know you and, and your wife and your team, and I think you guys are just tops, so I really, really appreciate you taking the time to let everybody at home know your thoughts.

Chris: Well, thanks for doing what you do for us. And good to know you too.

Grant: Thank you so much. Thank you, sir. I appreciate it and I will talk to you soon.

Chris: All right. Thank you.

Grant: Thanks Chris.