For too long, HOA and Condo assessment payments have taken a back seat to that of the mortgage and other banking payment obligations. We wonder why? Assessments fund an entire community’s ability to operate and effect tens, hundreds, or thousands of other families, while mortgage, credit card, and auto loan accounts, only affect the specific person who has the obligation. When a neighbor doesn’t pay their assessment, other homeowners either have to foot the bill or go without critical services that they expect to receive (and have paid for) when buying a home in that community.
Why is Bank of America or Chase’s quarterly earnings more important than the ability of the community to effectively operate, cut the grass, pay for snow removal, fund its payroll, or replace a dilapidated roof? Why must associations have special assessments or pay huge sums to attorneys to collect dues? In 2018, banks collected $34B in overdraft fees from checking account customers. This amount alone equates to nearly half of the entire country’s HOA budgets of $80B. Banks have no issue assessing these fees, using credit reporting, and aggressive collection practices and we as a society, completely accept it. We even expect it. At the same time, associations tend to be hypersensitive about assessing fees to homeowners who aren’t timely paying assessments or take a very relaxed approach to collection. Why is that?
This whole mantra of the mortgage taking priority over the assessment payments has historically been due to the tools that the mortgage industry uses to ensure timely payment of their obligations. The mortgage company can foreclose, the auto lender can repossess a car, and the credit card company can sue for judgments and salary garnishments. So, because the association industry has taken less draconian measures does that mean that their cash flow means less than the other payment industries? It is our argument that it is simply not the case.
Association boards and their management companies need to increase their level of expectation when it comes to receiving payments timely. Sure, it can be awkward when you see your neighbor who hasn’t paid their assessments on time at a monthly board meeting, and even more so when you see them pull up in a new car to the meeting to discuss the budget shortfall. But why does the board continue to allow this to happen? Is simply seeing this person more often make their non-payment alright?
Are boards simply more sensitized to non-payment than the banks? Mortgage default rates in 2019 are hovering around 3.6%, credit card delinquency rates at 2.59%. However, HOA/Condo delinquencies are more than triple that number at 10% industry wide. Do we as a society simply not care as much about our HOA obligations as someone’s ability to buy a house they can’t afford, buy a brand-new car or take a nice vacation?
This leads us to look at the differences between the industries which boils down to a single extremely important dynamic, banks are for profit entities and HOA/Condos are nonprofits. Banks have every incentive to keep their interest and fees rolling in and society has accepted this. HOA/Condos are non-profit organizations where volunteers coming from diverse backgrounds invest their free time seeking to make their communities better. After working 40-60 hours at their jobs, these volunteers spend additional time and take the liability of being a fiduciary to their neighbors all for that one mission. Unfortunately, some non-timely payors have taken advantage of this and it is past the time for it to stop.
It is our view that associations must be run no differently than a bank to ensure timely payment of assessments and fund budgets to allow the community to prosper. Take the sensitivity out of it. It’s what Citi and Wells Fargo have done, and their delinquency rates and quarterly profits prove it. We ponder how many homeowners have bank stocks in their 401k or other investment portfolios and have enjoyed the steady value increases over the last 10 years. Benefiting from the banks strict adherence to ensuring collections have increased 401k and investment returns. However, there is a hesitation to using the same tools to preserve the largest asset most people have?
For most, their home is their largest and most valuable asset. Association board members must continually remember that non-payment of dues has a direct effect on their largest asset, their home. A run-down community that can’t afford to maintain itself has a dramatic effect on property values, leading in some cases to a condominium becoming “non-warrantable” or unlendable. The condo is then only eligible to be purchased by a cash buyer, greatly reducing the liquidity and thus the price.
Standardized banking tools like credit reporting, provides an extremely powerful and strong deterrent to non-timely payment of dues. Sperlonga’s credit reporting solution allows for associations to have one of the most widely accepted methods of ensuring cash flow used by banks and lenders. This service is free for on-time owners and assesses a modest fee to the homeowners who aren’t paying timely. Further, the 90% of owners who are paying timely can see substantial increases in their credit scores for making on-time payments.
In conclusion, credit reporting puts association obligations on the same level as the mortgage, credit card, or auto which desperately needs to be done to protect the largest asset most Americans own. For over 100 million Americans to protect the largest asset they own, putting association obligations on the same level as mortgage, credit card, or auto loan obligations through credit reporting is far overdue.
-Matt Martin, CEO, Sperlonga Data & Analytics