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Top-3 Traditional Strategies to Collect Delinquent HOA Dues

Owners who do not pay their association assessment in a timely fashion become a time-consuming headache for the management company, creating extra tasks and legal expenses. This is why HOAs need Sperlonga’s help. Together with Equifax and TransUnion, Sperlonga’s patent-pending technology assists associations with the process of attaching a late assessment payment to a homeowner’s credit score or HOA delinquency payments reporting.

Top-3 Traditional Strategies to Collect Delinquent HOA Dues

Collecting delinquent HOA dues is not only a time-consuming task for the property manager, but for the HOA board as well, primarily if the delinquency covers a significant stretch of time. Let’s face it; most property managers will never know a time when 100% of homeowners are on time with their payments; a full 12% of homeowners nationwide are currently behind in their dues and assessments. That’s 1 of every 8. If property managers and boards spent as much time as necessary to have everyone current, they would have no more time to attend to other important HOA issues. It’s even worse during an economic downturn when homeowners (and associations) are pinching every penny.

The Most Common Collection Strategies

Strategy 1: Late Payment Reminders / Warning Letters (Combined with Credit Reporting Information)

The first strategy combines a letter with the late payment fee added to the HOA’s monthly billing statement to the homeowner. Most HOAs charge between 5 and 10% late fee for a delinquent assessment. When combined with a statement in the letter regarding the potential negative impact on a homeowner’s credit rating if a payment is not received in time, the association will see a marked increase in on-time payments. This strategy of HOAs reporting delinquency payments is straightforward, low-impact (concerning time and stress) and yields high returns (more promptly paid assessments).

If a homeowner has not paid his debt within a prescribed time frame, the HOA may not only report them to the credit reporting agency but begin formulating a series of warning letters. The first letter may once again include the fact that the homeowner has been reported to a credit reporting agency, creating the first strike against them. This may be all it takes before the attempt to collect moves on to a second warning letter. At this point, the HOA may inform the homeowner that a lien may follow until such debt has been resolved. The homeowner would then not only need to settle the debt but the price of placing a lien on the property. If a third warning letter is necessary, it usually includes language regarding the consequences of non-payment: legal action, and, as a last resort, foreclosure.

Strategy 2: Collection Agency

In an effort to avoid costly legal fees, homeowners associations have had to become increasingly more “creative” in how they collect late assessments and dues. When you are a board overseeing a large community with hundreds of homes or condos, AND you have 100+ homeowners not paying on time, your association will begin seeing cash flow issues, which will, in turn, create maintenance and bill paying problems. No board wants its association to be unable to pay vendors, or even come close to the edge of bankruptcy.

A worthwhile alternative to issuing increasingly drastic letters may be to submit the debt to a dunning collection agency. This type of agency has a high success rate, costs little, and does not buy the debt. However, this strategy cannot be implemented until a homeowner is seriously delinquent. The collection agency will not only issue letters to the homeowner but make phone calls to the homeowner as well. The substance of the phone call generally includes informing the homeowner about the amount of the outstanding debt, and the damage to their credit report the late payment causes. Many HOAs have been wildly successful employing this strategy because it is far less costly than using an attorney, and gives the board a break in not having to foreclose on a neighbor’s property. The delinquent homeowner gets the nominal collections agency cost added to his debt – a price that is far lower than that of either a lien or the beginning stages of property foreclosure.

Strategy 3: When All Else Fails – Legal Action and Negotiation

Above all else, the board must do its due diligence in helping maintain (and increase) its operating reserve, and delinquencies are a prime reason for not keeping up with proper reserve funding. In fact, when many homeowners are delinquent, it may create the necessity for a special assessment. In truth, the remaining members of the community are covering for those who are having trouble paying their monthly dues.

If warning letters and a collections agency have not yielded the desired results, it may be necessary to involve an attorney. While the HOA can place liens on properties and begin the foreclosure process (both of which create much expense), when legal costs are added to the delinquencies, it creates a situation where the homeowner has even more of a problem being able to pay the debt. In this circumstance, it behooves the homeowner to negotiate in good faith for a payment plan to eventually become current. It may create a temporary squeeze in the homeowner’s budget, but the results will be well worth it: no more lien, no more impending foreclosure, no more debt, AND a credit score that can then begin the rebuilding process.

Learn How Delinquent Payments Can Affect Homeowner Credit Scores

Owners who do not pay their association assessment in a timely fashion become a time-consuming headache for the management company, creating extra tasks and legal expenses. Late paying homeowners do not, however, realize that their tardy assessments can be reported to a credit reporting agency, and subsequently result in a lower credit score for them. This alone provides an incentive to maintaining on-time future payments.

So this is why HOAs need Sperlonga’s help. Together with Equifax and TransUnion, Sperlonga’s patent-pending technology assists associations with the process of attaching a late assessment payment to a homeowner’s credit score. Conversely, on-time payments will lift credit scores, so when issuing a late payment letter, it’s best to include both the positive and negative aspects of assessment payments. In fact, it would behoove a property management company to send an email blast to all homeowners to inform them of how timely payments affect their credit score, for good or for bad.​​