Question: Does it make sense for our Association to sell unpaid collection accounts to a third-party judgment recovery company for a cash lump sum?
Answer: In most cases, No.
It is important to determine whether or not the debt is collectible. This determination is usually made after a thorough asset search or a debtor’s exam. The only scenario in which it may be a viable option for the Association is if all other legal means have been exhausted, and it is determined that the debt is uncollectable.
If an Association is merely selling the debt out of convenience, there may be a question as to whether or not the Board is violating their fiduciary duty in making the best financial decisions for the Association.
Keep in mind, a third-party judgment recovery company will give a creditor (in this case, the Association) pennies on the dollar for any unpaid judgments. The Association would then transfer the right of the judgment to the company. The judgment recovery company would then keep all of the money they are able to collect.
Again, this should only be a very last resort, once the legal process has been exhausted and the debtor no longer owns the property.