Preventing delinquencies is a common goal for most associations. Likewise, collecting from delinquent owners is a requirement from time to time. Communicating the association’s collection strategy to all owners is key in preventing delinquencies in the first place. Adopting a Collection Policy can give the Board the opportunity to explain why paying assessments are important. Aside from the owners’ legal obligation to pay, if owners understand how crucial assessments are to the services they enjoy, they may be more motivated to pay.
The best Collection Policies are tough, but fair. Typical language used in a Collection Policy addresses the following: (1) when the assessments is due; (2) whether a late fee will be charged and when; (3) whether the account will bear interest; (4) how payments are allocated; (5) whether the Board or Management Company will send a reminder letter; (6) when our office will get involved; and (7) a reminder that all costs, including attorney fees, are added to a delinquent owner’s account.
An effective Collection Policy should be conveyed to owners with simple language and not filled with legalese. Along with the policy, the Board should explain the reasoning behind the policy. Most importantly, the policy must be distributed to all owners of record before it becomes effective. The Collection Policy should explain the following:
How late payments affect the community. Appeal to the owners’ sense of community and describe how assessments represent shared costs they would have to bear alone if they were not part of a community association. Remind them that nonpayment threatens property values of the whole community.
The Board's legal authority to collect assessments. Make owners understand that you must pursue delinquent accounts and that Ohio law and your governing documents require it.
Payment Reminder. Tell owners where and how to send payment. Remind owners that payments must be by the due date, rather than just postmarked. If an owner pays with an automatic bill pay, these checks may take up to seven days to be mailed to the association.
All consequences of non-payment. Explain that there are expected damages the association will suffer if owners pay late. The Association will need to seek reimbursement for the time and expense of record keeping, sending notices, making phone calls, etc., pertaining to the delinquent owner.
Referring matter to attorney. Let owners know that the Association will refer the matter to the Association attorney when necessary. Describe what the attorney may do, send a collection letter, file a lien, sue the owner for non-payment, and/or foreclose on the property. Warn owners that if this becomes necessary, they will be responsible to pay the attorney fees and collection costs.
Explain that, as a general rule, regular assessments are the last thing paid off. First, fines, late fees, and interest are paid; next come legal fees, collection, and court costs; then come special assessments; and finally, regular assessments. When applying a partial payment to regular assessments, the oldest delinquency is paid first.
There is no one-size-fits-all policy for an association. Each policy should be based on the needs of each association. Our office can review your governing documents to ensure compliance.
Finally, swift and uniform enforcement (nobody is exempt, not even Board Members) is the best way to prevent delinquencies. It can be difficult for neighbors to be put in the position of having to collect delinquencies from their neighbors. It can get very emotional and create a serious point of contention among owners, which makes a fair, equally applied policy important to alleviate that kind of dissention.
This Spring, our office is reviewing our records for our clients’ Collection Policies. If we do not have one on file for you, or if we believe that your policy could be better, we will send you a letter explaining our flat rate to prepare a Collection Policy for you. Please contact our office with any questions or concerns.