How to Adopt a Collection Policy

How to Adopt a Collection Policy

One of the most essential policies that an HOA must practice is their collection policy. As a property manager or even board member, a large part of running the HOA is maintaining the assessments that are vital in helping the community thrive. Although many associations may already have a basic collection guideline set in place, some may lack a collection policy that offers an effective strategy or reliability.  

What is a collection policy? 

An HOA collection policy is an “internal protocol for determining how the association will handle unpaid assessments.”  Assessments allow an HOA to operate and perform maintenance functions that are necessary in helping the HOA thrive.  

Why is it important to have a standard collection policy in place?

  1. Transparency - Transparency is considered one of the most important factors of the collection policy process. Maintaining transparency not only provides the homeowner with clear expectations, but the community as well. 
  2. Minimizes responsibilities - When properly implemented, a collection policy can help with minimizing the amount of time spent collecting dues, along with the day-to-day responsibilities. Homeowners are able to reference their policy vs. having to go to their board or property manager.  
  3. Prevents favoritism - Imagine having to present your neighbor of 20 years with a delinquency notice, or even worse, fine. A collection policy allows a board, along with property managers a way to be protected from any conjectures that may be construed as giving favoritism or special treatment. 
  4. Keeping records straight - Without a collection policy, the board would not be able to recall the precedents set forth with each scenario. Obtaining past-due records of assessments is an important part of the future decision making process. 

Defining expectations - Collection policy key points

Clear expectations and transparency are two important factors in how an HOA board or property management company should communicate expectations. 

  • Define when assessments are due.
  • When does the HOA consider dues delinquent? 
  • Provide detailed steps of the collection policy process.
  • Provide a list of payment options, along with directions on how to access each payment type. Some examples may include: check, wire transfer, cash or the option to pay via online through a community website payment portal.
  • Provide alternative options such as payment plans — include all necessary steps needed in order to utilize this option, along with any contact information.
  • Identify any third-party vendors that may be used to collect delinquencies — examples include: lawyers or collections agencies.
  • Provide a documented agreement — this may include a signature of agreement between the HOA and homeowner.

Late fees and fines

“The authority to include late charges, fines, and interest as part of a homeowner’s financial obligation to an HOA comes from the HOA’s recorded declaration and the state’s HOA statute.”  In order for an HOA to charge late fees or fines, they must be authorized by the state law or the HOAs declaration. (O.C.G.A. §44-3-232; Tex. Prop. Code §204.010(10)

Collection cost

If a delinquent assessment remains unpaid, an HOA may proceed with sending the assessment to a collection agency and/or attorney.  During this process, the HOA should be aware of any fees or additional costs. For example, a collection agency may include a 30% fee from the overall delinquent total — this is known as the collection cost. In order to recoup the loss, the HOA (according to its state statute) may charge the homeowner with an additional fee. “Unless either the declaration or state HOA law expressly allows for recovery of collection costs, a collection agency cannot charge or collect the collection costs from the homeowner.”  

How to introduce a collection policy to your HOA

  1. Host a community meeting - One of the best ways to introduce a collection policy to your HOA is by hosting a community meeting — members are able to engage and openly communicate.  
  2. Q&A secession - Hosting a Q&A session either before or after your community meeting works as a way to help those that may have additional questions or concerns. This also allows board members and property managers the ability to engage with members, along with receiving more individualized feedback. 
  3. Provide multiple forms of communication  - Communication is key, when communicating a collection policy consider providing multiple forms of documentation. These may include: a hard copy of the policy, an accessible virtual documentation or your communities email database. In the situation that updates are made, always provide members with an updated copy of the policy.

Collection policy steps

  1. Notice of delinquent assessment - In step 1, a notice of delinquent assessment must be distributed to the homeowner. This may include a written statement to identify the assessment amount due and the date that the fee must be paid by.
  2.  2nd Notice of delinquent assessment - In the event that a member fails to pay their initial notice, a 2nd notice of delinquent assessment will be distributed. Here is where the homeowner is advised and notified about the past-due amount. In the event that the due remains unpaid, actions may be taken by the HOA, along with any late fees that are implemented during the process.
  3. Third party collections - If an assessment still remains unpaid after two notices, an HOA may then refer to a third party such as a collection agency or law firm which are governed by the Fair Debt Collection Practices Act (FDCPA)

A primary responsibility of the third party agency is to send the debt collectors a demand letter. This will include: the amount of debt, the creditors information and the consumer’s right to request debt verification.

How to enforce your HOA collection policy

  • Leave emotions aside -  Business is business — when emotions are mixed into the decision making process, one is likely to make poor judgments. Be professional, remember that all decisions should be made for the better of the community. 
  • Consistency - A large part in what makes a collection policy successful is consistency. Consistency is a critical driver in success. When an HOA sees that their policies are consistent and committed, members will take their community more seriously and be more attuned to the communities expectations. 
  • Legal action - when it comes down to it, an HOA will always do what’s best for its community and members. If a member refuses or denies to pay their dues, legal action may take place. This method ensures “compliance by including relevant legal requirements within the collection procedure.Although it’s not in the HOAs desire to take this route, they must utilize this option as a way to protect themselves. Legal action works as a way to enforce the collection policy and ensure that the community is taken care of.  

What not to do when adopting a collection policy

  1. Leaving the process open-ended - Remember, not everyone interprets rules or communication in the same way. When expectations are left open-ended, homeowners are left confused and without clear expectations. 
  2. Waiting too long to act  - When a written time frame is not set in place, the board may find it difficult to recoup funds. The longer the delinquency continues, the longer the HOA isn’t being paid. 
  3. No alternative options - Everyone goes through hard times - when a homeowner finds it difficult to pay their dues, consider providing alternative options such as a payment plan.

By following some of these steps you will be setting up your HOA for success when handling delinquent payments. At the end of the day, a healthy and functioning HOA is the key to keeping the community happy and thriving.