Not all members of a homeowners association pay their dues on time or even at all. But, when push comes to shove, is hiring an HOA collection agency really the best option?
Establishing the Need for an HOA Collection Agency
Many homeowners associations struggle to keep their delinquency rate low. A high delinquency rate means that a lot of members are defaulting on their dues payments, which can only spell disaster for an HOA financially. Since an HOA relies on member dues as an income source, nonpayment can lead to a bunch of issues down the line.
When members don’t pay their dues, an HOA will have a hard time funding the maintenance expenses of the community. Ultimately, this can negatively affect property values and the association’s ability to attract new homeowners.
Homeowners association with funding issues generally have two options — to either charge special assessments or take out a loan. No homeowner likes paying special assessments. The loan, on the other hand, will eventually force the HOA to raise dues or circle back to the option of charging special assessments just to pay for the principal amount plus interest.
This creates further inequality among residents. It is unfair to homeowners who consistently pay their dues to have to pay more in increased fees or special assessments just to cover for the faults of delinquent owners.
Most associations already have policies in place for owners who refuse to pay HOA fees. Oftentimes, this involves sending a delinquent HOA dues letter. When that doesn’t work — which happens a lot — it is time to look at other options. One of those options is to hire an HOA collection agency. But, is hiring a third-party collector really something your board should consider?
The Pros and Cons of an HOA Collection Agency
When making a decision, it always helps to weigh out the pros and cons.
Here are the benefits of hiring a collection agency to settle your delinquent accounts:
- Collection agencies use legal methods to collect unpaid dues. They know and follow the applicable HOA collection laws in an effort to protect your HOA and themselves.
- Professional debt collectors are more experienced. They are already familiar with the dunning process and know all the right strategies that would work when attempting to collect a debt.
- Attempting to collect outstanding dues can be time-consuming. Hiring an HOA collection agency allows the board to focus on other aspects of community management.
- Hiring an HOA collection agency is more cost-effective. It is better to collect $10,000 worth of unpaid dues and pay a fixed fee (or percentage) to the agency than not to collect $10,000 at all. In some cases, agencies will even ask the delinquent member to cover the collection fee.
- It eliminates the often awkward and tricky situation of trying to collect the debts of your neighbors.
Here are the disadvantages of hiring a collection agency to settle your delinquent accounts:
- An agency with ill-equipped employees or generally sketchy practices might not use the best tactics to collect debts. This may also entangle your HOA in liability.
- Large collection agencies with many clients may not treat your association as a priority.
- There is always a risk of angering owners with outstanding dues.
Most of these pitfalls, though, have to do with the agency itself and, thus, are completely avoidable. Since your board has control over the selection process, make sure you carefully screen every candidate. Check out online reviews, contact their references, and get a good grasp of their profile.
Homeowners Associations and Fair Debt Collection
Debt collectors, including HOA collection agencies, must adhere to the provisions of the federal Fair Debt Collection Practices Act (FDCPA). This Act protects consumers from unfair, deceptive, and abusive collection practices. The Act recognizes collection agencies as debt collectors, HOA dues as debts, and HOA members as consumers. Notably, the Act does not recognize homeowners associations as debt collectors since the term is defined as a party attempting to collect debt on behalf of another.
Some states, though, think otherwise. For instance, under North Carolina law, homeowners associations can be considered debt collectors. Since fair debt collection laws can vary drastically from one state to another, it is imperative to check those in your state to avoid liability. Consulting with an HOA attorney would also be wise.
Exploring Alternatives: How to Collect Delinquent HOA Dues
There are other options you can take when it comes to collecting unpaid dues beyond hiring a collection agency. Here are the alternatives your HOA should consider:
As part of their HOA collection policy, many boards will first send a notice to the delinquent owner, but a dunning notice or notice of delinquency often won’t cut it. Usually, it requires the imposition of monetary consequences for owners to really pay attention. If your state laws and governing documents allow, consider charging a fee for late payments.
Suspension of Privileges
A monetary penalty can certainly be enough to scare some owners, but for those who even dismiss late fees, a different form of punishment may be necessary. Some HOAs revoke the rights and privileges of members who fail to pay their dues. This includes suspending voting rights and their ability to use amenities. Again, make sure your state laws and governing documents permit this type of penalty.
HOA Payment Plan Agreement
Sometimes, delinquent members have no choice but to default on their payments because of financial struggles. In this case, it would be wise for an HOA to show a little compassion and offer a payment plan instead. Of course, this can also be a slippery slope, as some members might abuse your board’s kindness.
Liens and Foreclosures
Many homeowners associations have the ability to place a lien on a delinquent owner’s property. This will make it harder for the owner to sell their home. HOAs can also take it one step further and foreclose on the lien.
Hire an HOA Management Company
It is typical for HOA management companies to offer homeowners association dues collection as part of their services. In lieu of an HOA collection agency, it may be better to delegate the task to your management company or HOA manager. Plus, these companies come with the added benefit of running your day-to-day operations.
Should You Hire an HOA Collection Agency?
Clearly, there are both benefits and downsides to hiring an HOA collection agency. And while there are several alternatives homeowners associations can take, they don’t always work. Considering dues are the lifeblood of an HOA, employing a third-party collector might be the soundest option. To save your association from potential liability and more headaches down the line, though, it is imperative to screen your candidates thoroughly.
If you find that hiring an HOA management company suits your community better, consider Elite Management Services. We offer effective collection services in addition to a wide range of other solutions. Call us today at (855) 238-8488 or contact us online to request a free proposal.
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