Florida Community Association Collections

Collections of delinquent maintenance fees for community associations are a reality these days.  The collections process can be broken down into three distinct phases:

• Phase one involves the actions taken when a unit owner has missed a payment.
• Phase two is the nitty-gritty collection side of it.
• Phase three is defined as how the delinquency is resolved.

Over the past three years, an endless parade of articles has been written about community association collections. The problem is that most of these articles focus on only one minor aspect of the collection process and others are too broad to be meaningful. As specialists in Florida community association collections, we are bombarded with questions from confused stakeholders.

The following is a simple explanation of the three phases of community association collections:

Phase 1

• Phase 1 begins when a unit owner misses a payment and the unit is now in arrears.  The community association’s first course of action should be spelled out in its uniform collection policy.
• The association begins this phase by “making contact” with the delinquent unit owner in a timely manner, usually via a courtesy letter.  Yes, that’s right, make an effort to reach out and gently advise the owner that a payment has been missed.  People forget. Checks get lost. And there are times when people simply cannot afford this month’s payment and could use a friendly note or call letting them know that a payment plan can be worked out.
• In the early stages of a delinquency, sending someone to a collection agency or to a Florida community association attorney is not the way to go.  Reach out and engage. Be gentle, be kind and most of all, be helpful.
• If the owner fails to engage the association, it is then time to escalate recovery efforts by calling in a professional collections service with the expertise and resources to resolve the issue.
• It is important that association boards distinguish between fact and fiction when it comes to collection agencies.  The unfortunate stereotypes of the thuggish “knee breaker” or the telemarketer harassing owners from a country thousands of miles away are not representative of the industry.  The vast majority are professional companies that know the art and science of collections. They have the systems in place to do it correctly and efficiently. Some are even specialists in HOA and condominium association collections.

Phase 2

• During Phase Two, it is still too early to bring in Florida community attorneys.  Once the owner’s file is sent to an attorney, the die is cast and the collections become adversarial.  Professional collection companies will contact the delinquent owner, advise them of the association’s intentions regarding the collections and help the owner in arrears to work it out with a structured payment plan.  Specialized collections companies that are dedicated to condominium associations know that they are dealing with a very sensitive issue and will act in an appropriate manner.
• If initial collection efforts are unsuccessful, the unit should then be scheduled for lien and foreclosure. Condominium associations have placed a heavy burden on the shoulders of the legal profession during the past four years, expecting them to achieve satisfactory results quickly and under very dire circumstances.
• The plain and simple fact is that a community association attorney can take just two steps for the association: lien and foreclose on the title.  Nothing more can be done by the attorney unless they want to write letters or make telephone calls and try to engage the owner, go through the entire collection process and essentially become a collection agency.
• When it comes to the touchy subject of collection and legal costs and fees, it is a good idea for the association to enter into an agreement with ta community association collection company to defer all legal costs and fees until the time has come for the unit to settle out, at which point they would be collected. Even better is if the collection professional guaranteed that if those legal costs and fees could not be collected when the unit settled out, the association will not be responsible for paying them.
• This is not wishful thinking; there really are collection professionals who will make that deal with associations. Shop the market for the right collection professional just like you would with any other vendor you bring to your condominium association.
• Once the association has foreclosed on the title, a number of options become open.  With the title in hand, the association has power and control over the unit.  There are three decisions to be made. The first is whether or not to rent the unit, which monetizes it for the association. Option two is to do nothing but wait for the bank to come for its collateral.  The last option is to try to convince a judge to quiet the title and make the bank take back the unit. This is a controversial move but there has been precedent set in previous court cases.

Phase 3

• Phase three is where the rubber hits the road…the all-important part of this odyssey where the condominium association or HOA takes a financial hit or comes out of this mess unscathed.  This final phase is when the unit “settles out” in one of three ways.  The first way is when the bank finally comes for its collateral.  The second way is when the unit owner sees the error of their ways and pays up (unlikely, but it can happen). And the last way a unit can settle out is when a sale is made, be it short, tall, fat or thin.  A sale is a sale and the new owner and the old owner are jointly and severally liable for all that is owed to the association.

The important question is who is managing the collections process? It could be the association and its property manager. Or it could be the association’s attorney or a collections firm.  This decision is the most important step of the entire three-phase process.

The criterion to use is simple: which of these entities has the most experience, ability and desire to collect the most for the association.

Associations need to have the case resolved in the most favorable manner possible. The goals are to maximize the amount collected for the Association, eliminate out-of-pocket costs to the Association and minimize risks to the Association.

A collections firm working on a merit basis has a great incentive to battle it out with the title company.  Let us remember that when it’s time for a unit to settle out, it’s a title company doing the work for the bank (in most cases.) It is work best suited for collection professionals who have the time, cunning and skills of a great negotiator as well as the experience and incentive to do the job right.

Kenneth M. Arnold is Co-Founder and Chief Executive Officer of Association Financial Services, a Miami, Florida-based company specializing in debt collections, specialty lending and other financial solutions for condominium and homeowner associations. He is also a licensed Florida Community Association Manager and Licensed Florida Mortgage Broker. You can contact Mitch Drimmer at AFS with any questions – 1-866-736-3069, #804 or mdrimmer@associationfs.com 1-866-736-3069, #804.