Establishing an Effective Collection Policy: The Effective Use of Progressive Consequences

Establishing an Effective Collection Policy: The Effective Use of Progressive Consequences

Attorney

One of the most important tasks of a successful property owners association is the adoption of an assessment collection policy with escalating penalties for non-payment. However, what makes a property owners association successful is not the adoption of the policy itself, but the routine and uniform enforcement of that policy over time. Indeed, rules without enforcement, are simply words on paper.

From our over 40 years of experience in this industry, an effective collection policy must be in writing and should outline in detail every step of the collection process and when those steps should take place. It should also articulate in detail when the management company’s collection efforts end and when the accounts should be turned over to the POA’s attorney.

The primary hurdle to collecting past due assessments is very rarely an owner’s inability to pay, especially early stages of an account’s delinquency. Similar to establishing quorum at annual meetings, membership voting, and finding members to volunteer, the biggest hurdle for collections is an owner’s apathy toward all things concerning the property owners association, including the payment of assessments. That is why it is so important that the association’s collection policy has a tiered and escalating progression strategy. For as long as the association fails to timely escalate the owner’s account, there is no penalty for their apathy, and no cause for their attention.

Typically, statements for dues are sent out prospectively by the management company informing owners that their assessments are due and will be considered late if not paid timely. Progressive consequences follow a specific timeline, and failure to pay delinquent assessments within a specific set timeframe will result in escalated collection techniques and increased fees.

In an effective collection policy, the management company will send a “friendly reminder” letter that the assessments are late at no charge to the owner. Thereafter, if not paid timely the homeowner will be sent a firmer letter from the management company by certified mail, including the statutory “Section 209” requirements required under Texas Property Code Section 209. This letter will inform the property owner that if he/she does not pay within the specific time period outlined in the letter (currently 45 days), or if they do not enter into an agreed payment plan before the expiration of that time, their account will be turned over to the POA’s attorney. This certified letter is duly accompanied by additional management fees, late fees, and expenses for mailing a certified letter which the owner is now required to pay. In short, the association’s collection policy would provide for the following: 1) a friendly reminder letter at no cost to the owner when POA assessments are newly delinquent; and then 2) if dues are not paid, a certified letter which includes late fees, interest, administrative fees, and expenses will be sent. If the assessments are still not paid by the expiration of the notice contained in the certified letter, then those delinquent accounts should be promptly turned over to the POA’s attorney.

In keeping with the progressive consequences theme, the POA attorney’s collection activities will start with an initial demand for payment which has a relatively small amount of attorney’s fees which the property owner must pay to reimburse the association for the costs of collection. Additional collection activities from that point forward may include the filing of a lien on the property and will be accompanied by a corresponding increase in attorney’s fees. Ultimately, a lawsuit may potentially be filed against the property owner should the assessments remain unpaid.

These escalating consequences in the POA’s collection policy should be clearly outlined in each letter so that the property owner clearly understands the consequences of not paying the amount due at that time. Once the owner appreciates that their balance has escalated and will continue to do so, they will eventually get to the point where the potential consequences demand their attention. The POA’s adoption, and more importantly, their uniform and timely adherence to the collection policy is effective evidence in court to show the Judge that the homeowner was contacted multiple times, was made aware of the increasing costs of collection, but still failed to pay the amount due. Along those lines, if there’s a history of inconsistent collection attempts, confusing notices or perpetual payment plans, an owner is less likely to pay the full balance and a Judge may find the owner’s default justified.

Ultimately, communication is key. The property owner must receive a series of notices, first sent by the management company and then by the law firm, which clearly outline the escalating consequences the homeowner will face if they do not pay in full or enter into a payment plan. Consistent use of this effective technique over a series of years will greatly reduce the delinquency rate in your community and allow the POA to do what it ideally should be doing – maintaining and increasing the property values in the community.