• Assessments and Collections
  • May 4, 2009
  • Law Firm: Vial Fotheringham, LLP - Portland Office
  • One of the most common issues facing HOA’s in today's economic environment is the inability to collect assessments. With foreclosure filings in Utah up 100% in 2008 over the prior year, there has never been a time when it is more vital that associations have an aggressive and effective collections policy in place.

    A. Benefits of an HOA

    One of the chief reasons that people buy a home or unit in an HOA is for the amenities that are provided with the home. Some HOAs offer such amenities as golf courses, swimming pools, club houses, yard care, snow removal, and maintenance of the building exteriors. In these situations, the association is providing a benefit to the owner, but is only able to provide that benefit based on their ability to collect assessments.

    B. Setting a Proper Assessment Level

    A key component in assessments is setting the assessment at the proper level. Many HOAs have their assessments set too low to meet the obligations of the HOA. Vial Fotheringham strongly advises that all HOAs have a reserve study performed, so that the association is aware of the amount of funds necessary to meet the service requirements of the HOA.

    Our lawyers also advise all HOAs to increase their assessment levels on an annual basis. Elaborating on this idea, a recent study in Utah demonstrated that the Utah rate-of-inflation was nearly twice that of the national average. This means that HOAs in Utah that don’t raise their assessment on an annual basis are losing revenue over the previous year at twice the national rate. With this being the case, it is recommended that associations [at a bare minimum] increase their assessments at the rate-of-inflation. This allows the HOA to stay current to the previous year’s assessment level.

    In a situation in which an HOA does not raise their assessments on an annual basis, they run the risk of having a budgetary short-fall. When this happens, the HOA is left with two options: 1) Take a loan to meet the financial obligations, or 2) Special Assess the owners in the amount of the deficiency.

    C. Adopting a Successful Collections Policy

    Nearly all HOAs are incorporated as some sort of business entity. As such, certain fiduciary obligations flow to the Board of Directors. One of these obligations is to ensure that the HOA is a financially viable entity. For the HOA to be financially viable, the Board needs to make sure that the accounts receivables are current, or that the assessments are collected.

    HOAs should have a clearly defined collections policy. This means that the owners are on notice that once they become delinquent (either a dollar figure or number of days past-due) their account will be turned over to an attorney for collections. Once this policy is in place, the HOA needs to make sure that it is strictly enforced.

    D. Vial Fotheringham’s Collection Method

    Because Vial Fotheringham specializes in homeowner associations and planned community developments, we understand the difficult dynamics involved in collecting past-due assessments. We also believe an HOA shouldn't have to lose money trying to recover these assessments. In order to continue a steady collection of association assessments, we have created an innovative solution called the Cash Flow Enhancement Program (CFE).

    Benefits of the CFE Program include:

    *Aggressive-Professional-Prompt action with a high rate of success
    *Monthly Status reports providing up to date information on the status of each account
    *All collection fees and court costs are charged to the debtor, not the association
    *To avoid bounced checks, funds are distributed to the association upon collection after verification of funds
    *Vial Fotheringham LLP manages all communication with the debtor, so you don't have to
    *Strict enforcement of payment plans, allowing homeowners to bring delinquent accounts current

    In setting up the CFE Program:

    *We review your association's governing documents and draft a Collection Resolution to be adopted by the association's Board of Directors for a one-time set-up fee of $250.

    *When an account is past due, the HOA or property management company sends the debtor a final 30-day notice that the account will be turned over to an attorney if it remains unpaid.

    *The homeowner association or property management company follows the Vial Fotheringham LLP procedure for turnover of delinquent accounts.Vial Fotheringham LLP mails notices to the debtor, records a lien if necessary, and works with the debtor to set up a payment plan. If a debt to the HOA remains unpaid after repeated attempts, a lawsuit will be filed.

    *When the funds are collected, the disbursement is promptly made to the association, after verification of funds.

    *Rarely, as in the case of bankruptcy and foreclosure, the debt may become uncollectible. In these rare cases, the association is billed only for the costs incurred and a limited amount of attorney fees.

    E. Community Collect

    Our Community Collect software, part of our CFE program, allows the HOA and the property management company to monitor and access all collection files that have been turned over to our office. This accessibility is available in real-time on a 24/7 basis.
    Community Collect allows the HOA and the property management company to run status reports, send case notes, and see the real-time progress of the files as they progress through the collection process.
    At Vial Fotheringham LLP, we realize that information is power, and we want to empower our clients with as much information as they need to aid in the difficult process of collections. For more information on this or other HOA issues, please email at [email protected]