Effective Strategies for Assessment Collections

In our industry, effective collection strategies are essential for maintaining cash flow, ensuring financial stability and fostering positive member relationships. A wellstructured approach to collections can help communities minimize bad debt and streamline the recovery of overdue accounts, all while making it clear to owners that everyone is on a level playing field. This article will explore various collection strategies that your community can implement to enhance their collection processes.

1. Develop a Clear Assessment Collection Policy

California Civil Code § 5600(a) states that “the association shall levy regular and special assessments sufficient to perform its obligations under the governing documents and this act.” Civil Code § 5730 requires associations to prepare a statement of assessment collection policies, and Civil Code § 5310 requires that statement be distributed to members as part of the Annual Policy Statement. A well-defined collection policy not only helps treat members equally but also ensures that both directors and members understand the expectations regarding timelines and the consequences of non-payment.

2. Implement Automated Payment Systems

Payment systems like Automated Clearing House (“ACH”) and direct deposit significantly help owners improve their payment efficiency by eliminating the monthly or quarterly decision to pay assessments. A community-wide effort to encourage automated payments is undisputedly the most effective way the board can assist owners avoid late payments. Next, while not required by the Civil Code, sending monthly invoices to owners also helps ensure timely payment and reduces the chance of human error.

3. Establish a Proactive Communication Plan

Communication is key in the collection process. Particularly when developing and implementing special or emergency assessments, a proactive communication plan should include regular letters, email blasts and meetings notifying owners about upcoming payment obligations. These communications should include alternative payment arrangements, such as installment plans. Managers and collection entities must constantly work to maintain open lines of communication with their clients, ensuring that Boards are regularly provided with a written status of each delinquent account. Finally, when a delinquent owner calls and their account has been turned over to collections, managers need to immediately forward that owner directly to the collection entity, so the owner is always provided with accurate invoices, updated with all the fees and costs associated with the collections process.

4.Encourage Boards to be Flexible with Payment Options

To facilitate bringing a delinquent owner current, and then to stay current in the future, Boards need to be willing to accept differing or flexible payment plans. Different owners respond better to different payment options based on their personal circumstances. For example, not everyone is paid the first and the 15th of the month. Many are paid random lump sums, some have commission structures which pay quarterly, others have regular or occasional side jobs which bring in unpredictable cash flows.

It is sadly common for a board to simply dismiss, or harshly counter, a suggested payment plan which has been developed over multiple conversations between a collection entity and a delinquent owner. This is particularly frustrating because the collection entity may be on the phone every day working with the delinquent owner to develop a plan designed to be a final solution – not a first offer, but the board only meets and decides once a month. And many delinquent owners may be forced into bankruptcy or continued delinquency when faced with an inflexible board that is stuck on an unachievable payment plan. Flexibility in collecting can take various forms, such as accepting credit card payments, providing installment plans, or allowing owners to pay via digital payment platforms.

5. Bring Solutions to a Special Assessment Meeting

Recently, because of spiraling maintenance expenses caused by inflation, the “balcony bill,” and skyrocketing insurance rates, many communities have been hit with a record volume and dollar amount of special assessments. While fortunate that these challenges have not occurred during a time of economic downturn (like 2009 when property values plummeted and there were millions of unemployed), these special assessments can be especially difficult for two groups of owners: those who have purchased in the last five years and those who are on retirement incomes.

When planning to hold meetings to discuss special assessment, boards should consider inviting a representative of a local lender who can discuss various loan options available to owners, such as home equity lines of credit. Also consider inviting a lender who specializes in reverse mortgages who can explain how older owners can “unlock the equity” in their homes. Give these lenders an opportunity in your meeting to explain finance options so that owners - who are often frozen in fear and anger – have time to comprehend and envision a strategy to make the special assessment payments and stay in their homes. Another option would be to offer 6-to-12month payment plans for paying the special assessment. This can allow for owners to budget and plan for repayment over a longer period, without the need to incur addition interest costs and fees related to personal loans.

To be sure, special assessment meetings are generally unpleasant, but by providing owners with options for payment along with the reasons for the assessment, boards can sometimes soften the blow and increase their odds of timely payment.

Boards should consider inviting a representative from a local lending institution to explain the different loan options available to homeowners, such as home equity lines of credit or reverse mortgages.

Mark T. Guithues, Esq. is the founder of Community Legal Advisors Inc, a law firm providing assessment collection and general counsel services to community association clients, subdivision services to developer-declarant clients, and mediation and arbitration services to homeowner clients.