Setting up an HOA collections process is one of the most important things a Board needs to do to maintain financial responsibility of the community association. While we always hope everyone will just pay homeowner’s association dues, you need to know what to do if someone can’t or won’t pay their dues.
What Should Be In Your HOA Collections Policy
One of the best things you can do to manage your HOA collections process is having an HOA collections policy. At a minimum, the collections policy should address:
- When are assessments due?
- When will the assessment be considered late?
- What actions will be taken if the assessments remain unpaid?
Whether your assessments are paid monthly, quarterly, or annually, the board should establish a threshold for when an account requires escalation and decide what that escalation should be. For example, if your HOA charges monthly assessments, the board can decide that when an assessment is missed, a late letter will be sent reminding the owner to make a payment. After 3-6 months of missed assessments, the account escalates to a lien, and after a year, it escalates to a lawsuit. For an HOA charging annual dues, this timetable might be 2-3 years, rather than 6-12 months.
Your HOA collections policy should also include basic guidelines for settlement to ensure uniform and fair application. For example, your association could establish a default policy of waiving late fees and interest, and allowing payment plans lasting 12 months or less. These terms can be given to management or legal counsel as settlement guidelines, so that a proposed settlement can be accepted immediately without further discussion. Then, if a settlement offer exceeds these guidelines, the Board can review on a case-by-case basis and see if the homeowners individual circumstances merit further adjustments. If your board has delinquent homeowners association fees, use this guide to know how to collect these fees within your policy.
FDCPA Concerns for the HOA
For HOAs that use outside help in collections, it’s important to know what role those companies can play and what regulations govern them. One of the most important regulations governing debt collectors and consumers is the Fair Debt Collections Practice Act (“FDCPA”). The FDCPA is a federal law passed in 1978 to govern the actions of debt collectors, which are defined as those who are engaged in collecting debts belonging to another. The HOA itself would be considered an original creditor, and not a debt collector, while outside companies such as a collections company or law firm are subject to the FDCPA. And while most homeowners would be considered consumers, you may have owners who take the form of corporation or LLCs who do not receive FDCPA protections because they are not considered “consumers.” (For the full text of the FDCPA, Click here.)
The FDCPA was passed to protect consumers and to cut down on a wide range of abusive practices by debt collectors, including making false or misleading statements about debts, engaging in abusive or harassing conduct, and disclosing debts to third parties without the owners’ permission. The Consumer Finance Protection Bureau (“CFPB”) is tasked with issuing regulations and enforcing the FDCPA, including a recent major regulation overhaul in November 2021 known as Regulation F, which caused major changes in how debt collectors communicate with homeowners and what information needs to be provided, including consumer protection information.
One of the goals of Regulation F was to cut down on the most common violation of the FDCPA and the biggest complaint received from consumers: repeated and harassing phone calls. Under Regulation F, a debt collector can now only attempt to contact a homeowner 7 times in 7 days; a debt collector must also wait 7 days after making contact before attempting to contact the homeowner again.
While the association itself is not subject to the FDCPA, your external collection agencies and law firms usually will be. In order to oversee their work effectively, it’s important to understand these regulations and work with organizations focused on compliance with these regulations. For more information about how NowackHoward can help with your collections, get in touch today!