Should your HOA hire a collection agency?

In happy times past, you’re association may not have had any trouble collecting dues.  But like most, in these troubling economic times, you may be finding yourself in a bit of a predicament – suddenly many owners are behind, some way behind. Should you hire a collection agency to help collect?

Let’s take a look at some potential issues with this strategy.

Perhaps the biggest issue is collection agencies’ policies regarding autonomy in how they deal with your homeowners. They may or may not be successful in collecting unpaid dues, but at what cost? In the eyes of your homeowners, these collection agencies are speaking for you, yet you have no control over them. This can create a lot of tension and dissention in the ranks.

Debt collection is an ugly business to be in. No one wants to do it but everything’s got a price, right? Don’t be surprised if the agency keeps 20-33% of the money recovered. That’s a lot!

So let’s recap.

Hiring a collection agency means you risk ruining long term relationships with your neighbors AND you will only end up with a third of the debt owed – at best.

So how should your association go about collecting debt?

The least expensive and most effective tactic is personal contact – by mail, phone and in person. Many times you can avoid legal action just by being diligent. Of course, this won’t work every time.

The next step is a small claims lawsuit. This doesn’t sound like fun, but often times, it’s still less expensive and more viable than the other options available to you. Once you drag someone in to court, they will usually pay up. If not, you can attach assets like wages and bank accounts. Is it fun? No. Does it work? Yes!

See related:

HOAs cut your costs in 2013

Can HOAs buy distressed units?

Can HOAs sell common areas to boost revenue?

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