In the realm of community management, one of the pivotal aspects often overlooked until it becomes a pressing issue is the collections process. Community association board members serve as stewards of the community's financial well-being, necessitating a disciplined approach towards collections and delinquency management to maintain fiscal stability for the community association. This article delves into the significance of having a clear collections policy, outlines best practices for crafting one, and explores enforcement options to uphold financial integrity while adhering to legal frameworks.

The association’s authority to charge assessments to members and to engage in collections actions is specified in the association’s governing documents. A collections policy is adopted by board resolution. It serves to articulate in simple terms the expectations and consequences of non-payment so that homeowners understand what fees may be incurred or what action may be taken against them if they fail to make timely payments to the association.

Importance of Collections Policies for Board Members

With a collections policy in place, boards don’t have to take the time to evaluate each specific case. Rather, they can apply the process uniformly to all association members.

1.  Delegation of Responsibilities: A well-defined collections policy allows the HOA board to delegate the collections process to a management company efficiently. This delegation streamlines operations and ensures the process is handled consistently and professionally.
   
   
2. Impartiality and Decision-Making: Having a collections policy in place enables the board to act impartially and consistently when addressing delinquent payments. It removes ambiguity and ensures that all homeowners are treated fairly and equally.
   
   
3. Efficiency: With a clear collections policy, the HOA board can save valuable time that would otherwise be spent deliberating on individual cases. The policy serves as a guideline for swift and decisive action, thereby improving overall efficiency in managing the community's finances.

Best Practices for Creating Collections Policies

Even if your board has a general idea of what they’d like the policy to include, it is crucial to have a very specific policy in writing. With the help of professionals, boards can create a collections policy that is fair to members and complies with state and federal laws.

1.  Engage Legal Counsel: Consulting with the association's attorney will ensure the collections policy complies with the governing documents and applicable state and federal laws. Legal expertise helps draft clear and enforceable provisions, minimizing the risk of legal disputes or challenges.
   
   
2.  Consult the Community Manager: The input of the community manager, who is intimately familiar with the day-to-day operations and dynamics of the community, is invaluable in crafting an effective collections policy. Their insights can help tailor the policy so it will be implemented successfully based on the administrative process used by the management company.
   
   
3.  Consider Objectives: The collections policy should align with the broader objectives of the HOA, such as maintaining financial stability, promoting accountability, and fostering a sense of community responsibility. Tailoring the policy to incorporate these objectives enhances its effectiveness and acceptance among homeowners. An example would be to incorporate the option for owners to enter into a payment plan if they encounter hardship and request grace.
   
   
4.  Process for Handling Late Payments: Clearly outlining the process for handling late payments is critical. This includes specifying grace periods, late fees, interest rates, and escalation steps for persistent delinquencies. The clarity in these procedures helps homeowners understand their obligations and the consequences of non-compliance.

Enforcement Options

What good is a collections policy if there aren’t enforcement protocols in place? There are a few ways that boards can help encourage community members to pay on time. Sending reminders to owners who did not pay on time can be done as a courtesy; however, an effective policy will include timely escalation steps to avoid balances becoming too high.

1.  Late Fees and Interest Charges: Charging late fees and interest on overdue payments incentivizes timely payment and helps offset the costs associated with collections efforts. These fees should be clearly defined in the collections policy and applied consistently.
   
   
2.  Lien Placement: One of the primary enforcement mechanisms available to HOAs in North and South Carolina is the placement of liens on properties with delinquent payments. Liens serve as a legal claim against the property and can ultimately lead to foreclosure if the debt remains unpaid.
   
   
3.  Privilege Suspension: HOAs may also have the authority to suspend certain privileges, such as access to amenities or voting rights, for homeowners with outstanding dues. However, ensuring that such actions comply with the association's governing documents and applicable laws is crucial.

Collections policies must always adhere to state and federal laws governing debt collection practices, lien procedures, and homeowner rights. Regular review and updates to the policy in response to legal changes or developments are essential to maintain compliance and mitigate legal risks. Board members should avoid making calls to past due owners as this exposes them to liability due to strict rules under the Fair Debt Collections Practices Act that governs collections agencies and prohibits other entities from carrying out such practices.

A clear and comprehensive collections policy is indispensable for HOAs to ensure financial stability, fairness, and effective management of delinquent payments. By following best practices in policy development and enforcing provisions within legal boundaries, HOAs can uphold their fiduciary responsibilities while fostering a thriving and harmonious community environment.

About Community Association Management Services

In business since 1991, CAMS is North and South Carolina’s premier community management company. With experienced local managers in each of its nine regions, CAMS provides innovative solutions to the community associations it serves. Additionally, CAMS was featured on Inc. Magazine’s 2022 Inc. 5000 list of the fastest-growing private companies in America. To learn more, visit www.camsmgt.com/choose-cams.