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Are Collection Costs Recoverable?

By February 28, 2017 No Comments

Can You Recover Your Costs from Collection as an HOA or COA?

If an Association pursues delinquent assessments, can collection costs be recovered from delinquent owners? The answer is: Yes, they can. Community Associations should not have to incur unnecessary write-offs, fees or costs when pursuing the collection of delinquent amounts from property owners – these amounts are recoverable.

Many times Associations incur collection costs before or after a delinquent account is referred for collection. These costs often include sending late notices, statutory pre-lien notices, as well as preparing and sending the delinquent account to the Association’s collection professional. These are actual costs incurred by the Association and should be included in any collection efforts made on behalf of the Association. Actual costs include, but are not limited to, claims of lien, lien foreclosures, personal judgments and more.

In Florida, the recovery of collection costs is included within several state statutes including Condominiums, Cooperatives, and Homeowners Associations.

Florida statutes provide that a claim of lien secures the amounts due and owing to the Association, and “reasonable costs incurred by the association incident to the collection process.” The statutes also state that when payments are received on delinquent accounts, the payment must be applied to the interest, late fees and costs incurred in collection, attorney fees, and then to the delinquent assessments. Together these provisions allow the Association to charge and collect the costs incurred in collection.

Note that these costs are not limited to those incurred by legal counsel, but encompass all costs for the collection of the delinquent amounts owed to the Association. The Association can (and should) charge the property owner for any hard costs encountered while pursuing the collection of any amount due to the Association.

Even though these collection costs are valid charges to a delinquent property owner’s account, not all accounts can or will be collected in full. A variety of factors, such as your Association’s governing documents, bankruptcy, mortgage foreclosure, short sales, etc. may affect the Association’s ability to collect all of the collection costs. If you have questions about the collections of specific charges or accounts, consult your management company and legal counsel.

To minimize the recovery of collecting costs it’s important for the Board to continually review receivables and aggressively pursue delinquent accounts. If the Association is proactive on delinquent accounts, you’ll have far fewer delinquencies over shorter periods of time.

It’s also important to have a written and reasonable Collection Policy in place. The Board has a fiduciary responsibility to attempt to collect on delinquent assessments/dues. When assessments are not collected promptly, it jeopardizes the Association’s economic health and stability. Without a steady source of income, the Association may be unable to provide essential services to the property owners. For all these reasons, it’s important to have a written and reasonable collection policy that treats all delinquencies equally to avoid any claims of selective enforcement. A strong Collection Policy protects the Association’s reserves and presents a solid financial picture for potential lenders and mortgage companies.

Handle delinquencies with a methodical approach. Some of the considerations when creating a formal Collection Policy include:

  • Due dates for assessments and late fees.
  • Steps to be taken when payment are overdue.
  • Options for payment plans in cases of special need and financial hardship.
  • When a delinquent assessment is referred to legal counsel.
  • How additional costs associated with collecting delinquent account (such as attorneys’ fees) are collected.
  • How the policy will be communicated to all owners.
  • Governing documents.
  • State laws and federal statutes.

LM Funding provides funding solutions to condo and homeowner associations (COAs & HOAs) to recover delinquent association dues and guaranty future association budgets using proprietary technology.