Boards of directors, managers, and even attorneys in Florida are more confused today about the complexities of community association collections than ever before. So how should an association approach the problem and devise the right solution?
There’s so much disparity in opinions given by association attorneys regarding collections that boards need to first establish a procedure and move forward confidently in the knowledge they have chosen wisely.
So who do you believe — and how can you choose “wisely” when authorities don’t agree on a standard of what can or cannot be done? Or even worse, what should or should not be collected? Answers lie in the questions boards should ask their collection solution, whether an attorney or collection agency. Among those questions:
• How is the association being charged for services rendered?
• How are the fees structured by your collection solution?
• Does the collection solution defer fees, or is the association required to pay as they go?
• Will your attorney defer costs for court actions?
• Has your collection solution proposed that if they don’t collect their fees from a delinquent owner, subsequent purchaser, or foreclosing bank, will they then forgo their fees? Those just begin the kind of questions your board needs to ask. Others:
• How does your correction solution define “statutory cap?”
• Does it believe the association is only entitled to recover the lesser of 12 months or 1% of the first mortgage, or does it believe the association is also entitled to recover all late interest, late fees, collection costs, and reasonable attorney fees?
There’s a tremendous spectrum of opinion on answers to such questions and the company you choose that believes an association is entitled to more will invariably collect more. That’s why the collection solution should be carefully questioned about what entitles a foreclosing entity to “safe harbor” provisions. Some maintain that a first mortgage forecloses is entitled to receive a write off. Others say that a bank needs to comply with a stringent procedure to qualify for “safe harbor,” i.e., the lesser of 12 months or 1 % of the first mortgage.
Boards should know whether the entity collecting money is going to put up a fight by reviewing service, notices and assignments to uncover defects, and then negotiate a settlement beyond the paltry amount a “safe harbor”allows.
Answering a question with a question has been dubbed by some as the “Socratic Method” but clearly, boards of directors cannot make decisions unless they have solid answers to those questions.
If you ask your collection partner: “What will happen if that is done?”, they may give you various scenarios. So perhaps it would be best to rephrase the question this way: “Do you believe that if we do this, the result will be that?” The only way to best do this is to know the right questions to ask in the first place, and understanding what the various answers could mean.
Mitch Drimmer is a licensed CAM, an instructor at FCAP, and is the Vice President of Association Financial Services, an accredited collection agency and specialty finance company specializing in community association collections. For more information, visit www.associationfinancial.com, Tel: 305-677-0022, ext. 804.