When meeting with boards, one of the things that I inevitably hear they are struggling with is what to do about the owners that simply don’t pay. This has always been a problem and with the downturn in the economy it’s just gotten worse. While there is no sure fire way to make everyone pay on time, the board can certainly take some steps to encourage owners to pay while allowing recourse for those who don’t. Boards should first look to their governing documents to find out what is already laid out for delinquencies. When are the assessments due and how long is the grace period? Are there provisions for late fees or interest? If so, the board already has a good backbone for enforcement. If not, there are provisions in ORS 94 and ORS 100 that allows associations to impose reasonable late fees and interest against account that are past due. Also per ORS, owners are personally liable for all assessments imposed.When the board has the basic information, the next step is to formally adopt a payment resolution that provides all of this information in a written form to all owners. For more information about this resolution, please see my article entitled, “Resolutions!” posted on November 10, 2011. It is prudent to have an expert in this field prepare the resolution for the board (the HOA’s attorney or community manager are best suited to this task). This resolution, once adopted, should be sent to all owners of record before any new enforcement steps are undertaken.
At this point, the best thing the board (or the management company) can do is follow the steps outlined in the resolution exactly. If the assessments are due on the 1st day of each month and late if not received by the 10th day of that month, then within the next few days follow up should be done. At minimum, a statement should be send (via first class mail) showing the assessment, late fee, and any other penalties that the payment resolution provides for. This statement should also include contact information - phone number, e-mail address - in addition to the payment remittance address, in case the owner has a question about the delinquency. Owners are entitled to understand their account and any charges on it, so it’s better to make it easier for them to get their questions answered.
If owners continue not to pay, eventually the board will have to get a law firm involved. Boards should talk to their law firm to determine if they do collections, and if so how they are compensated for their work. Some firms bill as they go, so the association pays the legal charges up front and then is reimbursed those costs by the delinquent owner when s/he brings the account current. Other firms will do the work and not charge the association anything up front but simply collect it from the owner as part of the delinquency. Both arrangements have their advantages and disadvantages, so if the board doesn’t already have a relationship with a law firm (which it should; it’s better to know an attorney and not need him/or then suddenly discover one is needed and have no idea who to contact), both options should be explored to determine which will be best for the association.
Before the delinquent owner and his/her account are turned over to the law firm for collections, however, it is prudent to make one last attempt to collect the debt. Management companies like to call this a ten-day demand letter, and that’s exactly what it is: a letter that gives the owner ten days to pay his/her account in full before it is turned over to the attorney. This letter should always include the following language, “This letter is an attempt to collect a debt and any information obtained will be used for that purpose.” I also think it is prudent to include in the letter an opportunity for the owner to get on a payment plan, just in case s/he cannot pay the full amount due. This payment plan cannot simply be, “I’ll pay when I can.” A payment plan is a specific, written agreement, entered into by the owner and the association, that puts forth concrete deadlines that the owner must meet as well as the consequences for the failure to meet those requirements. For example, let’s say an owner is behind by $500 (including assessments, late fees, interest, etc.). A reasonable payment plan would be for that owner to pay the regular assessments on time and before the end of the month each month pay an additional $50. This payment plan would bring him/her current within 10 months. Once the payment terms have been worked out and are agreeable to both parties, a written agreement should be mailed (or e-mailed) to the owner, signed, and returned to the association. This agreement should also detail what will happen if the owner fails to make a payment as agreed upon (or goes into foreclosure); in that case, normally the account is immediately turned over to the law firm for collections. Likewise, the association should have a deadline on when the signed payment resolution should be returned by (10 days is generally considered reasonable) and the date it goes into effect. These things are necessary to protect the association's interests.
Boards should remember that, even though their fellow owners are their friends and neighbors, they are charged with a fiduciary duty, which in this context means that personal feelings and relationships can’t be allowed to get in the way of doing what is right for the association, and holding all owners responsible for returning their assessments.