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Why Money Judgments Don’t Work for Assessment – by Mitch Drimmer

Why Money Judgments Don’t Work for Assessment – by Mitch Drimmer

Why Money Judgments Don’t Work for Assessment

Mitch Drimmer of AXELA-TECH

Money judgments are not an effective way for an HOA to collect delinquencies. It’s often more effective for an HOA to work with delinquent homeowners to find a resolution that is mutually beneficial. This may involve setting up a payment plan or finding alternative ways to resolve the delinquency.

Foreclosure is a legal process in which an HOA takes possession of a delinquent owner’s property. The HOA then sells it to recover the money owed. While foreclosure should be a last resort for collecting past-due assessments, pursuing a foreclosure may be a better option than seeking a money judgment. Here’s why:

  1. Why get a judgment on a secured debt? The property is the collateral. Why get a money judgment and then go to court again to get a writ to collect?
  1. Recovery: Ever try to garnish wages or repossess assets to collect on a judgment? It’s not easy. People can, and often do, evade efforts to collect. You already have the best collateral for the debt – the property itself.
  2. Difficulty in enforcing judgments: Obtaining a judgment is only the first step in the collection process. The HOA must then take steps to enforce the judgment, which can be time-consuming and costly. This may involve garnishing wages, levying bank accounts, or seizing assets. When it comes to collecting,  you are on your own.
  3. Limited recovery: Even if a judgment is obtained, there’s no guarantee that the delinquent homeowner will be able to pay the amount owed. If the homeowner is unable to pay, the HOA may not be able to recover the full amount of the judgment.  The money spent to get the judgment was wasted. Negative impact on community: Pursuing a judgment against a delinquent homeowner may create tension and conflict within the community. This can be more difficult in a small community where residents may have close personal relationships. If the community has an ongoing wage garnishment on a resident, the animosity may drag on for years.

The overwhelming majority of the time, owners facing foreclosure pay before a sale occurs.  Foreclosure is the end of the road for the owner, and they almost always find the money to pay to stay in their homes. Starting a foreclosure does not mean the sale will occur, and from our experience, it seldom does.

Want some more reasons why foreclosure, while still a last resort, is better than a judgment?

  1. Stronger legal remedy: A foreclosure is a stronger legal remedy than a money judgment because it allows the HOA to take possession of the property and sell it to recover the unpaid assessments. A money judgment is a court order requiring the homeowner to pay the amount owed, but the HOA must still take extra steps to enforce the judgment and collect the funds.
  2. Quicker resolution: Foreclosure can be a quicker process than seeking a money judgment. It’s unusual for the foreclosure process to take more than a year, and in some states, that time is less than half. In contrast, obtaining a money judgment can be a lengthy process that may involve multiple court hearings and appeals.
  3. Higher recovery rate: Foreclosure is better for the HOA because the sale of the property can often cover the unpaid assessments, legal fees, and other costs associated with the foreclosure process. With a money judgment, the HOA may not be able to recover the full amount owed, and this is guaranteed if the homeowner is unable to pay.
  4. It’s a deterrent: Foreclosure may deter others in the community from defaulting on their assessments. This can help to keep the HOA financially stable and protect the value of the community.

Delinquencies are often settled when a new buyer purchases the property under “joint and several liability” doctrines. If you have eviscerated an amount of the debt and turned it into a personal obligation, it’s more difficult to collect when the property sells. The association has a judgment but must still work to collect on it even if the owner sells the property, when it could have been paid in full at the time of the sale.

During the real estate meltdown of 2008, associations foreclosed and took title to units that were underwater because everything was underwater. Then, they would refurbish and rent the units. The banks were not foreclosing, the units were underwater, and the associations had no choice if they wanted to be proactive. But times have changed, and there’s a record amount of equity in the housing market. The chances that the association will ever take title in these times of high property value and opt to rent the property are incredibly slim.

If you go after somebody with a money judgment, they will evade you until they cannot. It can take years before you get to cash in, if ever. This is not about revenge; it’s about cash flow. When an HOA goes after a delinquent owner, you can be sure that the debtor would be more motivated to pay with a foreclosure over their head than a money judgment. A foreclosure is hard to get out of, if the HOA does it right. They may be able to circumvent or have exemptions not to pay a judgment.

It’s important to note that foreclosure is a last resort for collecting assessments. Before foreclosing, the HOA should work with a specialized and licensed collections solution like Axela-Technologies. Our services include client outreach, respectful phone calls, emails, mailed letters and notices, bank notifications, credit bureau reporting, and other legal and fair methods to collect. For a no obligation collections analysis, please Click Here and let us show you “How the Future Collects.”

 

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Is Your HOA or Condo Board Doing A Good Job?

Is Your HOA or Condo Board Doing A Good Job?

Is Your HOA or Condo Board Doing A Good Job?

How Can You Tell If Your Board is Doing a Good Job?

There’s a lot of talk in the media and online about bad Boards of Directors, including our recent article on how to tell if your Board is stealing from the association. But how do you tell if the Board of your Condo or HOA is doing a good job? Not all Boards are bad, right?

The truth is, most Board members are honest people that meant well when they campaigned for election and mean well when they attend and vote in each meeting. They have reasons for making the unpopular decision that the residents complain about. Oftentimes those reasons are valid and the unpopular decision was actually the lesser of two evils. But, how do you know for sure?

What Makes a Board of Directors “Good”?

To find out what HOA managers and management company executives thought was the ultimate sign of a good Board, we conducted a survey on LinkedIn. The survey responses were almost tied. It turns out, there isn’t one ultimate sign. Instead of one thing that makes your Board great, there’s a list of things that make your Board of Directors successful… or not.

Financial Responsibility

The most popular survey response with 33% of the vote, having a well-funded budget and reserves is a hallmark of a good Board. But other factors go into good financial management as well. A good Board is honest when spending HOA funds and uses them for the good of the community. They communicate with the membership about the reasons for budget increases, how they are using the money collected, and what the process is for paying vendors and for dealing with homeowners who aren’t paying on time. Big projects are well-researched and planned to limit unexpected expenses that make special assessments more likely. Speaking of special assessments, good boards know that regular dues increases that keep up with inflation are a better way to fund projects than special assessments.

Proactive Maintenance of Facilities

Coming in at 29% of the vote is proactive maintenance of the facilities. This means little to no deferred maintenance in the community. All buildings, parks, equipment, etc. are inspected often. Preventative maintenance is completed because the Board knows it will save money in the long run. When something needs repair or replacing, it’s completed as soon as possible, because the longer it waits, the more it costs. What good does it do to have a well-funded budget if money is never spent on maintaining the physical assets of the community?

Productive, Peaceful Meetings

Tied with maintenance at 29%, some managers and executives felt that the number one sign of a good board is how it feels to attend their meetings. Good Boards can disagree without slipping into childish or inappropriate behavior. They read the packets and reports that management provides them before the meeting and show up prepared to vote. Members feel comfortable attending meetings, and because the Board sets a good example of how to behave, most of the members follow it.

Good Boards Set Goals

Another sign of a good Board is goal setting. It’s hard to steer a ship if you don’t know where it’s headed. A Board that plans ahead and sets goals for the direction the community should head in is a Board that has a better chance of getting there. A Board that doesn’t plan is going to find itself spinning around in circles.

Fair Collections

People might not like to talk about it because it can be emotionally uncomfortable, but to be good at their job the Board must do something about owners that don’t pay their dues. It’s not fair to the owners that do pay to have to carry the burden of those that don’t. But a good Board is not overly aggressive when it comes to collections. They make sure that the collection solution they use is fair, not predatory, and advocates for the association to collect every possible penny.

The Good Board Checklist

Do you want to grade the Board of Directors for your community to see how good or bad of a job they’re doing? Using the following checklist, give your Board 5 points for every answer that you checked “yes”.

  • Increases to assessments are small and regular
  • The budget, reserve study, annual review, and other financial reports are accessible to the members for review
  • Reserve funding levels are above 80%
  • Special assessments are rare
  • The final cost for projects is usually in line with the projected cost
  • Components are inspected often and repaired as needed
  • When components fail, they are replaced and not abandoned or removed
  • The Board behaves like professionals at meetings even when they disagree
  • Meetings are business-oriented and not popularity contests or social hours
  • Members are welcome and feel comfortable attending meetings
  • A goal-setting discussion happens at least once a year
  • Experts are consulted and their advice is considered when making decisions
  • The number of owners that are late on their dues is less than 10%
  • Collection practices are fair and judgments and foreclosures are a last resort
  • The Board uses a professional collection solution instead of doing it themselves

Now, add up those scores and see how the Board did. A great score is 60-75, a good score is 45-60, an average score is 30-45, a Board that scores 15-30 needs improvement, and if the Board scored less than 15 points you might be in trouble.

Even good Boards of Directors sometimes find that their collections could be improved. Contact us today to find out why Axela Technologies is a better collection solution than your attorney, and learn more about our options for helping you recover late payments from delinquent  owners.

 

By, Dee A. Rowe, Guest Writer

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Condo and HOA Lien Foreclosures…A National Shame by Mitch Drimmer / Axela Technologies

Condo and HOA Lien Foreclosures…A National Shame by Mitch Drimmer / Axela Technologies

  • Posted: Dec 18, 2022
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How many times have you read a story about an HOA foreclosing on some unfortunate family for a fraction of the value of the home? For example, the veteran who, upon returning from active duty, finds that his HOA has foreclosed and taken title to his house for a mere pittance? “Soldier in Iraq Loses Home Over $800 Debt” reads the story, and life goes on at the HOA.

Should the HOA have foreclosed on this person’s house? Why did they foreclose on this property? What could have been done to prevent this gross injustice from happening in the first place? Condo and HOA lien foreclosures should not be the first go-to solution when a unit becomes delinquent.

For too long, community associations have been a national disgrace, rather than a source of national pride. No HOA wants their name to be mentioned on the nightly news because we all know it is far more likely to be an exposé than a feel-good piece. But if we want the bad press to stop, we need to take a good, hard look in the mirror.

 

Communities Often Jump Straight to the Nuclear Option of Lien Foreclosure. Can They Do That?

When you buy a house or condo in a community association, most likely you’ve taken out a mortgage, and if you don’t pay your mortgage, the lender has the right to foreclose and force a public sale of the property. So too can condominiums and homeowner’s associations foreclose on your property for non-payment of maintenance fees.

In fact, per most state laws, your homeowner’s association or condominium association can potentially foreclose on your property even if you are current with your mortgage. Also, your mortgage will remain in first position and the HOA cannot sell the property with marketable title unless the first position lien has been satisfied.

All that is required is for the association to cause an attorney to file a lien, have the attorney send a notice of foreclosure, have your day in court, and before you know it you are being evicted from your home that may have equity in it because you were delinquent for a much smaller amount than what the property is worth. Not a good deal for you and certainly not a smart business move for the association.

It’s not to say that the community is in the wrong. The assessment fees are rightfully owed to the association, and they have the right to attempt to collect it. However, jumping to the nuclear option prior to attempting diplomacy (negotiating with the owner to satisfy the debt) never goes well for anyone.

 

Winrose vs Hale ‘Shocked the Conscience’ of the Court

In an appeals court decision in Supreme Court South Carolina, the association foreclosure was REVERSED and REMANDED. In the case of WINROSE HOA v. DEVERY HALE the court was shocked by this action and even stated so in their decision: “As a result, in determining whether the purchase price was grossly inadequate …. the bid shocks the conscience of the court.” The story is quite simple and may sound familiar to you as this happens every day and really should not.

The Hales were solid citizens who purchased their home twenty-one years ago for $104,250.00 and paid their mortgage and fees on time. The home is valued at $128,000.00 and the property has $60,000.00 of equity in it. After missing a $250.00 maintenance fee payment the HOA foreclosed on their $566.41 lien (to satisfy delinquent assessments and interest) and the winning bid on the house was $3,036.00. The Hales had been robbed, and the association had acted too rashly in moving to foreclose upon a house for such a pittance. The buyer was Regime Solutions, LLC who are investors that seek out and purchase properties at foreclosures.

Due to the Hales failure to file a responsive pleading to the foreclosure complaint, a huge mistake on their part, they were ultimately defaulted and were not served with any further court papers. In fact, they did not even receive a copy of the judgment of foreclosure. When they found out they were at risk of losing their property, they tried to make good to redeem their house and paid a bill to the master and in fact, the law firm representing the HOA sent the Hales a notice that the lien had been satisfied. The HOA, however, did not withdraw its suit.

Three months after, the HOA filed the affidavit of default and the master authorized a judicial sale of the property at public auction. The Hales were not notified of this order due to a rule in South Carolina, which essentially states the time to appeal doesn’t change, despite lack of notice (rule 77(d), SCRCP). Two weeks later without notice to the Hales, the property was sold and the new owner moved to evict them. This of course led to court complaints, a trial, and finally an appeal before the Supreme Court who reversed and remanded the foreclosure order saying that the sale at auction for $3,036.00 “shocked the conscience of the court,” which is quite strong language from the Supreme Court.

 

Investors Use Shady Business Practices To Take Advantage of Unsuspecting Homeowners through HOA foreclosures

It came to light that Regime’s business model was not to assume the senior mortgage to own the property but to give back the property to the original owners at a hefty fee. (Sadly, this is not an uncommon practice.)

The court decision went on to say: “While the HOA had the legal right to pursue collection of the debt owed, including foreclosure of the Property to satisfy that debt, this foreclosure action quickly morphed into a proxy to capitalize on a small debt. We are especially troubled by Regime’s participation in a foreclosure proceeding to accommodate its business model of leveraging a nominal debt to secure an exorbitant return from homeowners who fear the prospect of eviction.”

Most important the court stated: “Regime would not have had an opportunity to engage in its questionable business practices had the HOA and its attorney not chosen to pursue foreclosure in the first place. The Hales were minimally in arrears on their HOA dues, yet the HOA foreclosed on a $128,000 home in its eagerness to collect the outstanding $250—an overdue amount less than 0.2% of the fair market value of the home, notwithstanding the amount of the outstanding mortgage.”

Finally, the court opined: “A foreclosure proceeding is a last resort, not a business model to be swiftly invoked for the purpose of exploiting property owners. We do not countenance the improper use of foreclosure proceedings by the HOA, its attorney, or Regime.”

Justice ultimately prevailed in this case, and the Hales kept their house and were not evicted although there can be no doubt that they had suffered and worried throughout this entire process. Not every homeowner who goes through this process is so lucky to get away with only a terrible story to tell.

 

Communities Are Getting Bad Advice, and It’s Costing Them, in Real Dollars and in Reputation

What went wrong is an amazingly simple question to answer. The association was convinced that they should foreclose on a delinquent unit before they even tried to engage the owners to review the consequences of their situation. While it may be true that they received one notice, they were advised by an attorney that the matter had been resolved. This was a total failure of communication.

The association could have had more contact with the owners and advised them as to the course of action that was being taken against them. Nobody said anything to them – and in this industry, such a thing is not uncommon.

When a delinquent unit goes over to an attorney the object is to “enforce the security interest” and not to collect. The association’s board was not properly informed that less drastic action could be taken. Somehow the board was convinced not to recover money from the Hales but rather to take the property.

No collections activity is reported in the narrative that is presented in the case. It was a bad business decision because eventually, the association had to pay a lot of legal fees. This situation could have been resolved much more easily and cost-effectively.

 

A Lawyer Who is Just Enforcing Security Interests Is Not A Debt Collector

This matter did not have to be resolved by a “legal solution” but rather by a “collections solution.” As a matter of fact, in a case decided by the Supreme Court of The United States, DENNIS OBDUSKEY v. McCARTHY & HOLTHUS LLP the Court held, “A business engaged in no more than the enforcement of security interests is not a “debt collector” under the FDCPA, 1032*1032 except for the limited purpose of § 1692f(6). Pp. 1035-1040.” This means that the association did not even try to collect the past due debt and if they used an attorney, he/she is not even bound by the Fair Debt Collections Practices Act.

The Supreme Court in South Carolina in all its wisdom said loud and clear: “A foreclosure proceeding is a last resort”

 

Community Associations Have a Better Option to Collect Delinquent Fees

So how should a community association collect delinquent fees? In a way this question just about answers itself. The answer is that they use a collection agency that is specialized in collections for community associations. Community Associations need to COLLECT, not foreclose and evict owners from their homes. Associations need to have adequate cash flows and a minimum amount of legal cases.

Axela Technologies would be honored to be that company for your community association. We are a licensed collection agency and we only work on delinquencies from Condos and HOAs. We are different because our objective is not to foreclose on a house, which is the action of last resort.

What Axela does is engage the owner and work with them to pay their past due assessments. Axela will send demand letters, provide internet portals to delinquent owners, make outbound calls, report delinquencies to credit bureaus, receive inbound calls, work out payment plans, and notice mortgage holders that the borrower is delinquent on their maintenance fee payments as per the PUD Rider.

Now is the time for your community association management company and/or community association to put the right process into place when you are confronted with delinquencies. Foreclosing and evicting does not have to be the way. Click here to request your free, no-obligation collections analysis today.

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The Truth About HOA Bank Foreclosure, by Mitch Drimmer

The Truth About HOA Bank Foreclosure, by Mitch Drimmer

The Truth About HOA Bank Foreclosure

Mitch Drimmer

This subject is very painful. We see it all too often in the HOA delinquency and collection world. And yet, it is not hopeless.

It is hard for a community to have to write off amounts that were left owing from a bank foreclosure in your community association. If you are in a super lien state, upon an HOA bank foreclosure, lending institutions will throw you a few bucks for your trouble. If an owner was foreclosed upon in a super lien state, don’t expect more than 6 months’ worth of assessments (it varies between states, but six months is the average).

It’s a pittance! And what makes it worse is that the banks are often unconcerned about speed when foreclosing–especially when dealing with a non-performing unit. Is a super lien amount enough to satisfy your association’s needs? I think not.

Communities will wonder: does my association have to write off the balance owed?

But that isn’t the question you should be asking. Instead, you need to focus all of your attention on recovering that money.

Was It Really an HOA Bank Foreclosure?

When the bank foreclosed, did they take title, or did they sell the property to a third-party purchaser?

This is a critical question. The answer can make all the difference between getting nothing or getting everything–and I mean every dime that was owed when the bank foreclosed.

In state statutes (and most likely in your governing documents) there is the concept of “Joint and Several Liability.” This doctrine makes it possible for community associations to exist, in that if I sell a property and owe the association money that obligation rides along and is the responsibility of a new purchaser.

With that in mind, when a bank forecloses and the unit is purchased, it is important to determine who was on the chain of title. If the bank foreclosed and sold the unit before they took title, then the association’s lien was not extinguished. This was not a foreclosure where the bank could hide behind their lien priority. THIS WAS A SALE.

Because it was a sale, the association is entitled to recover every penny. When Axela Technologies is servicing a debt, we do not depend on the lender to be an honest agent. This is an arm’s length transaction, and although the association is not a buyer or a seller in this deal, they do have money at stake and require professional representation (that does not cost $350 an hour) that has their interests at heart.

When a bank forecloses, look and see if they had title and sold it, or sold it post-judgment. If they did not take title, this is the difference between a successful collection event and taking a hit (sometimes substantial).

Pursuing a Surplus From a Bank Sale

Often when a bank forecloses and takes title, they will sell their REO (Real Estate Owned Property) at auction or through standard real estate brokers. In these times of real estate appreciating at a rapid rate and inflation roaring, banks will often sell the property that they foreclosed upon for more than they are allowed to recover. That results in a foreclosure surplus, and the association (by right of the contractual lien in your governing documents) has the right to claim that surplus amount.

At Axela Technologies we do this every day because if we do not recover our fees, then we do not get paid. Unlike your attorney, we don’t tell you to write it off and send you a bill, because our interests are aligned with the association. If you have had a unit foreclosed upon and don’t know if it was sold at a surplus, then somebody is not trying hard enough to recover what is legally, rightfully, and ethically money that belongs to the association.

Post-Foreclosure Recovery From the Delinquent Owner

Let’s assume that when the HOA bank foreclosure concluded, everything was done in order and there was no surplus for the association to recover. What happens then?

Well when the bank foreclosed on that unfortunate member of your association, and they left the membership holding the bag for their delinquent assessments, the debt was not extinguished.

Let me repeat that: an owner who owes the association money before an HOA bank foreclosure STILL owes that money after they have lost their house.

Now you may be inclined to say that this was a poor unfortunate person and to pursue them is heartless. In reality, it is heartless NOT to pursue this money. You must consider the good paying owners who picked up the cash shortfall by way of increased assessments and special assessments. Choosing not to pursue that debt means they footed the bill for nothing.

Axela Technologies has a cure for that as well.

Our Post-Foreclosure recovery program allows us to pursue these debts on a contingency basis. If we recover, it is like finding $20.00 in your jeans when you pull them out of the dryer, but way better. (Note: Contingency collections are not available in Texas.)

Let Axela Technologies Help

If your community association has delinquencies, remember that they do not end with an HOA bank foreclosure, or even an association/foreclosure. It ends when the debt is either collected or determined to be absolutely, positively uncollectible. Contact Axela Technologies and speak with our knowledgeable recovery specialists. Let us help you obtain the holy grail of community association governance that is a balanced budget.

 

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HOA Statement of Receivables

HOA Statement of Receivables

HOA Statement of Receivables

A statement of receivables, or accounts receivable statement, is a document that details the outstanding charges owed to the community association. This can be from sources such as overdue dues, vendor credits, late fees, or any other outstanding source of income. It is essentially a list of every account that still owes the HOA money.

 

What is in a Statement of Receivables

These statements should contain all accounts that owe money, along with the grand total of overdue funds. The total will help with budgeting purposes. Knowing how much money is available, if collections are being handled properly, can help with financial planning. The list of all overdue accounts can act as a checklist for anyone working in collections to ensure that no account is missed.

Some associations prefer to go one step further and detail which accounts are 30 days, 60 days, and over 90 days past due. For example, if a homeowner has missed their dues in March, April, and May; they will have money in the 30, 60, and 90-day categories. This way, collections agents will know to put more pressure on collecting the April dues versus following up on another account that is only 30 days behind. Just like with all financial statements, the more detail you provide, the easier it is to plan and manage.

 

How Often Should They be Prepared

While the HOA statement of receivables should be prepared at the same frequency as all other financial statements, it is helpful for the accounts receivable statement to be released more frequently. There are even programs available to keep up with AR statements in real time and have them available on demand. This can be immensely helpful for collection purposes to make sure that everyone is on the same page.

 

Need More Information

Financial management can be one of the toughest aspects to operating a successful HOA. If you are having trouble with reviewing financial documents such as the HOA Bank Statements, contact the professionals at CSM. We have years of experience working with homeowner’s associations from all over the United States. Using state-of-the-art technology, we can provide financial management assistance while still allowing association directors to remain independent.

 

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SFPMA’s Maintaining an Condo & HOA General Ledger

SFPMA’s Maintaining an Condo & HOA General Ledger

  • Posted: Oct 31, 2022
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Maintaining an Condo & HOA General Ledger

The foundation of all  accounting is the general ledger. Much like your checkbook at home, the Condo & HOA general ledger keeps an ongoing record of all transactions made by the community association. All other financial statements such as the balance sheet, income statement, and statement of receivables are created based on the ledger.

Unlike all the other financial statements which are prepared on a monthly, quarterly, or annual basis, the general ledger should be continuously updated. Whenever a transaction is made or received, it needs to be accounted for. At any point in time, you should be able to look at the ledger and see how much money the association currently has in all accounts and where money has moved. If you need to go back and see how much the association spent on landscaping in August three years ago, you should be able to find it in the ledger records.

 

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Accounting Approaches

There are three basic approaches to manage finances. There is no right method for every association. Each HOA is different and may find that one method of accounting works better for them than another.

  • Accrual – The most popular and preferred method. In an accrual approach, revenues and expenses are recorded when they are incurred instead of when money changes hands. This means that communities using this approach will need to maintain two other ledgers for payables and receivables. For example, when invoices are sent to homeowners for dues, that money is marked down in the receivables ledger. As community members pay their dues, the money in the receivables leger is moved to the general ledger. The same process is used for expenses in a payables ledger. While this may take more effort than other accounting methods, it provides much more detail.
  • Modified Accrual – A mixture of accrual and cash approaches. In modified accrual, revenues get recorded when they are earned while expenses get recorded as money changes hands. Condo & HOAs that use this approach will need a separate ledger for receivables but will document expenses as they are paid in the general ledger.
  • Cash – Transactions are documented on one ledger as money exchanges hands. This is the simplest approach but provides the least amount of detail.

Once you find the approach that works best for your community, stick with it. Switching between different approaches can make reviewing financial information in the future confusing and may hinder your board of directors’ ability to make well-informed decisions.

 

What Should be Included

Depending on the system of accounting, your HOA may have several ledgers running at all times. But no matter the approach, ledgers should include all transactions made by the community association in and out. Each account owned by the Condo & HOA should also have its own ledger. Most associations have at least an operational account and a reserve account.

Regularly checking bank statements is a good way to double check the accuracy of the general ledger. Sometimes transactions can accidentally go unreported or, in some cases, fraudulent activity may occur. Whenever you receive statements from the bank, make sure all transactions match up between them and the general ledger.

 

Need Help Maintaining an Condo & HOA General Ledger

Finances can be confusing. It is always helpful to have a professional on your side to make sure everything is being done properly. If you are having trouble keeping up with all the financial documents necessary to properly manage an HOA, call the experts at CSM. We have years of experience working with homeowner’s associations in almost every state in the US. We offer a wide variety of financial management solutions to give you all the assistance you need while still maintaining your independence.

 

Find top companies working in the Condo HOA and Management industry in Florid on our Directory!

 

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Condo Deconversion: The Good, The Bad, and the Reality

Condo Deconversion: The Good, The Bad, and the Reality

  • Posted: Oct 21, 2022
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Condo Deconversion: The Good, The Bad, and the Reality

There’s a lot of turmoil in the housing industry today, and it’s hitting community associations hard. New restrictions from Fannie and Freddie are dark clouds full of special assessments looming on the horizon, and the housing bubble is growing rapidly with no real signs of stopping, inviting investors and tempting homeowners to sell. Because of all of this, a lot of condominium associations are considering a tactic called “condo deconversion.”

A condo deconversion is basically a bulk sale and process by which all units in a condominium building are sold in one transaction to a real estate investor, who will then turn the property into rental apartments. (Its counterpart is “conversion” which is when an apartment community is converted into a condominium or co-operative and sold off. Even though the terms are connected, there’s no requirement that a condo building was previously converted in order to be deconverted.)

Deconversion might sound like an extreme option, but it’s quickly becoming a sought-after fix for communities struggling with expensive deferred maintenance issues.

Why Condo Deconversion Is Gaining Popularity

There are a lot of reasons why this trend is taking off. Those FNMA and FHLMC restrictions, for example, are about to start causing some serious problems for condo boards. Requiring that the condo buildings meet a specific level of health by withholding approval for any future purchase loans for units in the community is stressful for everyone involved, and can often only be

Buildings get old and need repairs.

Building repairs are time-consuming and costly, and only get more expensive as buildings start hitting 30 and 40 years old. Communities with underfunded reserves will likely be subjected to overwhelming special assessments to catch up on the deferred capital improvements and maintenance over the years. The current real estate market means that deconverting could offer an alternative where unit owners get out with a profit rather than pouring money into special assessment costs.

New special inspections being ordered by local municipalities, state statutes, or federal restrictions.

The condominium lobby and real estate lobby will go kicking and screaming, fighting new inspection and reserve laws. Yet eventually condominiums are going to be forced to do the right thing and keep up with maintenance, capital improvements, reserve studies, and funding. It’s the right way to govern a condominium, but very infrequently is the right way the cheap way. These new inspections will be costly and time-consuming, and will likely expose more problems that only money can solve, exposing an underfunded community for the money-pit that it has slowly become. Selling in bulk to an investor pushes that responsibility onto someone else while pocketing a bit of profit.

There aren’t enough rental properties.

Condominiums have been popular in the last 20 years but there is a tremendous supply gap in rental properties, and this is a way for real estate investors and developers to acquire properties without having to build them. With the cost of construction, it makes more sense to take an old building, even an old building with long-deferred maintenances and problems, rather than invest in wholly new construction. It saves time and allows for a far quicker return on investment. It’s a sound move to buy them out and rehab the structure.

The price of real estate has skyrocketed.

The housing market is experiencing yet another quickly-growing bubble. Condo deconversions would typically start at 9x rent roll (the cumulative value of projected monthly rents for all of the units in the building), but some communities are seeing negotiations beginning as high as 20x rent roll! As Don Corleone would say “it’s an offer they cannot refuse.” For a condominium facing a $150,000 special assessment, they may feel that it would be foolish to refuse such a lucrative offer. Why pay a special assessment when you can ride the high of the real estate bubble?

What Does Condo Deconversion Mean For Owners and Board Members?

Condo deconversion is not a cut-and-dry good or bad decision. It’s a complicated process and has pros and cons on every side.

The good is that it can offer hefty profits and a get-out-of-jail-free card in a way. For some owners, it can mean a massive profit and an incredible opportunity to escape a very expensive, long-term situation. For board members who are stuck with the neglect from previous board decisions, it can mean walking away from a series of problems for which you would have been unfairly blamed.

The downsides, however, can be drastic and dangerous for owners:

Loss of Guaranteed Residence

For some, it means being forced out of their homes, into an increasingly hostile real estate landscape with no time to accommodate a drastic life change. Some states, like Florida, are experiencing the lowest housing inventory in the state’s history, meaning some may make a fortune over what they paid for their condo unit only to have to pay that fortune forward, and then some, just to find a new roof to put over their heads. Or, they could get stuck renting the home they previously owned at a severely increased monthly payment.

Loss of Long-Term Equity For Short-Term Gains

Homeownership provides security for yourself and your future generations. For those stuck renting from their new landlord, you lose the ability to pass on equity to your heirs. Unit owners can also no longer get a loan based on mortgage equity or use their home to guarantee a large purchase or supplement legal aid.

Loss of Influence in Your Community

As a member of a community association, you have power. You have a say in every issue that the community faces. You can determine who represents you on the board. You can even run to be part of that board! By deconverting your condo association, those residents that remain forfeit their power to the new landlord. The landlord decides what will and will not be repaired, and when. Once the landlord takes control, they can raise rents as high as they want, regardless of the negotiated rent roll they purchased the property for. There is no requirement to seek approval from residents the way an association board is required to seek approval for the annual budget.

Requirements For Deconverting Your Condo Association

Depending on the state, you do not need a unanimous vote to terminate an HOA or a condominium association, so even if there are objections it can happen to most condominium associations. In Florida, for example, if an investor buys 80% of the condo units, the last 20% can be compelled to sell if the condo has been deconverted. In fact, as of 2007, 80% of owners can allow for a Florida condo deconversion if more than 10% of the total ownership did not object. Other states will have their own provisions for condo association termination, so be sure to check your state’s legislation.

Some owners may argue that the association’s board needs owner approval before it can even begin looking into the possibility of a sale. In reality, the board has a fiduciary duty to bring all the best value and opportunity to the owners they represent, meaning that they can and should be researching opportunities like deconversion if the benefit is great enough.

Can the board sell out the condominium from under the owners? No. They will still be required to get the state’s minimum approval percentage within the community. And if there are condo deconversion negotiations going on, the board has an obligation to keep the membership informed and should provide full transparency.

Revitalizing Your Condo Community

Deconversion is an enticing opportunity for condo communities facing mounting special assessments or dues increases to confront long-term deferred maintenance. And while it might be the right choice for your condo building, it is not as simple as just pushing a button and making everything disappear. It’s a decision that requires a lot of thought, due diligence, and communication with your community.

While you can’t go back in time and undo the maintenance deferment of boards past, you can do the right thing for your community today and start a conversation about the importance of building integrity and health, and how the benefits will always outweigh the cost. Your condominium building needs a diligent board of directors working for the good of the community. It requires regular maintenance, capital improvements, fully-funded reserves, good cash flow, and a proper delinquency and ethical collections solution. Call Axela to let us help you recover some of those missing funds by collecting on your delinquent assessments, and avoid deconverting your condo association.

 

How The State and Federal Government Regulates Collections by Axela Tech

How The State and Federal Government Regulates Collections by Axela Tech

How The State and Federal Government Regulates Collections

Collection Laws By State

While every state must follow federal regulations, most states have additional laws that regulate how debt collectors interact with consumers, and may also regulate collections specifically when dealing with common interest developments. Use the map below to access the complete guide to your state. We lay out the relevant laws, explain them in plain English, and answer your questions on how your state regulates community association collections.

 

Choose Your State:

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[/one_third] [one_third]MA

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[/one_third] [one_third_last]OK

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HOA and Condo Delinquency Collection For Community Associations.

We are a specialized collections service which means a great deal in the community association industry. Understanding the nuances of how people fall behind in their maintenance fee payments and how to resolve their issues is a science and an art. At Axela Technologies we have what it takes to “move the needle” and recover 100% of what is owed to the association and the best part is that we are totally merit based. IF WE DON’T RECOVER YOUR MONEY WE DON’T GET PAID. A pretty simple concept but a bold promise at the same time.

Our proprietary software is second to none and we have the ability to keep the management and board of directors informed in real time 24/7. Our system never sleeps. The technology is fantastic and is only equaled by the people who will service your delinquent members and work with them to resolve their delinquency issues.

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3 Reasons to Hire an HOA Collections Agency to Manage Your Delinquencies by Mitch Drimmer

3 Reasons to Hire an HOA Collections Agency to Manage Your Delinquencies by Mitch Drimmer

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3 Reasons to Hire an HOA Collections Agency to Manage Your Delinquencies

Mitch Drimmer 

Why Hire an HOA Collections Agency?

Community associations have limited options to collect, and the traditional method isn’t focused on collection at all, but rather on punishment. This is why an HOA collections agency may be the right choice for managing your delinquencies.

Debt collection is a troublesome topic no matter what industry you’re in, but when it comes to collecting on unpaid HOA assessments, things can get tricky. Between your community’s governing documents, state laws, and federal regulations, there are a lot of rules to follow.

On top of that, there aren’t a whole lot of options out there for community associations looking to collect on that debt. Many communities hire an HOA attorney or try to handle collections on their own.

1. Lawyers are focused on a legal resolution, not reclaiming lost funds. 

Many communities rely on HOA attorneys for legal guidance and lawsuits. For this reason, many also turn to their attorney when a homeowner has failed to make payments. Many boards still believe that their only course of action is placing a lien on the property and going to court. And your attorney won’t tell you any differently.

Your attorney’s primary function is to follow a legal process of “lien and foreclose.” The priority is seeking a resolution of an issue and seeking justice, not collecting the debt that is owed to your association. The board has a fiduciary duty to collect that money, not to pursue some form of justice against the delinquent owner, so choosing a lawyer might not be the best course of action.

2. Avoid a lawsuit.

Because collections are highly regulated, there are a LOT of laws surrounding the collections process. The Fair Debt Collection Practices Act (FDCPA) has many rules around the who, the how, and the when of collections efforts. Violating any of those rules, even by accident, can create a massive legal headache for your community. When it comes to collections, do not do this at home.

Federal laws aren’t the only ones to worry about, though. Many states have their own specific rules and requirements, also. Depending on where you reside, your state’s laws may be even stricter than the FDCPA, so following the federal law might still get you into hot water.

3. Traditional collection agencies aren’t built for HOAs.

Much like an attorney, a collection agency that isn’t tailored to handle HOAs and condo associations will look for the fastest, biggest buck they can make. Typically these companies will want to buy the debt or advance funds to you against this debt–this might sound like a great plan because at least you’re recovering something, but many governing documents (and some state laws) specify that debts must be collected at 100% of the principle that’s owed. A collection agency will not pay 100% so this is in direct violation of those rules. Getting funding to ease the pain of a cash shortfall may also be a violation of your CC&Rs.

It also creates an ethical concern–by selling off that debt, your community loses control over how the debt is collected, opening up your hurting homeowners to aggressive collections efforts. Will they operate within the confines of the FDCPA? Almost certainly. But as we’ve said before, just because it’s legal doesn’t mean it’s ethical.

Find Out Why An HOA Collections Agency Is Right For Your Community

Collecting monies owed to your association is a difficult process, but it shouldn’t also be a painful one! At Axela, we understand the importance of ethical community association debt collection, and we’ve perfected the process and technology it takes to make that happen.

 

Offer your community association clients a full suite of collection agency services without having to open your own collection agency.

By partnering with Axela, your association management company can offer comprehensive and fully compliant collections services to your clients. Axela handles the burdensome and time-consuming aspect of the collection process and puts money back into the hands of the association.

Your clients will gain all of the benefits of Axela’s suite of collection tools, while you maintain oversight and easy access to the client portal, with all of the reports, account history, and data points that Axela gathers, in real-time.

Learn More about our collection services 

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