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How To Settle a Debt with an HOA Collection Agency

How To Settle a Debt with an HOA Collection Agency

  • Posted: Jul 14, 2022
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How To Settle a Debt with an HOA Collection Agency

Mitch Drimmer

If you’re reading this, it’s likely because your condominium or homeowners association has decided to take action regarding your unpaid assessments. You’ve received the letter from an HOA collection agency and now you have some serious choices to make.

You’re facing a very difficult situation, but there is at least a thin silver lining–your association’s board of directors has decided not to send your file to the association’s attorney. Many associations make the drastic decision to jump straight to the Big Red Button when it comes time to take action about delinquency: engaging the community’s attorney to foreclose. When this happens, even if you fight it in the end, it will cost you a lot of money or your residence. It’s not a nice process but that is how it is done in most cases of owners defaulting on their obligations to their HOA/Condo. Eventually, you will pay what you owe and that will also include attorney fees and costs.

Instead, you have an opportunity now to avoid all that potential sunk money and aggravation by working with your HOA or Condo and their collections partner.

Working with an HOA Collection Agency

If your HOA or Condo association has engaged an ethical collection agency (like us), then you are in luck. It is almost as if the HOA has given you a second chance at redemption at a reasonable cost! Though it may seem counterintuitive to believe that a collection agency would be good news, it is. You’re not being forced to settle with an attorney and saddled with outrageous attorney’s fees. Instead, you should be able to make your community whole on a reasonable payment plan without the added costs and fees of engaging legal counsel.

An HOA collection agency such as Axela Technologies should understand that every delinquency has a story and families behind it–that the people who are delinquent do not all deserve to be foreclosed upon. An HOA collection agency should not only reach out to talk to you but should work with you and your needs. Getting on the phone to review and seek out solutions is what they do. Payment plans are often very effective and serve to not only make the association whole but increase harmony among the owners.

Settling Your Debt with an HOA Collection Agency

  1. Take a deep breath. It’s hard to come to terms with the fact that you have been sent to collections. But at the end of the day, though your community is your home it is also a fully-functioning business, and they need to protect their financial security. Accept that you have an issue and know that it can and will be worked out.
  2. Follow the instructions. When you receive your initial demand letter (which is required by Federal law) do not ignore it. Even if you cannot pay off all of your owed debts at once, or even a fraction of those missed payments, refusing to answer will only cause the problem to fester and worsen.
  3. Take action and contact the HOA collection agency. Taking the time to initiate a response shows that you’re serious about getting back on the right foot. You can contact the HOA collection agency by logging into the agency’s provided user or payment portal. If the agency doesn’t have that level of technology, you’ll have to call in directly or email them depending on their instructions.
  4. Work with the HOA collection company and set up a payment plan that suits your financial situation. Of course, the best way to settle with your HOA is to pay in full to the HOA collection agency but if times are tough, get and stay on a payment plan.

If you are really squeezed for funds, it may be worthwhile to consider alternative funding options, such as a Home Equity Line of Credit. If this is an option you’re thinking about, though, keep in mind that you’ll need to work quickly, because if the HOA puts a lien on your property, then there will be an obstacle to getting this credit facility.

The Best Thing You Can Do

At the end of the day, the best advice is the same advice we would have given the moment you got your first warning letter: pay attention to the notices that your management company and board of directors send you. This is one situation that cannot simply go away on its own, and should it escalate and the board sends you to an HOA collection agency, move fast. Get in contact with them and begin the process of getting yourself paid up and securing your residence.

However, if your HOA or condo association is still using an attorney to recover delinquent assessments, or is using a generic or predatory collection agency, perhaps your board can take a more appropriate response and engage Axela Technologies. We specialize in HOA and condo association collections, and take an ethical, human-focused approach when handling delinquency and recovery. Call us today to get more information for your community.

 

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Collection Laws in Every State, How The State and Federal Government Regulates Collections

Collection Laws in Every State, How The State and Federal Government Regulates Collections

  • Posted: May 16, 2022
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Collection Laws By State

While each state must follow the FDCPA, most have additional laws that regulate how debt collectors interact with consumers. Use the map below to learn how your state regulates these laws.

Don’t see your state? Axela Technologies is licensed to do collections in every state. We are taking care to build out a comprehensive guide outlining collection laws for each state. Keep watching this space!

 

The Fair Debt Collection Practices Act

Axela Technologies provides no cost and no risk collections for community associations using best practice collections strategies, advanced proprietary technology, and highly trained customer service representatives. We are licensed in across the United States and compliant with the Fair Debt Collections Practices Act (FDCPA).

The FDCPA is a federal law that prevents debt collectors from harassing or misleading consumers. It covers debt collection for mortgages, credit cards, personal loans, medical debt and other types of debt for personal use. Many states have their own fair debt collection laws as well. Some of these laws mirror the FDCPA. However, some offer more protection to consumers by, for example, covering creditors as well as collectors, specifying additional types of behavior that violate state law, or providing for additional types of damages. Below you can learn about the fair debt collection laws in various states.

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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Delinquencies are starting to pick up so, Comply with Changing State Association Collections Laws Using Axela Technologies

Delinquencies are starting to pick up so, Comply with Changing State Association Collections Laws Using Axela Technologies

  • Posted: Apr 26, 2022
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Easily Comply with Changing State Association Collections Laws Using Axela Technologies

Are your community association’s collections in compliance with changing regulations?

Community association collections laws are changing. For many years, condominium associations and homeowners’ associations (HOAs) had a lot of freedom when it came to handling unpaid assessments. Community associations were able to pursue home and unit owners who fell behind in a variety of ways, because few state regulations interfered with the association’s right to collect overdue assessments. They were largely free to levy late fees, interest, collection costs, and legal fees against the delinquent home or condo owner. Condominium and HOA management firms, when acting as agents for their association clients, were similarly able to offer a collections process as part of their routine service offerings for their clients. This could include issuing warning letters, demand letters, and other collection notices, or even recording liens.

To say those days are over is an understatement. Although there are no federal regulations in place, many states now have condominium or HOA association collections laws that are designed to protect delinquent home and condo owners. While this type of consumer protection is really important, it’s created an unintentional side effect: community associations are more regulated and challenged than ever before when it comes to collecting the fees and assessments that are the lifeblood of their association.

Compliance 1

Community Association Collections Laws Vary by State

Make no mistake, these state laws must be obeyed and the consequences for violating them can be severe. Some states, like Florida, now require additional notices to be sent for certain types of collection activities, delaying the whole process. Other states, such as Texas, have such rigid requirements that many association management companies would rather pay a small fortune for an attorney than seek out cost-effective collections options, believing this is their best option to avoid risk.

Then you have states like Maryland where community association management firms are actually expected to acquire and maintain collection agency licenses in order to send out bills on behalf of their association clients. This is a huge burden being to place on management companies and creates yet another layer of risk. Maintaining a collection agency license requires extensive knowledge and practice of the current community association collection laws regarding the collection of delinquent fees from HOA and condominium unit owners–management companies should not be expected to shoulder that responsibility.

Compliance 2

Choose an Industry-Specific Collections Partner

Axela Technologies is licensed and insured in every state that we service.  Maintaining that knowledge of association collections law is a sacred duty that we take to heart so we can best serve the industry. We even offer indemnification to the associations and association management firms that retain our services to collect from their delinquent homeowners. This concept is so important, it merits serious consideration for any association management firm that wants to focus on delivering service excellence to its association clients without risking being sued for violating a state collection law.

Keeping up with the law changes in your state can be tedious and difficult. Let a specialized HOA and condo association collections agency handle that worry for you. Talk to one of our condominium and HOA delinquency collection experts to learn how best to collect those overdue fees and assessments while keeping your association management business and your association clients safe from the risk of handling collections without a license.

Compliance 3

 

Get your free collections analysis today and start working with one of our many HOA and condominium association collections experts.

Axela Technologies handles all collections on a merit-based system. We’ll help you make sure you aren’t putting your association at risk by violating federal or state consumer protection laws for your condominium or HOA.

 

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Fishy Legal Tactics HOA Attorneys Have Used for Collections by Mitch Drimmer

Fishy Legal Tactics HOA Attorneys Have Used for Collections by Mitch Drimmer

  • Posted: Feb 05, 2022
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Fishy Legal Tactics HOA Attorneys Have Used for Collections

Mitch Drimmer  / Axela Tech

 

Thinking outside the box can be great, especially in the homeowners association and condo association industry. It’s what makes our signature collections process here at Axela so successful.

But out-of-the-box thinking can be used against you, too. Attorneys are always looking for new ways to make the most money, even HOA attorneys. Time and again we’ve seen the tricks they use claiming to try to collect for your association, but really they’re just lining their own pockets. So often, using an HOA attorney ends with the association losing the money owed to them, and having to pay on top of that to cover lengthy legal efforts that didn’t succeed anyway.

Every time we hear stories about the crazy lengths some lawyers will go to when collecting for HOAs or condos, we start to think maybe the box is there for a reason.

Unjust Enrichment Someone Expense Someone Else

Unjust Enrichment

A while back we talked about a community in a sticky collections situation. One of their unit owners had passed away, leaving a mortgage-free title to an heir. But, it came with a $13,000 tax certificate (which had been sold to an investor) and $17,000 owed to the association, as well as a tax-deed sale that had already been set. The perfect storm for the association to lose out on a hefty chunk of change. Now Axela was able to draft a clever plan to avoid that and had to act quickly to make it work, but if we hadn’t been called in, here’s what would have happened:

The HOA’s attorney wanted to let the unit go to the tax-deed sale and then file a suit for something called “unjust enrichment.” This is a claim basically stating that someone (in this instance, the investor who’d purchased the tax certificate) was paid at the expense of someone else (the association).

This is a risky play for a lot of reasons: first, if the tax sale goes through, the money owed to the association is ‘wiped out,’ meaning there is no chance of recovering money from the sale or from the owner after the fact. Additionally, if the judge found that the investor was not unjustly enriched (which is the likely outcome) their tax lien would have been rightly prioritized over association fees.

So the idea of unjust enrichment was a wild reach that was almost certainly going to be unsuccessful in recovering for the association. But it would have been a definite way to tack on a ton of hours in legal fees for the attorney, wouldn’t it?

Fishy Lawsuits Questionable HOA Attorneys

Sneaking In New Rules

Fishy lawsuits aren’t the only questionable trick attorneys have up their sleeves. One client we worked with had an attorney attempt to completely ignore state statutes by advising the Board to modify the community’s governing documents to contradict state laws. This was complicated and unethical for several reasons, like the fact that governing documents don’t overrule state statutes (something an HOA attorney would be WELL aware of!) so the attorney’s time and counsel which they charged the association for were totally unnecessary.

To add insult to injury, these changes were made to try to force the bank to take responsibility for debt owed to the association, creating a lengthy legal battle as part of this ridiculous plan. Again, we’re seeing a trend of attorneys being paid but the association not recovering their lost income – in fact, the community often winds up owing the attorney more for their efforts and having to write off the bad debt from the delinquent assessments. Talk about throwing good money after bad!

Attorneys Being paid associations not recovering

Just Because it’s Legal Doesn’t Make it Ethical

Clearly, all HOA attorneys are not the same, and we hope that your community association’s attorney is an upstanding and ethical partner for your community. You need your attorney to be available to advise you on decisions the Board makes to help prevent future lawsuits and to deal with any that do come.

But your attorney is just one of the tools in your community association’s toolbox. Just as you wouldn’t use your HOA attorney (and pay their high fees) to perform management tasks, you also shouldn’t be hiring your attorney to perform collections. The attorney’s only recourse is to take the issue to the courts. That means pursuing foreclosure, or, if that’s not likely to be successful, trying some legal scheme like these that will get the attorney paid for their time, but is unlikely to end with money in the association’s pocket.

The Attorney's Recourse To The Courts

Treating People Like People

Thinking outside the box can be great, but the more we hear about the crazy legal hoops attorneys find to jump through that only seem to take advantage of the association, the more we think that they need the box.

There’s at least one ethical, merit-based way that has a 95% success rate when it comes to collecting debts owed to associations: Axela. Our proprietary technology and process empowers defaulted homeowners to set up payment plans they can actually pay off, rather than harassing them for lump sums of money they’ll never be able to repay, or putting them out of their home in a foreclosure.

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Florida Statute Could Strike Down Delayed Collections For HOAs Post-Foreclosure by Axela

Florida Statute Could Strike Down Delayed Collections For HOAs Post-Foreclosure by Axela

  • Posted: Feb 03, 2022
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We know that this headline reads like a Florida-specific issue, but Florida is often used as a guideline for other state laws and courts. For this reason, we think it’s important for homeowners and condo associations in other states to take note.

In Accardi v. Regions Bank, Florida’s 4th District Court of Appeals reversed a lower court ruling that awarded the bank a deficiency judgment and remanded the circuit court to enter an amended final judgment to include attorney’s fees and taxable costs only. The bank was not able to recover its deficiency judgment.

This happened because of a Florida Statute that states “Actions other than the recovery of real property shall be commenced as follows … within one year” (of a certificate of title being issued or acceptance of a deed in lieu of foreclosure, that is):

“An action to enforce a claim of a deficiency related to a note secured by a mortgage against a residential property that is a one-family to four-family dwelling unit. The limitations period shall commence on the day after the certificate is issued by the clerk of court or the day after the mortgagee accepts a deed in lieu of foreclosure.”

That’s a lot of legal jargon that most simply translates to say that there is a one-year statute of limitations period for which a claim for a deficiency may be acted upon (not to be confused with the timeframe for enforcing a deficiency judgment that has already been entered) in order to avoid the deficiency claim from becoming time-barred.

This Accardi v. Regions Bank ruling got us all thinking. Clearly, it reflects a problem for banks and lenders who have had to foreclose and were left with a sale that did not satisfy the judgment amount at foreclosure, but that isn’t really the takeaway here. The takeaway is that, in theory, this same statute could potentially be used to prevent delayed collections for HOAs and condo associations when attempting to recover assessments post-foreclosure.

Is your community association trying to recover outstanding debt post-foreclosure? You should be.

If the association was the foreclosing party, and they recovered less than the amount owed as a result of the sale of the property, then that would give rise to pursuing a claim for a deficiency. So it would be very worthwhile to enforce a claim for a deficiency within a year of the certificate of title being issued.

Again, this statute of limitations is specific to Florida, so if your own state already has statutes that have different time restrictions, you need to follow those to the letter of the law. But doing this seemingly small task in the right time frame could be the difference between getting your deserved monies owed or leaving it all on the table due to a dickered-out semantic technicality.

Similarly, if an association has debt that is uncollectable from a subsequent owner due to superior lien foreclosure or tax sale, the association should act quickly to enforce its collection rights on this debt. While the fact pattern under this scenario is different from pursuing a deficiency claim created by virtue of the association’s own foreclosure sale, it would be wise to take action to collect on this debt sooner rather than later, to avoid any potential argument that would suggest it is a deficiency and that it is time-barred.

Collections delayed are collections denied.

No HOA or Condo association should stop trying to collect the money it is owed to them until said debt has been declared uncollectible by a collection professional, and that may not be your community association attorney. Don’t leave money on the table and don’t accept HOA and condo delinquency write-offs. Let a professional Condo and HOA collection company recover the money that is owed to your community association.

Axela Technologies, the nation’s leading collection company for community associations, does know the laws nationwide and we suggest that pursuing that debt at no cost and no risk is a good strategy. A great strategy, you must send the file to collections before it is too late. Perhaps a court will say that beyond one year is too late.
Don’t write off debt that could have been recovered. Call us for a free review and collection analysis. Not only can we collect from debtors who have been foreclosed on, but we can also collect from homeowners who are behind on their assessments, all at no cost to the association.

 

 Community Focused

  Collection Services for Condos, HOAs and their Service Providers

Find us on SFPMA Learn more about the services we provide.

 

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Shifting the Emotional Burden of Condo and HOA Delinquency by Axela Tech.

Shifting the Emotional Burden of Condo and HOA Delinquency by Axela Tech.

  • Posted: Jan 25, 2022
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Shifting the Emotional Burden of Condo and HOA Delinquency

by Bob Gourley / Axela Technologies

As an HOA delinquency collections professional, I frequently handle collection issues involving home and unit owners who have fallen behind in the timely payment of their association. So I know all too well the very real emotional cost paid by both debtor and collector. Timely payment and collection of common fees and assessments is as basic a business transaction as there is. However, because real human beings are involved, the transaction is often wrought with human emotion. Many times, those emotions range from tragic to hostile. Using a specialized debt collection agency for your condo or HOA delinquency problems isn’t just practical, it could be a lifesaver!

 

Pay Close Attention to the Person Behind the Debt Curtain

Unfortunately, regardless of how a condominium or HOA is managed—professionally or by the association itself—HOA delinquency cannot go unchallenged. If common fees and assessments aren’t collected in a timely fashion, the association suffers. Monies that were budgeted for association expenses aren’t available and, in some extreme cases, the good-paying owners in the community could be forced to cover the delinquencies through increased dues or assessments. This is an unfair situation that can cause serious distress in your community.

Shifting the Emotional Burden of Condo and HOA Delinquency

 

That said, consider this: when a homeowner hasn’t paid their association dues for multiple months, there are typically underlying circumstances and turmoil. Money is tight for whatever reason and the homeowner has decided that the association can wait for their money. Studies have shown that people experiencing financial hardships are far more prone to physical and emotional illness. Approaching someone who is experiencing financial hardship is challenging and should be handled by someone trained in doing so, as the conversation will likely be unpleasant.

Shifting the Emotional Burden of Condo and HOA Delinquency

 

Preparing for a Difficult Conversation

Should a delinquent homeowner decide to call the association or management firm to discuss their delinquency and address how they will repay the association, it will almost certainly be a lengthy call. It typically starts pleasant enough but quickly devolves into a discussion of non-association business items and explanations (or excuses) of why the fees cannot be paid at this time. The debtor will often play to the empathy of the person receiving the call, expecting that their story will convince the call recipient of their goodness and their intent to pay eventually when things get better for them. But the association is a business, and no amount of empathy can erase the fact that the money they owe is very much needed to keep the community healthy and successful. Homeowners often fail to remember that they don’t just live in a house that they call home, they live in a collection of homes that rely on one another to thrive, and any dollars lost can cause real struggle.

Shifting the Emotional Burden of Condo & HOA Delinquency

Once they are reminded of that, the call tends to escalate into anger because the debtor isn’t getting the leniency they hoped for or want. If you have ever received a call like this, you know exactly what I am talking about. These calls often end with little to no positive outcome.

In fact, there is usually a negative outcome. The debtor is upset because the call didn’t go their way. They still owe the money and they are now convinced that the association doesn’t care about them. The call recipient is typically upset because they have spent a great deal of time hearing the sad tale of woe and then being subjected to the debtor’s anger when things didn’t go their way. I have heard tales of people listening to the debtor for 25 to 30 minutes and then needing just as long to recover from the sad and hurtful phone call before being able to get back on task. This is a great emotional expense, but it can also be a great financial expense for time lost to an unproductive activity.

 

Hand Off the Emotional Burden

Using a specialized and fully licensed condo and HOA delinquency collection service such as Axela Technologies makes perfect sense in this situation. The association or management firm simply places the delinquent home or condo owner into our collections system as needed. At no cost or risk to the association, Axela Technologies’ highly-trained debt collection professionals take that burden off the association or association management firm. Since working with delinquent owners is all we do, you can bet we are equipped to handle the emotional cost of delinquency to the owner as well as the association. Since our service is merit-based, there is no extra financial burden on the good-paying owners. We take a negative and turn it into a positive.

Get in touch with Axela Technologies and avoid the emotional cost of delinquency for your association and your association members. Axela Technologies handles all collections on a merit-based system. Visit our website at https://www.axela-tech.com today to get in touch with one of our collections experts.

 

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Can my HOA Collect if the Homeowner Declares Bankruptcy? by Axela Tech.

Can my HOA Collect if the Homeowner Declares Bankruptcy? by Axela Tech.

  • Posted: Jan 14, 2022
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Can my HOA Collect if the Homeowner Declares Bankruptcy?

by Axela Tech. / Mitch Drimmer

Bankruptcy is one of the most perplexing issues community association managers must deal with. It is the most complicated issue involved in condo and HOA collections. So YES, a condo or HOA CAN collect if a homeowner declares bankruptcy. But you must know what you are doing and how to do it.

What Is Bankruptcy?

Bankruptcy is generally taken to mean that someone is out of money. But the actual meaning, and the legal proceeding of bankruptcy, are a little more complicated. Declaring bankruptcy isn’t as simple as someone saying, “Sorry, I have no more money left,” it’s a legally determined state of being unable to pay off debts owed.

The goal of filing for and declaring bankruptcy is to create a more positive economic situation for everyone. By declaring bankruptcy, the person in debt pays off a portion of the owed debts, and the remainder is discharged, giving both sides an opportunity to benefit from a bad situation.

Certain types of debts generally can’t be discharged through bankruptcy, such as child support, alimony, student loans, and some tax obligations. However, money owed to condos and HOAs is considered consumer debt and is dischargeable when a homeowner declares bankruptcy.

money owed to condos and HOAs is considered consumer debt and is dischargeable when a homeowner declares bankruptcy

What Happens When a Homeowner Declares Bankruptcy?

Bankruptcy cases are handled by federal courts, and federal law defines six different types. The two most common types used by individuals are Chapter 7 and Chapter 13, named after the sections of the federal bankruptcy code where they are described.

Chapter 7 bankruptcy, the type most individuals file, is also referred to as a straight bankruptcy or liquidation. A trustee appointed by the court can sell some of the homeowner’s property and use the proceeds to partially repay creditors, after which their debts are considered discharged. Some types of property can be exempt from liquidation, subject to certain limits. Those include vehicles, clothing, household goods, tools of the trade, pensions, and a portion of home equity. Homeowners list the property they are claiming as exempt when you file for bankruptcy.

Chapter 13 bankruptcy, on the other hand, results in a court-approved plan for the delinquent homeowner to repay all or part of their debts over a period of three to five years. Some of their debts may also be discharged. Because it does not require liquidating assets, a Chapter 13 bankruptcy can allow a homeowner to keep their home, as long as they continue to make the agreed-upon payments. Chapter 13 bankruptcy is the most common kind of bankruptcy filing by homeowners attempting to save their homes from foreclosure.

Chapter 13 bankruptcy is the most common kind of bankruptcy filing by homeowners attempting to save their home from foreclosure.

Collecting After Bankruptcy is Filed

In community associations, the registered agent (generally your manager or board president) will receive a notice that an owner has filed for bankruptcy and action must be taken. HOA and condo collections are serious business and if the association does not respond appropriately, you may not be in line to recover any delinquent assessments when the case is discharged by the bankruptcy court.

It’s incredibly important to remember that once you get notice of a bankruptcy filing, the management company CANNOT contact the owner to request payments. If you have sent the file to a collection agency or attorney, you need to notify them so that they too can stop all collections activity.

The association’s attorney will need to respond to the notice of bankruptcy with a ledger of all amounts due to the association. This is called a “pre-petition” ledger and it covers everything that was owed from the time the property owner went delinquent until the time he/she petitioned the court for protection under the bankruptcy laws. This ledger of delinquent condo or HOA dues is sometimes referred to as a ledger “in rem.”

It’s incredibly important to remember that once you get notice of a bankruptcy filing, the management company CANNOT contact the owner to request payments.

Next, the association needs to start a new ledger which should be called the “post-petition” ledger which covers what is owed from the time the owner filed for bankruptcy going forward. The post-petition ledger has nothing to do with the bankruptcy proceedings and the delinquent owner should be paying their assessments as usual after the initial bankruptcy filing.

Many believe being in bankruptcy means nothing needs to be paid, but that is not accurate. If the association is not receiving post-petition payments, then when the bankruptcy is discharged, they need to immediately start collections activity.

If a homeowner declares bankruptcy and fails to pay the post-petition amounts (assessments and other debts owed to the association) the association can ask the bankruptcy court to lift the automatic stay and allow collection efforts to resume. If successful, the condo or HOA can continue pursuing the debt.

the delinquent owner should be paying their assessments as usual after the initial bankruptcy filing.

Monitoring After a Homeowner Declares Bankruptcy

Monitoring a bankruptcy is critically important. Axela Technologies does this for all files that are placed with us, whether they are already in bankruptcy or file during collections activity.

Often it happens that a bankruptcy has been discharged and the community association does not even know about it, so the debt keeps on piling up with no resolution in sight. Axela Technologies uses PACER which is a database of all bankruptcy cases in the United States. When a case is discharged, the association should know about it and Axela will move the file forward if the owner has not paid their post-petition amounts or does not adhere to the court’s settlement agreement.

Bankruptcy is there to help and protect people, but there are those who will game the system and will postpone payment or just completely default. These are files that need to be addressed and worked on without delay. Call Axela for a no-obligation review of our collection process and technology. Let us show you how the future collects!

 

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Community Association Collections 101: What Happens When An Owner Files For Bankruptcy? by Axela’s / Mitch Drimmer

Community Association Collections 101: What Happens When An Owner Files For Bankruptcy? by Axela’s / Mitch Drimmer

  • Posted: Dec 10, 2021
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It seems as if bankruptcy will be the next big subject, this article is a step by step process for community associations

Community Association Collections 101:

What Happens When An Owner Files For Bankruptcy?

by Mitch Drimmer

Bankruptcy NoticeThe collections process isn’t a fun one, and depending on what causes delinquency, it can get complicated. A homeowner who falls behind on just their association payments is one thing, but someone who’s so behind on all of their financials that they have to declare bankruptcy is a very different story. We’re asked all the time about what happens when a condo or HOA has to deal with homeowner bankruptcy. If your association is dealing with a bankrupt homeowner who is not paying their post-bankruptcy amounts, there are decisions to be made and steps that can be taken. Let’s review what must happen and how the community association can best navigate this situation.

 

 

Two LedgersWhat Happens When Bankruptcy is Filed?

Filing for bankruptcy isn’t a quick process. When a person, known as the “petitioner,” files for bankruptcy, they must file a list of their creditors with the bankruptcy court (which is a federal court). The creditors will be noticed with a “bankruptcy notification” and will be given a time frame by which to respond, usually under two months. Government claims can be submitted up to six months after the petition date (it’s good to be the government.)

There is no requirement that the response (or proof of claim) from the creditor must be submitted to the court via an attorney, which is good for you–the less an association is required to spend on costly attorney fees, the better. This proof of claim can be submitted by the association directly, the management company, or by a collections partner like Axela. Just be sure that everything that is legally owed to the association is included on that proof of claim–this should include assessments, late fees, late interest, fines and violations, special assessments, and any other sundry items that have been charged to the property. Be sure to double-check the ledger because it is expensive to get a second bite at that apple if you find you want to amend your claim with the court.

From there, the bankruptcy court will hold a “341 meeting,” which is a meeting between the debtor and the creditors but it is not mandatory for any creditor to attend. Then comes the really complicated part.

 

Types of Bankruptcy

It is important to know what type of homeowner bankruptcy you are dealing with as this knowledge will direct your business decisions going forward. When a property goes bankrupt in a community association, the community needs to prepare two ledgers: a pre-petition ledger and a post-petition ledger. You cannot add the post-petition amounts to the bankruptcy claim because next month’s bills are not this month’s debts. Regardless of which kind of bankruptcy they have filed, the petitioner has an obligation to pay the post-petition amounts during the bankruptcy. If the delinquent owner is NOT paying their post-petition debts, the association needs to make a decision and take action immediately, and the type of bankruptcy will determine which steps to take

 

Chapter 7

Complete wipeoutChapter 7 bankruptcy, also known as “no-asset” bankruptcy, is a complete wipeout. This means that no money will be recovered from the pre-petition amounts.  A Chapter 7 bankruptcy case can take as little as six months to complete because there is no settlement to be made. Creditors can claim to the court that there are assets being hidden but, in most cases, it is all over fairly quickly. If the delinquent owner is not paying the post-petition amounts, then the association can wait until the case is discharged and then move forward with collections activity. If the owner has been paying their post-petition amounts, then the issue is resolved albeit the association has taken a hit.

 

 

Chapter 13

Wage Earner;s PlanChapter 13 bankruptcy is known as a “wage earners plan” and is a workout where the court will make a settlement and oversee it until the payment plan has been completed. This is when the association needs to make a business decision.

In a Chapter 13 bankruptcy case, the pre-petition debts will not be discharged for 3-5 years, and the petitioner remains in bankruptcy. If they are not paying the post-petition amounts, the association cannot submit the delinquency for collections or to an attorney for foreclosure. The only course of action is for the association to ask the court for an “injunctive stay of relief” which is essentially asking the court to allow the association to move forward with collections and or foreclosure efforts.

 

So What Needs to Be Done?

If a unit owner files for Chapter 13 bankruptcy and is not paying their current assessments, it is not a stretch to believe that most likely they will never pay. It is unfair that the association needs to wait three to five years until the pre-petition debts are paid, the delinquent owner is discharged from bankruptcy, and the association can finally move forward. As we mentioned above, if a delinquent owner has filed for Chapter 13 bankruptcy and is not paying their current assessments, the association should file with the court a motion for injunctive relief. During the gap period, section 1519(a) of the Bankruptcy Code states that a bankruptcy court has the power to grant provisional injunctive relief and certain other forms of relief where “relief is urgently needed to protect the assets of the debtor or the interests of the creditors.” Additionally, an order staying execution against the debtor can also be granted. If a property owner is not paying their assessments, then the case can be made that a stay order is required to protect the assets (the property).

 

How to Handle Homeowner Bankruptcy in Your Association

The same way you’d handle any other bankruptcy situation in your association: call a professional. Homeowner bankruptcy in your association can be managed and worked through, but it takes a lot of knowledge and a lot of time. Many times, when a management company or a board of directors is reviewing delinquencies, the units that are delinquent and are also in bankruptcy get glossed over. There is a feeling that once a delinquent owner files for bankruptcy, the association has no options other than to wait until the bankruptcy is discharged. This is not the case as there are options and every case is unique. Axela Technologies has the experience, knowledge, and experience to deal with all these contingencies. Call us today for a no-cost, no-obligation analysis, and review of your delinquencies.

Mitch Drimmer Axela Technologies

Mitch Drimmer
President of Business Development
Axela Technologies

Connect with Mitch on LinkedIn

About the Author

Mitch Drimmer is a respected thought leader in his field and has led numerous continuing education classes in collections, His articles have been published in key trade journals and newspapers, and he is a speaker at educational seminars.

As the President of Business Development for Axela Technologies, Drimmer works with community associations and their management companies to introduce innovative strategies to collect delinquent maintenance fees.

Throughout his career, Drimmer has worked with community associations to help them see their way through tough times, especially during the real estate crash. He is a passionate advocate for community associations and has participated in the legislative process over the years trying to bring fair and equitable legislation that serves community associations.

Drimmer earned a Bachelor of Arts in History from Hunter College in New York City, and has worked in the community association collections space since 2007.

 

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Traditional Collection Methods Versus the HOA Business Model

Traditional Collection Methods Versus the HOA Business Model

  • Posted: Nov 04, 2021
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Traditional Collection Methods Versus the HOA Business Model

The Collections Conundrum

Human interaction is the foundation of a good business, that’s a pretty standard assessment. But that interaction gets complicated in a business like a community association. It can be a very muddy concept–homeowners buy a house that comes with a way to try to guarantee property values for a marginal fee, but it isn’t always clear that this agreement makes them part of a larger business model. This complicated relationship can make difficult business practices, like debt collection, all the more painful.

Fabio Ades, owner of PMI Top Florida Properties, who manages Serenity Place IV Condominium, found Axela’s post-foreclosure process to be the key to uncomplicating this unique business relationship, and softening the blow of debt collection.

“Implementing Axela was seamless for my management team because it connected with our existing accounting system. The way Axela’s systems are set up just made things easier for us,” says Ades. “But more importantly, Axela helps our customers. Consistent collections keep up the health of the community and protect members’ assets.”

Traditional Collections in an Untraditional Business Model

Collections are traditionally a process regarded as heartless. It calls to mind thoughts of unending phone calls from aggressive debt collectors armed with threats of asset repossession and loss of livelihood. It creates a general feeling of uneasiness in just about everyone. Unlike other business collections processes, that lack of ease is typically felt on both sides of the table when it comes to collections in a community association.

“It’s hard for people to remember that it’s not Fabio calling to collect–it’s not the Community Association Manager. It’s not the Board Treasurer who’s the bad guy, we’re not the bad guys,” Ades said.

Unfortunately, that’s what homeowners see. They see the person they’ve made friends with, they see their neighbor, the grill master who lives two doors down, or the dog walker on the third floor. They’re being asked by friendly faces for money they’re struggling to make, and those friends and neighbors are just as unhappy to be doing the asking.

But that’s the job. And that job is made a lot harder with the knowledge that there isn’t a lot of wiggle room when it comes to acting on delinquency.

“Management companies frequently have regulations that make it hard to help homeowners,” Ades lamented.

Community associations have little to no flexibility when it comes time to collect on past due payments from a homeowner. This is often a four-step process:

  1. Send an initial courtesy letter to the owner about the unpaid fees, alerting the homeowner of penalty fines if they remain unpaid
  2. Send a second courtesy letter, again warning of penalty fines for unpaid fees
  3. Send a final courtesy letter requesting payment and warning of pending legal action
  4. Refer the case to an attorney to begin pursuing legal action, at cost to the association

When a lawyer is on a collections case and the bank forecloses, it’s game over. If the property is in a super lien state then the association will recover a pittance of what is owed and the attorney will advise the association to “write off” the balance. Also, the attorney will advise the association that they owe him/her for legal services.

All of this happens over the course of 60 to 90 days. For a homeowner struggling to make payments, that time flies by and often isn’t enough to get current on the account.

 

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The Mystery of the Missing Minutes: How Community Association Document Retention Protects Against Liability

The Mystery of the Missing Minutes: How Community Association Document Retention Protects Against Liability

  • Posted: Sep 23, 2021
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The Mystery of the Missing Minutes: How Community Association Document Retention Protects Against Liability

Who Voted for What and When…Where Did the Minutes go?

Here is a cautionary tale: Your board of directors voted for a big capital improvement project along with a special assessment. Like a well-governed association, they memorialized the motion and the vote from the meeting in the minutes. With that project, the association needs to make a special assessment because the reserves were not funded well. A few owners are not happy about the special assessment and retained a lawyer to strike it down.

Years go by before it makes it to court and in discovery, the plaintiffs request the minutes as proof that the board did their fiduciary duty when making the decision. Except, after all this time has passed, the association has changed management companies and the minutes are nowhere to be found. Nobody remembers anything: some old board members have moved on; the management companies did not keep your minutes or did not turn them over to the new management company.

Now all the association can do is pay the attorneys (a big waste of money) and start all over again. This is how, without a community association document retention policy in place, a simple capital improvement project which may have cost $50,000.00 is overshadowed by a massive and unnecessary loss of resources for your community association.

HOA Document Retention

Safeguarding Your Documents Protects You from Liability

Boards may change over time, but the safekeeping of all records does not. When a new board is elected, it is the obligation of the outgoing board to return or hand over all community records — most important of all the minutes of all their meetings. If a new management company is hired, they must obtain all the documentation and records from the previous management company. Unfortunately, it’s often a futile task, and you might as well be looking for your documents in the Bermuda Triangle.

Most state laws require that community associations keep records for five to seven years (depending on the state). If there are no statutes regarding document retention, common sense tells you that they should be retained and accessible.

A simple test to know if your community is protected

If you are a board member or an owner, ask your management company to produce records of minutes from a meeting five years ago. Ask them for the budgets for the last three years. This should not be a difficult request. This is a simple test that can be conducted by diligent board members to ensure your record-keeping obligations are being met. If they cannot find the last three years’ budgets, you have a very big problem.

Community associations are required to retain a large number of records, many more than any individual director is accustomed to in their personal lives. So naturally, the task falls on the management company. Failure can have various negative effects, particularly, as in the example above, when the association gets sued.

Improper Documentation can Lead to an Inability to Collect on Delinquencies

Here’s another example: What if a board has decided to put Mister Delinquent into collections for non-payment of assessments for the past three years (don’t be surprised, some boards will wait before moving on an issue like this). Your collection agency asks for the budgets and minutes of budget meetings to verify the debt and they are nowhere to be found. I think you can guess how this pans out. Without the budget minutes and other documents required to put a budget into play, from a legal point of view, there is no debt to collect.

Condo Association Document Retention

In the midst of chaos, You need a source of truth

Let’s face the facts and understand that community associations are volatile environments and quite dynamic. Boards of Directors change, emotions run high, management companies are dismissed frequently, as are attorneys, vendors, and whoever else gets an opportunity to work for an association. Sometimes by accident (and sometimes by design) disgruntled board members, dismissed employees (managers), or untrained office staff may feel that the round file (garbage can) is for everything that is over a year old.

The minutes are the history of all board actions and decisions and losing them is like losing your medical records…It’s unhealthy for your community’s future. Yet many associations continue to work the same way they did in 1961 and everything is committed to paper. In essence, your so-called paper trail has fallen into a deep dark abyss never to be found again.

These days you can have virtual meetings so why not digitize the minutes and keep them safe? It costs very little to set up a cloud drive for the community to store valuable documents. Association servers or cloud-based document retention services should be filled with documents and files to protect the community from liability. Time marches on and technology continues to advance: don’t let your association be left behind.

Community Association Document Retention

The solution? A Community Association Document Retention Policy

So now that a potential problem has been identified, what are the possible solutions?  First and foremost, as mentioned above, the board of directors must establish a record-keeping policy and protocol which involves voting on it and memorializing this in the minutes. Don’t lose those minutes and approve them at the next meeting. Said policy should identify all the records that an association must keep and for how long.

Figuring where to start when writing your community association document retention policy should be easy since most states, already require retention of certain documents. In addition to the documents required by the state, be sure to include any documents that support and protect the interests of the community association’s business. Because, make no mistake, helping to prevent future costly lawsuits and legal defense funds is certainly in the community’s best interest.

Community Association document retention isn’t just for minutes. Whether your state requires it or not, it behooves your board to hold on to certain items that may be needed in a future lawsuit. Those include:

  • governing documents
  • insurance policies
  • vendor contracts
  • accounting ledgers
  • audit reports
  • reserve/engineering studies
  • warranties
  • proof of meeting notices
  • all meeting minutes (public and private)
  • collection policies & payment plan agreements
  • proof of mailings
  • any other processes that can be documented or may be disputed in the future
Document Retention 4

Lock it Down… For the Future

Sloppy or lackadaisical record keeping can have disastrous effects on community associations. It is the responsibility of BOTH the boards of directors and the management companies to ensure that the community is protected from liability. The best way to do that is to lock down everything and store your important documents in the cloud.

If you have been planning to move your records to the cloud “someday” consider today that day. This is a project worth getting to work on right away because bad things can happen in the wink of an eye. Your first, and sometimes only defense against problems in the future, is documenting everything today.

If you want to learn more about community association governance please contact us for a free no obligation collections analysis and we will be glad to speak to you about all other matters that you may have questions about.

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