Collections

(00:00) Speaker: It's time for AMG's 2023 Community Leaders Series Podcast Edition. Over the last three decades, AMG has worked to make the role of community leaders more effective and less of a headache. Seminar topics are a response to what our Executive Board members have requested.

(00:18) Paul K. Mengert: My experience vast, vast, vast preponderance of the money is going really for non-negotiable responsibilities that the association has by either by contract or by statute.

(00:29) Speaker: And now here's your host and CEO of AMG, Paul K. Mengert.

(00:34) Paul K. Mengert: Welcome, everyone. This is AMG's 2023 Community Leaders Series Podcast Edition. Our topic for this episode is collections, and I'm pleased to have attorney Steve Black as our special guest today. Steve, as you may know, is a partner in Law Firm Carolina with offices across North and South Carolina. Steve is a regular speaker on association practices and procedures and his firm is one of the leading law firms that represent condominiums, homeowner associations, and cooperatives. Steve has served as President, Vice President, and a member at large of associations he lives in or has lived in. So, he brings a unique perspective to our world. So, Steve, thank you for being here. It's a pleasure to have you.

(01:24) Steve Black: Thank you, Paul. Thanks for having me.

(01:25) Paul K. Mengert: Let's jump right in and talk about what the steps to collections of association, debts or fees really are. What is the process that you use?

(01:38) Steve Black: Yeah, Paul, we've been doing this for about 25 years now and we have kind of evolved, having tried a lot of different things and a lot of different procedures and angles and timing. And what we have found works the best is this process: and the first step that we take is we send a demand letter and that gives them 30 days to pay. And then if they don't pay or make a payment arrangement, we file a claim of lien on the property automatically and that secures the property. And if we still can't work something out or work out a payment plan with the owner, we do file foreclosure and schedule a hearing before the court. And if things are still having to move forward, then we do end up having to schedule a sale of the property. And then in the very unlikely event that we do actually have to sell a house for unpaid homeowner’s association dues, we could end up owning the house or the association could, in which we may have to evict the occupants in the house. That's kind of a quick overview of it.

(02:34) Paul K. Mengert: Well, thank you. That certainly is a lot to unpack. Let's start with just a few questions that I think some of our community leaders might have. From the time that they turn an account over to your law firm or other law firms, how long should they expect it to take to affect the collection?

(02:54) Steve Black: We've been keeping statistics on this for a long time internally at our office, and I can see for our office about 50% of the owners pay in full, including all the dues, the interest, late fees, fines, attorney’s fees. They pay everything once they get the demand letter. So, 50% of the time it's within 30 days, maybe 40 days of being turned over to our office. So that's always been an impressive statistic. At the claim of lien stage, the very next stage, our experience is 20% more people pay. So, all of a sudden, you know, all of, you've already collected 70% of the accounts just with those two steps. And you're about 60 days out, maybe 70 days out from our firm getting the account. And then it slows down a little bit because of the foreclosure process. But ultimately the entire process start to finish, if you have to go all the way through, the collection and foreclosure process could take between 6 and 9 months or maybe longer, depending on what happens.

(03:52) Paul K. Mengert: I'd say that's consistent with what my experience has been. Steve, just having looked at a lot of different associations, what percentage of people do you believe pay as they're supposed to pay compared to ones that actually get into a legal collection type system?

(04:11) Steve Black: I think AMG does a very good job of trying to work with homeowners, so they don't have to get turned over to our office. So, there's a process in place. There’re letters that AMG writes, there's payment plans and I'm sure are available through AMG before it ever gets to us. So, I think the number that we get, just statistically speaking, is probably less than, I don't know, 8 or 9%, I would say, of the total delinquent accounts. AMG cleans up most of it before it has to come to us.

(04:37) Paul K. Mengert: Okay. Well, that's certainly interesting information. And I think when an association is trying to decide what to do or how to handle their collections, do you have any guidance on when they ought to begin with this legal warning letter, the first action that your law firm would have? When do you recommend that take place?

(04:59) Steve Black: What I do, and I do a lot of presentations on this kind of thing, and what I usually say is, you know, the association is a company, it's a corporation. It should act like a corporation. And when people owe a corporation money, the corporation needs to pursue those debts reasonably. So, look at other corporations. How many months can you not make your car payment before they come after your car? Okay. Four months, six months, eight months. You know, somewhere in there. How many mortgage payments can you miss before the bank starts making noise about foreclosure, four months, six months, you know, somewhere in there. So, I just say we have to act like other creditors. So, my suggestion to boards is act like other creditors. You know, move on them when it becomes obvious that there's a problem.

(05:41) Paul K. Mengert: Excellent information. Steve, as you may know, we have a number of newsbreaks during our podcast, so I want to say thank you for that information and please stand by for a moment while we take an AMG Community Leader Series newsbreak. And we'll be right back with Steve Black, attorney with Law Firm Carolina. This news update is brought to you by Pond Lake Management for more information or to get in touch with Pond Lake Management, please visit their website at pondlakemanagement.com.

(06:16) Speaker: And now it's time for your HOA Solutions Today newsbreak.

(06:20) Newsbreak: A homeowners association comprising of 2800 homes in Boulder County, Colorado, may be the first association in Colorado to make the switch to fireproof fencing as a replacement for the charming cedar fencing. This decision comes as a response to a destructive wildfire that ravaged the community in 2021, causing extensive damage to numerous homes. The lengthy 15-month process leading up to the decision has been deemed courageous by town leaders in Superior, Colorado. Survivors of the Marshall Fire have been anxiously awaiting the outcome of the vote. Rebuilding efforts are currently underway along the path of the devastating fire. While progress has been made in the terms of frames, roofing and landscaping, fencing has often been put on hold. On December 30th, 2021, just before lunchtime, hurricane force wind gusts ignited dry grasses, which quickly spread to flames, to the wooden fences surrounding every home in Superior Rocks Creek subdivision. The HOA mandated cedar fences 25 years ago, and to this day, all fences stand at the height of six feet, painted in the color of Cabot Dune Gray. This decision to explore non-combustible materials for fencing has caught the attention of other HOAs facing similar concerns. They are closely observing the outcome of this pioneering initiative to determine the potential benefits of transitioning to fireproof materials. This HOA in Colorado serves as a trailblazer in considering metal fireproof fencing to enhance the community safety and resilience in the face of future fire risk. By reevaluating their fencing requirements, they aim to mitigate the destructive impact of wildfires and protect the homes and residents of the Rock Creek subdivision.

(07:59) Paul K. Mengert: We're back. I'm Paul K. Mengert and we're here with Steve Black discussing association collections. Steve, I think you've certainly shared some important information and probably some that many folks aren't aware of, of kind of the steps to a legal collection. But let me ask you this important question. What is it that an association can do better to get their money faster and maybe with less problems and less cost?

(08:29) Steve Black: That's a very good question. And number one is to have a professional association management company. Like AMG has been doing this for decades and has a very good process on how to handle the collection. So that's number one, is to have a professional management company. Number two is I think the board should understand generally the process for collections at the early level. So, understand what AMG does. How many letters do you guys send? Is there a statement sent and then a final warning and then a third one or just two letters? So just understand generally what the process is and make sure that you believe it's the best one for your association. Most importantly, and I can't stress this enough, listen to your community association manager and listen to the lawyer. We've been doing this a long time and sometimes boards don't like the advice that we give or don't like to hear what we have to give them, the reality of things. But just take that advice. You're paying for it one way or the other, and so you should take advantage of that. Next, please don't talk to the homeowners. Okay? When especially when they get to our office. If we have an account in our law office, we respectfully request that board members and even the manager not talk to the homeowner. It's in our office. We will talk to them. As much as the homeowner wants to talk, we will work with them however we possibly can. But please don't talk to them. It only ends badly. I can tell you I've been doing this long enough to say there's nothing good that comes from that. Last one is don't discuss collections with anybody. You know, when you're talking about that in your meeting, that's board business. Please don't go home and tell your spouse or your neighbor that, you know, Jimmy down the street is delinquent. That just creates, number one, problems that we have to fix. And two, could create some liability.

(10:17) Paul K. Mengert: I couldn't agree more. And I've heard some horror stories about associations, maybe unintentionally sharing confidential information and then ending up in a in a very difficult situation. So, I, I really agree with Steve's guidance about being careful about where and how you discuss any of the delinquencies that associations face other than maybe as a total and you know, maybe the total could include how many homes or units were impacted by that. There's one thing, Steve, you didn't mention that I, as a manager, believe is important to probably encourage community leaders to think about, and that is doing a good job of explaining to members why the association needs the money. Most of the folks who don't pay or pay late, in my experience, have their own financial struggles and are not paying late because they want to pay later, they're trying to send a message in paying late. Typically, it's they've lost their job, or they've fallen on hard times, and they really just need extra time to pay. But then we're competing against their visa card and their car payment and their house payment. And all of these things are important on different levels. But of course, the association, in many cases is paying for utilities and insurance and maintenance. But a lot of times the maintenance is really important maintenance like the supply of water and sewer services and, you know, maybe, you know, dams and roadways. So, you know, I think it is important for associations to educate their members on why the money is being paid. And, you know, very little of it typically goes for the swimming pool and the social event. Almost, the you know, my experience, vast, vast, vast preponderance of the money is going really for non-negotiable responsibilities that the association has by either by contract or by statute.

(12:18) Steve Black: Yeah, and I'm glad you brought that up, Paul, because the other big point I would make in explaining to the membership is you're a nonprofit association, you're a nonprofit entity. There really is no extra money. There is no buffer. So, if dues don't get paid to the association, that makes the association short on what it can pay to its vendors. So, it's not as if there's a pot of money, we can dip into to pay the landscaper or the insurance. Your budget is a zero-sum budget and so everybody should be paying to pay those bills.

(12:46) Paul K. Mengert: Steve, we'll be back in just a minute. We turn to our Community Leaders Series newsbreak.

(12:55) Speaker: And here's another HOA Solutions Today newsbreak.

(12:58) Newsbreak: Greensboro, North Carolina has approved an ordinance to regulate short term rentals listed on platforms like Airbnb. The newly introduced amendments encompass several provisions, such as a requirement for a minimum spacing of 750ft between rentals, parking limitations and the removal of the two-night minimum stay. It's important to note that the ordinance respects the authority of the homeowners’ associations to enforce their own rules. The effective date of the ordinance is slated for January 1st, 2024, and while it may be subject to potential future modifications, it currently lacks a specific policy for selecting short term rental candidates within the 750-foot range. As a part of the new regulations, short-term rentals in Greensboro will now be required to register, allowing the city to have a clearer understanding of the number of such rentals within its jurisdiction.

(13:49) Paul K. Mengert: Welcome back, folks. Paul K. Mengert here, discussing collections with attorney Steve Black. Steve, we really appreciate your help and willingness to share information with managers and community leaders in our podcast. My third question I really want to get into this afternoon with you is to talk about some of the things you've seen gone badly for associations and how they can avoid those pitfalls in the future.

(14:19) Steve Black: Yeah, there's dangers and pitfalls actually on both ends of the problem. On the front end, one of the dangers is not collecting your money, okay? And we have had boards and it's not infrequent, that truly don't want to collect on their neighbors, or they want to give their neighbors breaks that they shouldn't give them or unreasonable delays that really aren't justified. And that's kind of a natural human emotional response because these people are their neighbors. And so, you want to treat them differently. You want to treat them better or nicer because they're your neighbors. And really, there's not much justification, if any, in the law for that. So, my big point is one of the dangers and pitfalls is not collecting. Well, let's wait for two years. Let's wait until the dues become that's owed before we move forward. That's not good. That's actually a disservice to the to the homeowner. So, act like a company, act like a creditor and just keep moving forward. That's one of the things. The other one, which is a real big problem when it happens, is there are only certain things that can be placed on the homeowner's ledger. Okay. This is one of the dangers I'm going to talk about. What I mean by that is obviously the annual dues. Yes. Those goes on the ledger, late fees, of course, interest, if that's authorized, a special assessment. Yes. If fines have been imposed and they're properly imposed. Yes, of course. Those need to go on the ledger. But boards tend to try to put other things on the ledger that may not be authorized. For example, you know, Bob down the street, you know, Bob was driving when he shouldn't have, and he ran over the community sign, and it cost us $1,800 to fix it. Let's fix it for $1,800 and put that on Bob's ledger for the association. Let's put it just and go collect it through the normal lawyer route. That may be authorized, but it may not be authorized. And so that's one of the big pitfalls, is putting things on the ledger that may not be authorized. Another very common example is when maybe an upstairs condo unit there's a leak and it causes damage to the unit downstairs and there's an insurance deductible and there's a bunch of other stuff that happens. And you know, the association is out of pocket $5,000, one way or the other. Well, we want to put that on the account ledger for the person upstairs because it was their unit it came from. Well, maybe you can, maybe you can't. But it is never just automatic, you know, it's got to be looked at. So that's one of the biggest issues that we see is trying to put debts on there that that aren't supported.

(16:46) Paul K. Mengert: Excellent. Excellent, Steve. Great, great points. And I really appreciate you sharing this with community leaders because I'm sure when those kind of things happen, it isn't done out of malice or out of you kind of knowing it's wrong. Boy, I can tell you I've seen some associations get into sticky situations by putting things on a ledger and then a year or two later, it's just part of a balance forward that sometimes the current leaders don't even know it exists. And I remember AMG taking over a condo association a few years ago and the board was just outraged about the delinquencies. But as we picked through them, we found that all these things had been added to the accounts. You may remember this, that we just had to go back and tell the board there was no authority on the account. So, it can really, in some cases, give the community a false sense of where they stand financially.

(17:45) Steve Black: You know, Paul, that's a good point. And it's human nature almost, and it makes common sense that if Bob caused $1,800 of cost to the association for running over the sign, then Bob should have to pay it back and we'll put it on Bob's ledger. I mean, all of those dots connect mentally, but there's another level of legality that has to be looked at to make sure you can do that. So that is one of the other pitfalls. And, you know, I'll say also as a danger or pitfall, it kind of ties into question number two is dangers and pitfalls is not taking professional advice, okay. Not just from your manager, not just from your lawyer, but from your contractor or your pond person or your engineer. I mean, these people are experts at what they do. And I strongly encourage advise boards to listen to those experts.

(18:29) Paul K. Mengert: Steve, I would just add to what you're saying and maybe to give some, you know, a little bit of relief to some of the leaders that may be hearing that you can't put these things on the ledger. My experience has been if you work with the attorney, there usually is a way to accomplish what you're trying to do. You just have to dot the I’s and cross the T’s to do it. For example, in many associations you can hold a hearing and assess certain damages, for example. But of course, it's not my role to give legal advice in every set of governing documents is different, but if you will involve the attorney, usually often there's a way to accomplish these things. You just have to follow a procedure to do it. And you can't go back 2 or 3 years later and say, oh, I wish we'd had a hearing. I wish we'd sent an assessment letter; I wish we'd done; I wish we'd done. That won't cut it. So, I think a lot of times and I know every community wants to save money and that's an objective of every community leader. But sometimes asking your lawyer and I know you'll hear your AMG manager often say, we have to discuss them with the lawyer, but having a conversation with the lawyer, while it may cost something, it may save, and I think many times does save many multiples.

(19:46) Steve Black: Yes, absolutely. I agree.

(19:48) Paul K. Mengert: We're going to take a final newsbreak. Steve, we really appreciate you being with us. But we'll go to our newsbreak. Lawmakers in Nevada are currently in the midst of reviewing several community association bills. Imagine that.

(20:04) Speaker: And now our final HOA Solutions Today, newsbreak.

(20:08) Newsbreak: Lawmakers in Nevada are currently in the midst of reviewing several community association bills aimed at improving the operations of homeowners’ associations and ensuring the well-being of residents. These proposed measures encompass a wide range of areas, including records review, board service, false affidavits, bullying and digitization of elections. With common interest communities experiencing significant growth across the country, these reforms hold great significance for the more than 500,000 Nevada residents residing in over 3000 HOAs statewide. One of the proposed bills focuses on raising the rates for records review to $25 per hour. By providing fair compensation for the service, the legislation aims to facilitate a more efficient and transparent access to HOA records benefiting residents and enhancing overall governance. In addition, lawmakers are considering measures to restrict board service for individuals who have filed false affidavits with the state. If approved, members who knowingly submit a false or fraudulent affidavit to the real estate division more than once could face a ban of up to ten years from running for an executive board seat in their HOA. This penalty, in addition to the existing maximum administration fine of $1,000, aims to underscore the importance of honesty and integrity in the HOA affairs. The initial bill also included provisions against bullying, which encompass various forms of harmful behavior, such as written, verbal, electronic expressions, physical acts, and gestures directed at individuals or groups. However, the bill's latest version no longer includes these specific provisions. Nonetheless, lawmakers remain committed to promoting safe and respectful environments within their HOAs. Furthermore, a separate bill aims to facilitate the delivery of non-legally binding notices via email while enforcing robust cybersecurity measures for online payments. This proposal recognizes the prevalence of electronic communication and seeks to streamline administrative procedures while safeguarding sensitive information. As Nevada lawmakers continue to deliberate these community association bills, they are poised to shape the future of HOA governance, prioritizing, transparency, participation, and cybersecurity. These reforms respond to the growing demand for effective residential governance models and reflect Nevada's residents evolving needs and aspirations in their common interest communities. To read the full story or to learn more about these bills, please visit HOACommunityLeaders.com.

(22:28) Paul K. Mengert: We're back everyone. And as we close out today, I always try to think about what I think three important points from our podcast episode are and then I of course want my guest and colleague, attorney Steve Black, to tell me what he thinks or comment on the three takeaways that I have. And number one, I think it's important for community leaders to understand the collection process and educate homeowners on why we're doing what we're doing. Number two, I believe it's important for the community leaders to act in a uniform fashion when pursuing collections or other enforcement measures, which unfortunately means you have to set a standard and then follow that standard for everybody. It's unfair, and we'll probably get you in a lot of trouble if you treat the guy, you know and like differently than the person you don't know or don't like. And number three, associations need to take the business of collection and enforcement very seriously as an important fiduciary duty and hold some of that information pretty close to their vest. Don't be willing to share it with other members of the community that aren't involved. Number one, it won't help. And number two, it has the propensity to get the association possibly in a lot of trouble. It's not necessary, not appropriate to list in your minutes who you're turning over by name or with detail. Much better to have a policy of anyone who owes over X or is delinquent longer than Y will be placed for collection and avoid reporting the names of folks in a way that could be later construed as slander or libelous toward them. Steve, I welcome your comments or suggestions if you have different takeaways from today or want to enhance on mine.

(24:32) Steve Black: Yeah. No, I think I think you got it. I'll just expand on it to say collections is one of the most important duties of the association. You know, you got to collect the money that you're owed. So, it is important that you understand the process or at least generally understand the process. So that was the point number one that Paul pointed out I agree with 100%. Act uniformly, Paul mentioned. That is where I was going with, you got to act like a company. You got to act like a corporation. And corporations don't act, you know, differently to different people. You know, they have policies and standards that they follow and then, you know, take it seriously. Yes, I agree. It's a serious issue, especially in North Carolina and South Carolina. You know, we do have the power to foreclose on people's homes for unpaid homeowners’ association dues. And so, the board needs to take that seriously and put all the considerations and due diligence into it when we get to that point.

(25:21) Paul K. Mengert: Steve, thank you very much. And I know you work with a lot of the community leaders that AMG works with, and we always hear a lot of compliments on your facilitating different matters for them. So, on behalf of the community leaders, thank you very much.

(25:39) Steve Black: Thank you very much for having me, Paul. I really enjoyed this.

(25:41) Paul K. Mengert: And thank you to everybody for listening this afternoon to our episode. And special thank you to Steve Black for speaking with us on collections. I'm Paul K. Mengert and this is the 2023 AMG Community Leaders Series Podcast Edition. To listen to our other podcast episodes or to check out additional 2023 Community Leaders Series materials, please go to HOACommunityLeaders.com. Thanks everyone.

(26:10) Speaker: Thanks for listening to 2023 AMG's Community Leaders Series Podcast Edition. To find more information on this episode, please visit HOACommunityLeaders.com.

(26:25) Speaker: This podcast is a production of BG Ad Group. All rights reserved.

• It's important for community leaders to understand the collection process and educate homeowners on why we're doing what we're doing.

• Community leaders must act in a uniform fashion when pursuing collections or other enforcement measures.

• Associations need to take the business of collection and enforcement very seriously as an important fiduciary duty and keep that information confidential.

Marshall Fire-Affected HOA May Be First In Colorado To Allow Metal Fencing

A homeowner’s association (HOA) comprising 2,800 homes in Boulder County, Colorado may be the first association in Colorado to make the switch to fire-proof fencing as a replacement for the charming cedar fencing. This decision comes as a response to a destructive wildfire that ravaged the community in 2021, causing extensive damage to numerous homes. The lengthy 15-month process leading up to this decision has been deemed courageous by town leaders in Superior, Colorado. Survivors of the Marshall Fire have been anxiously awaiting the outcome of the vote. Rebuilding efforts are currently underway along the path of the devastating fire. While progress has been made in terms of frames, roofing, and landscaping, fencing has often been put on hold. On December 30, 2021, just before lunchtime, hurricane-force wind gusts ignited dry grasses, which quickly spread the flames to the wooden fences surrounding every home in Superior's Rock Creek subdivision. The HOA had mandated cedar fences 25 years ago, and to this day, all fences stand at a height of six feet, painted in the color "Cabot dune grey." The decision to explore non-combustible materials for fencing has caught the attention of other HOAs facing similar concerns. They are closely observing the outcome of this pioneering initiative to determine the potential benefits of transitioning to fire-proof materials. This HOA in Colorado serves as a trailblazer in considering metal fire-proof fencing to enhance the community's safety and resilience in the face of future fire risks. By re-evaluating their fencing requirements, they aim to mitigate the destructive impact of wildfires and protect the homes and residents of the Rock Creek subdivision.

Greensboro City Council Approves New Rules For Short-Term Rentals

Greensboro, N.C., has approved an ordinance to regulate short-term rentals listed on platforms like Airbnb. The newly introduced amendments encompass several provisions, such as a requirement for a minimum spacing of 750 feet between rentals, parking limitations, and the removal of the two-night minimum stay. It's important to note that the ordinance respects the authority of homeowners' associations to enforce their own rules. The effective date of the ordinance is slated for January 1, 2024, and while it is subject to potential future modifications, it currently lacks a specific policy for selecting short-term rental candidates within the 750-foot range. As a part of the new regulations, short-term rentals in Greensboro will now be required to register, allowing the city to have a clearer understanding of the number of such rentals within its jurisdiction.

HOA Bills Seek To Prevent Bullying Of Board, Move More Communications Online

Lawmakers in Nevada are currently in the midst of reviewing several community association bills aimed at improving the operations of homeowners associations (HOAs) and ensuring the well-being of residents. These proposed measures encompass a wide range of areas, including records review, board service, false affidavits, bullying, and the digitization of elections. With common-interest communities experiencing significant growth across the country, these reforms hold great significance for the more than 500,000 Nevada residents residing in over 3,000 HOAs statewide. One of the proposed bills focuses on raising the rate for a records review to $25 per hour. By providing fair compensation for this service, the legislation aims to facilitate a more efficient and transparent access to HOA records, benefiting residents and enhancing overall governance. In addition, lawmakers are considering measures to restrict board service for individuals who have filed false affidavits with the state. If approved, members who knowingly submit a false or fraudulent affidavit to the Real Estate Division more than once could face a ban of up to ten years from running for an executive board seat in their HOA. This penalty, in addition to the existing maximum administrative fine of $1,000, aims to underscore the importance of honesty and integrity in HOA affairs. The initial bill also included provisions against bullying, which encompassed various forms of harmful behavior such as written, verbal, or electronic expressions, physical acts, and gestures directed at individuals or groups. However, the bill’s latest version no longer includes these specific provisions. Nonetheless, lawmakers remain committed to promoting safe and respectful environments within HOAs. Furthermore, a separate bill aims to facilitate the delivery of non-legally binding notices via email while enforcing robust cybersecurity measures for online payments. This proposal recognizes the prevalence of electronic communication and seeks to streamline administrative procedures while safeguarding sensitive information. As Nevada lawmakers continue to deliberate these community association bills, they are poised to shape the future of HOA governance, prioritizing transparency, participation, and cybersecurity. These reforms respond to the growing demand for effective residential governance models and reflect Nevada residents' evolving needs and aspirations in their common-interest communities.