By Ari Shore, CAP Management
Forecasting, anticipating, and addressing increased delinquencies for a Homeowners Association can feel like an impossible task for association board members and community managers alike. With so many variables at play, it is a challenge to know how and when an HOA should best respond to a larger, societal shift. There is no time better than the present to highlight the unpredictability of dues delinquencies.
Following the initial COVID-19 response and “stay-at-home” restrictions, the HOA industry was quick to anticipate a potential spike in delinquencies of monthly membership assessments – a scenario that could threaten the financial viability of the entire community. Many associations reacted with a similar urgency by quickly revising collections policies under the assumption that the majority of homeowners would be unable to pay monthly membership dues.
In reality, HOA delinquencies did not drastically increase as the industry originally expected, rather delinquency rates stayed within a normal range. This can be attributed partially to economic stimulus, and more importantly the ability to “work from home,” which has proven to be the most successful way of preserving personal income.
The true impact of the economic shutdown was of course impossible to predict in the Spring of 2020. Many associations and management companies reacted out of fear and anticipation, but with good intentions of limiting any further economic hardship for owners. Unfortunately, these associations that prematurely revised collections policies and offered additional forgiveness opportunities have been hurt the most, facing an uphill battle of revoking moratoriums or continuing operations with insufficient funds. On the other hand, associations that maintained their legal policies while expressing empathy and a willingness to work with homeowners have proven to be better positioned to rebound from economic uncertainty.
Global pandemic or not, there are a wide variety of socio-economic factors that can affect an Association’s delinquency rate. Local, City, State, Regional, Federal, and International factors could all be at play for the leading cause of a delinquency uptick. It is critical to take a comprehensive view of the monthly activities to determine if an association is particularly vulnerable to a delinquency increase. Variables like tax reforms, currency valuations, weather, unemployment rates, and a variety of other factors should all be considered in this evaluation. It is important to understand that many associations are comprised of members who are societal peers, who often share many socio-economic characteristics. Because of this similarity, an association’s owners are likely to be susceptible to the same external threats. When evaluating delinquency vulnerability, rather than attempting to make sense of every economic factor, a community manager should be hyper focused on the specific variables that would likely affect the communities they’re serving.
A community manager can effectively navigate the uncertainty of a delinquency situation by focusing on two key competencies - communication and consistency. There is no harm or shame in having empathy and a willingness to work with all members of an Association as it relates to delinquencies. If the manager is warm, welcoming, and willing to work with the members within the parameters of the collections policy, more members will reach out for resolution before the problem escalates uncontrollably.
The alternative to the compassionate approach is to be rigid, unavailable, and unwilling to work with the members facing financial hardship. The major problem with this approach is many individuals will avoid confrontation especially when it comes to financial matters. Avoidance and denial will likely emerge and could become major inhibitors to resolution, let alone the cost of pursuing remedy. Although late fees and delinquencies have their place in an association’s governance, these penalty mechanisms are rarely a motivator when agreeing to a financial resolution.
Let’s look at an example in practice: An association has quarterly dues of $25.00. Late fees are $10.00 for every 30 days late (plus interest) and lien fees are $100.00. Additionally, after 90 days the account will be forwarded to the attorney for collections with an automatic legal fee of $200.00. A $25.00 bill is now over $355.00 (plus interest) for a member who was having trouble paying $25.00. This individual will likely become elusive and the association may be responsible for covering additional costs of collections. Alternatively, if the member knows the association will follow the collections policy but is willing to come to a reasonable repayment solution, both parties will see a brighter outcome. A simple resolution could be presented to the owner, requesting a repayment schedule of $8.33 per month over 3 months, with the understanding that waived late fees and interest will only be accommodated within reason. This approach to a delinquency resolution undoubtedly requires more patience and compassion from the managers and board members, but it should be viewed as an investment into the community’s social capital, which will preserve and sustain the long-term viability of the association.
A community manager will face many challenges with an association, but the personal financial situation of a member (especially in troubling times) is by far the most challenging. The more approachable, open and empathic a manager presents themselves, the better poised they will be to lead all parties to a beneficial outcome.
Ari Shore is CAP Managements Chief Operating Officer. CAP Management is a regional organization dedicated to enhancing the sustainability and resilience of all the associations and customers they serve.
