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The key to ending collection issues is to have a clear collection policy. The collection policy is not the assessment policy. The collection policy must be consistent with the local law and the Governing Documents. Once the assessment is issued, the collection policy kicks in.
Follow the collection policy to the letter: past due notices, late fees, interest, etc. Everything in writing and all of the documentation saved – you may need this documentation down the road. The collection policy must make it clear that each fee associated with the collection process is an assessment against the property. This is important because your Governing Documents likely state that the property stands as the guarantee of all assessments.
A collection agency should be part of the collection policy, in that, after a certain period, the Association stops trying to collect the debt and turns it over to a collection agency. The collection agency costs and fees are also assessed to the delinquent owner. Eventually, the collection process leads to liens against the property and foreclosure. If you are unwilling to foreclose, you may never collect what is owed to the Association, and the other owners must make up for these losses. This is a breach of your fiduciary duty to all members.
Make sure the property’s value, less its mortgage and other debts guaranteed by the property, is a positive number. I know one HOA that foreclosed on a property worth $350,000 but with a mortgage of $375,000. The HOA eventually lost $20,000 as they unloaded the property.
