The Benefits of Using a Collection Agency Darron Hay


When associations or their managers address the issue of delinquent assessments, the use of a collection agency (CA) could yield significant benefits over more traditional methods of collection. The reason a CA can be more effective stems from the original cause of the delinquency.


Since we started collecting two years ago we have identified three primary reasons people do not pay their assessments. The first is that the debtor (the delinquent homeowner) does not take his or her obligation seriously. Generally, he or she does not hold the association in high regard. Consequently, his or her attitude tends to be that the bill will be paid when he or she gets around to paying it. The second reason some debtors tend to not pay is that withholding their assessments is their act of protest. Generally, these folks are mad at the association, a neighbor, or some event which has happened in the neighborhood. Finally, the last reason people do not pay is reason we would all expect; those with financial difficulties resulting from some sort of job loss, reduction in work hours, or other personal financial problems. This article will not focus on this last group because our experience has shown there is not much which can be done except to turn the unit over as quickly as possible or write off the bad debt.


Incredibly, the first two categories of people are what we see most frequently. In a majority of these cases, the debtors have motivational issues which can be addressed through the consistent application of a stern collections policy. Once the association becomes important enough to the debtors, they tend to pay the past due assessments.


A CA helps to motivate some debtors using a few techniques not traditionally available in other methods. The single most effective means of recovery that the association has is to make calls to the debtor in an effort to begin a dialogue. As mentioned earlier, debtors have a tendency to not take their obligations seriously. When a CA makes a consistent effort to establish communication with debtors, it helps to reframe their mental image of the importance of their obligations. Let’s be frank, the reason debt collectors call is because it produces results. The law limits the number of times per week a debt collector can call; my agency, as well as others, observes that. This is not to say that debtors are harassed needlessly; we simply want to talk with them regarding their assessments.


Another effective tool available to a CA is the ability to find the decision maker in the household. The person listed as the contact with the association is not necessarily the key decision maker. All CAs have tools available to find friends and family members associated with the debtor as well as contact information for those affiliated people in an effort to locate the debtor. Our experience has shown that when we have made contact with the spouse or co-owner of the property, a reasonable percentage of our original debtors make contact with us to work out some sort of payment arrangement.


In addition to these resources, collection agencies also have the ability to report debt to the credit bureaus. When accounts are reported to the credit bureaus, it is important to remember that the accounts reported by a collection agency are listed as collections versus accounts in good standing. Collection accounts weigh heavily on individual’s credit scores; especially if they are recent collections. Collection accounts reported on the credit can outweigh several “good” accounts and potentially torpedo years of hard work in building good credit. This is why reporting an account can be so powerful. We have actually had debtors who called into our office a few hours after a debt went live on his or her credit report because a credit monitoring service alerted him or her to a new collection on their credit. Our experience has shown that there are individuals living in communities who will only pay debts that have the ability to impact his or her credit rating; a collection agency can certainly oblige that debtor’s requirement.


In general, a CA has some fairly creative methods to step into the personal space of a debtor. We have used


mailing tubes and boxes with pens in them, express envelopes, obnoxiously colored paper inside regular envelopes, birthday cards, anniversary cards, and holiday cards to enter into a closer relationship with the debtor. Once this space is entered, a dialogue usually ensues which is constructive to resolving the debt using some sort of flexible payment plan such as monthly installments or credit card acceptance. However, one must be very careful not to use social media such as Facebook or any other method which could be viewed by the public since this could be construed as an attempt to embarrass. There are laws in place to protect debtors from overly aggressive debt collectors.


Finally, it is important to select a collection agency which has an in house attorney so that all of the normal debt collection legal work can proceed in tandem with the efforts to establish communication with a debtor. Having an attorney on staff allows the collection agency to not only control some of the legal costs but it allows for a little greater coordination of effort. This cooperation between the legal team and those in charge of additional effort is critical because often times it is an effective combination of all efforts which eventually produces a paying debtor.


Attorneys have their advantages as well and it is important to not forgo those when adding additional resources and tools to the association’s assessment recovery efforts. It is also important to remember that there is no panacea for the delinquency issue. We have found that only through the consistent application of every resource available is the delinquency issue addressed and the rates come down. We have found this to be necessary because every debtor responds a little differently and sometimes it takes a little trial and error to find that particular debtor’s source of motivation. It also takes reframing the discussion with the debtor so that there is a cognitive shift in the debtor’s mentality; sometimes, simply introducing a CA to the discussion aides that transition.


may/june 2011 | Community Associations Journal 25


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