Picture
The size of a community association’s budget will vary depending upon the number of elements of the development that it may have the responsibility to maintain, such as landscaping, sprinkler systems, roadways, roofs, windows, balconies, etc.  If an association has a management company, the budget must account for that, too.  No matter the size of the budget, associations rely on the payment of assessments from their members to raise the money necessary to pay their contractors and service providers.  Since association members have their own household budgets, they tend to keep a keen eye on association spending and typically want the Board of Directors to operate as lean as possible and keep the assessments down and in check. “Where is all the money going?” is often a frequent refrain at annual meetings and in chats between neighbors. All of this may lead condominium or homeowners associations to adopt budgets that do not have much, if any, room for cost-overruns and unanticipated expenses, and which depend on virtual 100% compliance by association members in the payment of assessments.  In tough economic times, if several members begin to fall several months behind in paying the assessments, the association may suddenly find itself struggling to pay its bills.  Therefore, it is vital for a community association to ensure that it has a collection policy and procedures in place, and that it follows them. 

For instance, the policy and procedures can and should provide for the following:

·         Payment due date and grace period;

·         When a “reminder” or demand letter will be sent to a member who has fallen behind;

·         When the matter will be turned over to provide that when a members falls two months behind, the        matter is turned over to the community association’s legal counsel;

·         When a lien will be recorded;

·         Whether the Association will pursue collection from a tenant in the condominium unit (as provided in the Michigan Condominium Act);

·         How payments will be applied (i.e., first to legal fees and costs incurred, then to late charges/interest, and then to assessments in order of greatest delinquency).

The collection policy and procedures should be systematically followed, and the members should be aware of them.  The further a member falls behind, the bigger the debt becomes, and the more difficult it will be to collect what is due and bring that account current.  Thus, minimizing delinquencies and promptly taking action in accordance with a collection policy is critical because the association’s cash flow will be significantly impacted if there are too many members who are substantially behind.  Remember, a community association is technically a non-profit corporation and although the members may be your next-door- neighbors, sound business practices should be followed in running the association’s financial affairs. An experienced community association attorney should be able to assist the association in drafting and adopting a good collection policy. 



 


Comments


Your comment will be posted after it is approved.


Leave a Reply