When homeowners are delinquent on their HOA fees, trouble is brewing. It can cripple the stability and effectiveness of the association, and put the quality of the whole neighborhood in jeopardy. However, credit reporting offers a simple solution. It helps ensure a healthy HOA and a thriving neighborhood without the pitfalls of traditional collection methods. And the modest expense of the service is generally offset by the collection of late fees on delinquent accounts.
How Is Credit Reporting Used?
It is used to inform the three major credit reporting companies that an individual has paid or failed to pay a bill. In so doing, it places a consequence on the actions of delinquent homeowners and rewards those who pay on time. This is a common practice for banks, credit card companies, and mortgage lenders, and now it’s available for associations as well. Some HOA assessments are larger than credit card AND auto payments. Therefore, failure to pay on time, impacts that individual’s credit score, which, in turn, affects their ability to get a loan, buy a home, or even get a job.
When Should You Use It?
Credit reporting is best to use from the very beginning. Outdated collection methods will NOT support the health of your HOA – you may have already learned that the hard way. And if you wait until your residents are months behind, then the HOA is playing catch-up as well.
No one wants their credit to be negatively impacted. And that’s why credit reporting is a great way to get your residents to pay their late dues AND to maintain a clean balance moving forward.
Furthermore, since monthly reporting treats all property owners the same (with the goal of equal responsibility), there’s no tension between the HOA and its members. In fact, Timely payments can actually increase credit scores and provide property owners with additional benefits outside of the association.
However, for those who fail to pay their dues on time, credit reporting is a great incentive to get them back in the habit. Often times, just the threat of damage to their credit score is enough for homeowners to pay their past due amounts. And when they learn that delinquencies can impact their credit score for up to 7 years, they’ll be eager to comply.
What about a Lien?
The standard solution for unpaid dues is to put a lien on the offender’s house. But the “standard” approach, isn’t always the best method. Liens are a reactive solution that take excessive time and money to execute. On the other hand, credit reporting is a proactive solution which saves you time, money, and unnecessary hassle. In fact, more than 20 states already employ credit reporting to collect late HOA fees. And they enjoy a whopping 45% success rate.
Remedies such as liens and foreclosure are best used as follow-up actions for residents who aren’t responding to credit reporting. Using both solutions together can substantially decrease your delinquency rates and potentially lower your legal costs.
How does the credit reporting process work?
We’ve integrated robust technology to streamline and automate the whole process for your convenience. Residents’ payment history is collected directly from our native accounting system and automatically reformatted for delivery to the credit bureaus. Any property owner disputes are then facilitated by Community Association Management, thus relieving the board of any management hassles. The process is simple, secure, and automatic.
What are the legal considerations when reporting to a credit bureau?
Thanks to the Federal and State Fair Credit Reporting Acts (FCRA), all Associations are now free to report payment histories. Association assessments are classified as revolving debt payments, much like a credit card or auto loan. Furthermore, associations have the legal authority to refer delinquent accounts to collection agencies, and to report positive and negative payment histories to assist in debt collection.
The pro-active strategy that works!
Credit Reporting is the sure path to fewer delinquencies, greater cash flow, and a healthy neighborhood with a robust market value.
Download the brochure today to learn more.
And be sure to further engage your board members with our free power point presentation.
Don’t wait for delinquencies to pile up …
Secure the health of your association today!