By Kevin J. Evetts, Esq.

To say that collection issues are important to associations is a huge understatement. In today’s economic environment, the collection of assessments is of utmost importance to most associations and a matter of existence for some. As non-profit organizations, associations operate on extremely tight budgets, which is why the collection of assessments is so important. However, the collection of past-due assessments presents numerous problems for associations and managers alike.

One problem faced by associations is what to do with those “on-the-border” accounts. "On-the-border" accounts are those accounts that the board and managers are not sure if it’s worth expending effort and money to collect. They may have a small balance or there may be reasons why the association doesn't want to spend money to collect the account.  These concerns have prevented some associations from pursuing these debts. HindmanSanchez has developed a fee structure with the intention of addressing the associations' concerns regarding these types of delinquent accounts. The plan combines the advantages of both a collection agency and a law firm.

Basically, our fee under the risk-sharing plan is 30% of each dollar collected on all your collection files, plus any out of pocket expenses incurred by the firm (e.g., filing fees, service fees, etc.).  In addition, if we can collect fees from the debtor we will recoup those fees.  Payments are be applied to the association’s principal balance first on the 70/30 split. Legal fees are collected directly from the delinquent owner and are not billed to the association. If we can’t collect, we waive all legal fees incurred.  You would still be responsible for payment of out of pocket expenses as they are billed monthly.

Here a few examples of how a risk-sharing fee schedule would be advantageous to an association:

Example #1 – An account with a balance of $1000 placed with us and owner pays in full after being served with a lawsuit – association would receive $700; we would receive $300 plus any additional fees paid by the owner;

Example #2 – Account balance of $1000 placed with us and owner pays $500 after being served with a lawsuit but then files bankruptcy and the first mortgage forecloses and we determine the balance is uncollectible – association would receive $350; we would receive $150 (i.e., 70/30 split of $500 collected) and our fees of approximately $425 would be written off.  The client would still pay costs for filing and serving lawsuit.

Our risk-sharing fee structure decidedly has more advantages than a collection agency without some of their disadvantages. For instance, our firm is able to handle revolving debt, common with associations; we understand the complexities of association operation and the legal remedies available; and our firm will work all the accounts until that account is paid or deemed uncollectible, not just the “hot” accounts.

Offering alternative fee structures is just one of the ways that HindmanSanchez is helping associations manage the ever increasing difficulty of collecting assessments and maintaining an association’s successful financial status. If you’d like to discuss how our services differ from a collection agency in greater detail please contact one of our attorneys.

Community E-ssentials, May 2008