o there you are at another board meeting, and your community association manager is sharing some good news and some bad news. The good news is that after three years the bank has finally foreclosed and taken title to unit 101, and since the mortgage was $150,000, the association has recovered $1,500 in assessments (the lesser of 12 months or one percent, frequently referred to as the statutory cap).
    The bad news is that the unit owed $10,400 including $1,500 in attorney fees. After paying the attorney, the total net recovery for the association was zero, and the shortfall to the association was $8,900. The treasurer asks "What now?" and the manager responds with "Our lawyer says that we have to take a write-off." Is this really the end of this receivable?

Few ask why there is a write-off, and if they do, they are quickly told that the money is lost forever and becomes another budget entry for the bad debt line item. Time is short and the meeting agenda must continue onward to other pressing matters.

Hold on a minute... put on the brakes... let's go over what just happened. The board needs to take a careful look at this "write-off" and not be hasty about letting it all go. This remains an opportunity to recover more money for the association.

Did anyone ask why the former owner of unit 101 gets a free pass and can walk away from the association without paying what he owes? Did that owner's foreclosure extinguish the debt owed to the association by the individual(s)? In most cases, the answer is a very definite no. Does the association want to recover any of the $8,900 they were instructed to write-off? Do they need or want that money? Of course they do. Can an association get back any of the money it is owed after a bank forecloses and sails into the "safe harbor" of the statutory cap? The answer is yes, but only if the association knows it can and then makes the effort to collect it. It is money being left on the floor. All the association has to do is reach to pick it up.

This real estate meltdown has so confounded everyone in the community association industry that opportunities are being missed and money squandered. We have lost our business compass and are drifting listlessly in a sea of misinformation and confusion. The fact of the matter is that it does not have to be that way. So let's start with the problem and see what can be done.

In 1833, the federal government abolished imprisonment for unpaid debts. However, that does not mean that people are allowed to walk away from what they owe. Even Florida, which has been labeled a "debtor's state," allows businesses and individuals to pursue and collect debts through legally compliant procedures.

Because what we are facing is a new dynamic, and there are lots of issues that nobody has even considered.

Associations are ultimately run by volunteer boards of directors who direct community association managers to keep the community running smoothly. Bookkeeping is just one of a manager's countless responsibilities, but they are by no means collections experts.

The board also depends on their association attorney to advise them of legal issues concerning the community. Most of these attorneys are not by training or vocation specialists in the art and science of collections. Law, like medicine, is a specialized field, and community association attorneys have enough on their plates without having to pursue collections of write-offs.

What boards need to know is that when a bank forecloses, takes title, and leaves the association with an unpaid debt, the money is still owed to the association and may be attempted to be recovered.

The recovery is not always easy. It may not always be fruitful. However my father always told me that if you don’t ask, you will never get. Boards of directors need to ask this simple question: is there any way that we can go after the former owner and get back the money that is owed to us? My advice to association boards is to take nothing for granted and treat this lost money as if it were a debt personally owed to you. Would you walk away from it? Instead of getting angry, do something to recover your money. So now that we know that this money can be recovered, how do we go about reclaiming it? Community associations have many avenues at their disposal for the recovery of this money. For amounts less than $5,000, one option is small claims court. The process may cost some money and require association time. Engaging a collection agency is a second option. Most collection agencies operate as agents of creditors (like an association) and collect debts for a percentage of the total amount owed. So if you are collecting zero, any percentage recovered looks pretty good at this point. Businesses in the United States placed over $150 billion dollars worth of debt with collection agencies in 2010 and recovered $40 billion of that debt. There are over 4,100 debt collection companies working to recover debts for businesses and individuals in the United States today. It's a big industry, and there should be no reason your association has not explored hiring one.

Consider this, there are only 30,000 people employed in the landscaping industry in the United States and debt collection agencies employ more than 400,000 people.

In Florida, there are debt collection agencies that have focused on the community association industry and are actively working to collect community association debt owed on exclusively a contingency basis. If you are a member of a board of directors, it's time that you considered what is owed and how you can get it back.

I'm sure that there is a debt collection agency that would be glad to speak at your next board meeting. And if the board gives them the green light, they will be happy to contact that former owner of unit 101 and pursue recovery of the association's money. If you don't ask, you won't get.

Mitch Drimmer is a licensed CAM and is the Vice President of Association Financial Services, a specialty finance, business process outsourcing, and accredited collection agency specializing in community associations.

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