February 17, 2025 • 41 mins
Delinquent homeowners can sink your HOA’s budget. Learn how to recover dues, enforce policies, and protect your community’s financial health.
✅ Is a Reserve Study right for you? 👉 https://www.reservestudy.com/
Delinquent homeowners in your HOA can cause serious financial strain on your community. Mitch Drimmer from Axela Technologies shares proven strategies to recover unpaid dues, enforce policies, and protect your HOA’s budget—without jumping straight to foreclosure. Learn how to use consistent communication, amenity restrictions, bank notifications, and late fees to encourage payments. Plus, discover why budgeting for doubtful debt is essential to maintaining financial health. Don't let unpaid assessments jeopardize your community—take control today!
Mitch Drimmer’s Company: http://axela-tech.com/
Chapters From Today's Episode:
00:00 Don’t Play Around with Budgets for Your HOA
01:30 The Rising Costs & Financial Pressure on HOAs
03:15 The Biggest Challenges in Collecting Payments
05:00 Why Foreclosure Should Be the Last Resort
07:20 How to Ensure Accurate Contact Information
09:45 Importance of Early & Frequent Communication
12:30 Late Fees & Interest: Enforcing HOA Payment Rules
15:10 Restricting Amenities for Delinquent Owners
18:00 The Power of Bank Demand Letters
20:48 Ad Break - Community Financials
23:30 Why Boards Must Budget for Delinquencies
27:00 Common Mistakes HOAs Make With Collections
30:15 Raising Assessments: Tough but Necessary
34:00 When Selling is the Best Option for Owners
37:30 Final Thoughts & Best Practices for HOAs
The views & opinions expressed in this program are those of the Hosts & Guests, intended to provide general education about the community association industry. The content is not intended to provide specific advice or recommendations for any individual or organization. Please seek advice from licensed professionals.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Mitch Drimmer (00:00):
If a board member is hesitant about making making
(00:02):
assessments to cover thesecosts, they should step down
from the board. I'm very seriousabout that. This isn't a game of
Monopoly where the stakes arelow. We're talking about the
very real possibility ofmaintaining the integrity of a
valuable a real estate assetwhere families have invested
their life savings and most oftheir equity. So no, don't.
(00:24):
Don't play around with thesebudgets. Be honest with these
budgets. If you can't handle thepressure of making tough
decisions like raisingassessments, then you might be
time to step aside. As I said,
Announcer (00:35):
Hoa, Insights is brought to you by five companies
that care about board members,association, insights and
marketplace Association,reserves, community, financials,
Hoa invest and Kevin Davis,Insurance Services, you'll find
links to their websites andsocial media in the show notes.
Robert Nordlund (00:51):
Welcome back to Hoa insights, common sense, for
common areas. I'm RobertNordlund. I'm here today for
episode number 93 with specialguest Mitch drimmer from Excella
technologies. If that namesounds familiar to you, it's
because we had Mitch on theprogram last year for episode
number 54 now here in 2025 we'rethinking that costs continue to
(01:13):
put pressure on Associationbudgets, so we want to bring
Mitch back on the program toshare his insights about
maximizing cash flow with you.
We don't want your budget to becrippled by some non paying or
slow paying homeowners. We wantour podcast audience to have the
advantage and be well informed.
So today, Mitch will share moreof his tips and best practices
(01:35):
to make sure collection issuesaren't tripping you up. This
will set you up for success,paying your bills and making
your scheduled reservetransfers. Well, this is a
follow up to episode number 92with regular co host and
insurance expert Kevin Davis,where we discussed a year end
wrap up of insurance in 2024what's likely going to stay the
(01:57):
same in 2025 and what likelywill change, and also what you
can do to become a preferredaccount enjoying minimized
insurance premiums. I hope thatgot your attention. Well, if you
missed that episode or any otherprior episode, take a moment
after today's program to listenfrom our podcast website, www
(02:17):
insights.org, or watch on ourYouTube channel, but better yet,
subscribe from any of the majorpodcast platforms so that you
don't miss any future episodes.
And those of you watching onYouTube can see the HOA insights
mug that I have here on my desk.
It's a favorite about some boardmembers talking about
(02:39):
deterioration in their commonareas. And you can get, I got
that from our merch store, andyou can browse through that
store merchandise from our hoeinsights.org, website, or the
link in the show notes, you'llfind we have some great items
there, some free stuff, likeboard member zoom backgrounds,
and some specialty items forsale, like the mug. So go to the
(03:03):
merch store, download a freezoom background, take a moment,
look around, find the mug you'dlike and email me at podcast, at
reserve study.com with yourname, shipping address, mug
choice, and mentioning episode93 mug giveaway. If you do that
and you're the 10th person toemail me, I'll ship that mug to
you free of charge. We enjoyhearing from you responding to
(03:26):
the issues you're facing at yourassociation. So if you have a
hot topic, a crazy story, or aquestion you'd like to have us
address, you can contact us at805-203-3130, or email us at
podcast, at reserve study.comnow one of those questions led
(03:46):
us to today's topic, which wasquestion was from Richard in
Denver, who asked, What can wedo to get access to the cash
that delinquent owners aren'tpaying us So Mitch, friend of
mine, friend of the program, andauthor of the book The Art of
collections for communityassociations, which I have right
(04:09):
here on my course. What advicecan you give to Richard?
Mitch Drimmer (04:15):
Well, first of all, I'd like to thank you for
having me on your podcast today,Robert. And I also want to say
that Richard's question is a isan important one, especially
considering that he's fromColorado. Why is that? Well, as
a matter of public policy, statelegislators nationwide have been
(04:38):
revising statutes everylegislative session to make it
more challenging for communityassociations to enforce
Association lean foreclosures.
They're not happy about it.
Colorado is at the forefront ofthis effort, making it
particularly different difficultfor associations to foreclose
people. In other words, they.
Taken,
Robert Nordlund (05:00):
maybe their desire to help the little guy a
step too far.
Mitch Drimmer (05:04):
I don't, I don't think that they helped the
little guy a step too far. WhatI think that they're doing is
trying to bring reason andrationale to this. I mean, I am
against Association leadforeclosures being the first
step, but I'm not against itbeing the last step. Some states
have gone too far. For instance,the state of New Orleans, of New
(05:27):
Orleans, the state of Louisiana,and all other states of the
country, you don't need toconsider the bank's position.
But in Louisiana, now part ofthe credit bid in an association
lien, foreclosure, you got toget an appraiser with two thirds
of the banks debt, or two thirdsof the value of the house is
(05:49):
there. So in Colorado, they haveall sorts of issues. They have
to have a collections policy.
You have to offer payment plans.
You have to wait a minimum threewe a month delinquency, you
know, before you could bring insomebody. Again, they're trying
to encourage associations towork it out before you put them
(06:12):
out. And I agree with that. Ilike that because, you know, we
see all too often horror storiesin the newspapers, and, you
know, with the news, if itleaves it bleeds, and every
week, they got to have an HOAsued somebody for $3 million or
put somebody out. So I supportthese efforts, because taking
(06:34):
someone's home for a few $100 ora few $1,000 is not the right
solution. But this leads to thequestion, What can associations
in Colorado or anywhere in theUnited States do to manage these
delinquencies under such aplethora or an abundance of
(06:55):
constraints? So the thing is,let me give you some practical
advice, some things thatmanagers and boards of
directors, even of self managedassociations, can do before they
need to call in an attorney or acollection agency such as
myself. And the number one thingthat they have to do even before
(07:18):
they even consider it when theysee that their first delinquency
is out there is they've got toget ensure that they have the
right contact information.
Because as a guy who's been amanager, I could tell you so
often, you know, people willtell you, I didn't get a letter,
I didn't get an email and andit's true, because when you move
in. When people move into HOAsand condos, they they got to
(07:42):
give you the current address,the current, you know, the pre
primary address, secondaryaddress, email, text message,
cell phone. But when they changethem, they don't go back into
the office, into the communityassociation office, and say, we
changed it. So by the way, asthey say in cool hand, Luke, you
(08:03):
have a failure to communicate.
Yep, and that's the problem. Soagain, there's a lot of so I
recommend, when somebody goesdelinquent, that your boards of
directors or your managementcompany subscribe to what you
could find on the internet asSkip tracing, where you could
find somebody's address andcontact information, find, you
(08:26):
know, go to Consumer Reports orwhatever, and find the best one
and get it and make sure youhave the right contact
information for your very firstcourtesy letter, or, as I like
to call them, your first partynotifications. The second
suggestion that could
Robert Nordlund (08:44):
it, yes, you Robin, just go to the neighbors
and double check that neighbors.
You don't know. You know,
Mitch Drimmer (08:50):
a lot of people haven't been in their place for
months. You know, I'm here inFlorida. I have phantom
neighbors. I've got neighbors. Ihear them once a year from
Brazil or something, and youcan't go to the Property
Appraiser site because you knowwho owns the property, but it
doesn't tell you their names orcontact information, their
email, their cell phones. Soagain, you got you got to make
(09:13):
sure that you have the rightcontact information. Even call
them up and say, don't call themup as a matter of we've got a
delinquency and we want to sendyou a delinquency letter. Call
them up and say, This is theHOA, and we'd like to know if we
have the right contactinformation. We're we're
verifying our contract. So ifyou've got a delinquent owner,
before you send them a courtesyletter, have one of your interns
(09:38):
or somebody, if you're amanagement company, if you're
working on the board, give thema call with the phone number,
see if you got the right number.
And if you do, double check it,make sure if you've got the
right email, and make sure yougot the right address. That's
how you start this wholejourney, this collection
journey, and then you got toreach out to the owners promptly
and consistently. Well, youknow, one. While associations
(09:59):
should adhere to the first partynotifications that are in their
governing documents. You know,the the courtesy letters and the
in Florida, the Nola letters andin California, they the payment
plans, and the Colorado thepayment plans or or whatever,
notice of intent to lean. Butbefore any of that happens, the
board of directors. When I sayfirst party notification, the
(10:21):
first party is the board ofdirectors. So even though you're
managed, it's the managementcompany giving the boards
letters, because those lettersshould be said, signed for,
signed by the board.
Robert Nordlund (10:36):
So because it's the the board that's and the
association that's collecting,not the management Exactly,
okay, right? And
Mitch Drimmer (10:43):
a lot of management companies put these
courtesy levers under theirheading. If you're a management
company, don't do that. However,there are rules about what we
call these. Are called conditionprecedents. You have to do one
thing before you do another,before you do another, before
you do another. And in somestates they don't exist. Like in
Florida, there's very fewcondition precedents for the
(11:05):
management company or theassociation to adhere to,
whereas in Colorado, there'sdozens of them. However, in no
state is there a rule that saysyou can send a letter every five
days, every 10 days. So what wesee happening a lot is boards of
(11:25):
directors and their managementcompanies, too will often send a
courtesy letter, you know you'vemissed this payment, and then
people won't hear from them forthe next month, and then they'll
say you missed a payment, andthen they won't hear from them
from another month. Yeah,
Robert Nordlund (11:43):
so they're working on 3060, 90 type basis,
exactly.
Mitch Drimmer (11:47):
And remember, out of sight is out of mind. People
get a letter. They right hand,left hand, garbage can. They
don't hear for a month. Theydon't think they have a problem.
I'm recommending to boards ofdirectors and to community
managers to send more frequentletters, to send text messages,
to send more frequent emails.
Now, the pushback on this willbe all the boards don't want to
(12:07):
spend the money because themanagement companies have to
charge $10, 1525, pay it.
Trivia, exactly, pay it, but payit now, or you're going to pay a
lot more later. Yeah, so youwork it out with your management
company. You say, look, everyemail you sent, it will will
accept a $5 charge, or everyletter you send a $10 charge, or
(12:31):
something like that. Again, cometo some sort of arrangement, but
contact them frequently.
Persistence is the key third ifyour governing documents
prescribe late fees and lateinterest, apply them to the
ledger, these penalties act asincentives. They're there to to
to motivate people to timelypayments and failure to access
(12:52):
assess them to the ledgers andto the statement of accounts.
Will diminish the urgency ofthis situation.
Robert Nordlund (13:04):
Well, doesn't mean so look sloppy if you say,
Mitch Drimmer (13:09):
Yeah, of course.
But many, many personal, I thinkall self managed associations
will will never put the lateinterest in. I've seen it. I see
it all the time. I get ledgesfrom all over because it's
simple interest. It's notcompounded. You cannot compound
it. You cannot charge intereston interest. You cannot charge
(13:30):
interest on late fees and latefines for violations. So it's
not that simple to compute. Sothey leave it out when we
received it. Of course, weadhere to the governing
documents. And if the governingdocument says You shall charge
interest, shall is shall, shallisn't, maybe could, would or
should, so you've got to chargethat interest. It's in your
(13:53):
governing documents. So whywould you take a stick that you
have in your governing documentsand not use it. So again, I put
it, I put that to you that thatwould be a good solution.
Another fourth is wherepermissible restrict amenities
to delinquent owners, restrictvoting rights for delinquent
(14:15):
owners, while this may require aresolution of the board during a
properly noticed meeting. It'san effective strategy, believe
me, it works. It's summertime inFlorida, and you can't go to the
pool. You're going to pay yourbills, some things I will tell
you not to do, such as turningoff somebody's water. In case,
(14:38):
you know they get water. Don'tdo that. But if your bylaws and
your state statutes allow you torestrict amenities by all means,
use every, every, every possibleresource you have,
Robert Nordlund (14:55):
I think so often with collections people
and with cash flow problems.
People think of fine as theconsequence. And what you're
talking about here is there areso many other consequences that
you can be creative about. Andif it's not, as you say,
restricting them from the pool,and I know there's, I believe
there's some associations insome states that may prevent you
(15:15):
from doing that to thehomeowner, as you say, you get
into a dangerous area trying toshut their water off, but you
may be able to restrict theirguests from going through the
gate or something like that,right?
Mitch Drimmer (15:32):
Well, let me, let me give a little disclaimer
here. We're Robert and I arefolks are talking about all 50
states, so check your ownbylaws, right? Check your state
statutes, and make sure thatsome of these things that I'm
telling you you can do, you cando, but there is one thing, one
last thing that you can do,which I know you can do because
(15:54):
it's a Fannie Mae and FreddieMac requirement. It's in some
bylaws you could escalate thepressure on a delinquent owner
by notifying their mortgagecompany. It's called a bank
demand letter, because whensomebody is delinquent in their
payments to the association,they've defaulted, then they go
(16:18):
in breach of the mortgageagreement, and just like a banks
don't like it when you don't payinsurance and when you don't pay
taxes, they don't like it whenyou don't pay assessments,
because you have a securityinterest, they have a security
interest. And as a matter offact, when a bank forecloses on
an HOA, they have to name theHOA as as a defendant. So what
(16:42):
they can do by virtue of, and ifa lot of people say to me all
you're piercing the veil ofconfidentiality, no, you're not.
This is when you bought your HOAhome or your condo, you signed
either a PUD rider, playing unitdevelopment rider or a condo
rider that says that if you aredelinquent, the project is to
(17:04):
notify the lending bank when thelending date gets that
notification. In certain states,it's very powerful. It's more
powerful in what we call superlean states, where the banks
will actually cut a check forthe super lien amounts and other
states where they don't havesuper liens, maybe the banks
(17:26):
will pay, or we see banks payfor a lot of assessments, and
but for sure, the banks aregoing to contact the owner and
say, What's going on there. Youhave to pay your assessments,
because if you don't pay yourinsurance, the banks will force
place insurance. If you don'tpay your taxes, they'll force
place the taxes. They'll pay thetaxes, but they'll land it onto
(17:48):
your mortgage. Very fewmanagement companies do this,
very few associations do this.
And I think it's a great idea,and it could, it could work
well, the overarching principleis that a single courtesy letter
rarely resolves delinquencies ifinternal efforts fair, my
recommendation is to partnerwith a merit based collection
(18:08):
agency. Of course, that's what Ido, but with significant equity
in homes, today's foreclosureshould not be the default
option. As a matter of fact, I'meven talking about that, because
although I'm in collections, andI speak to a lot of managers,
lot of people say the lawyersaren't foreclosing like they
used to, but it is a long,expensive process where you get
(18:32):
your money at the back end. Youknow, we're trying to not resort
to drastic measures. So again,by following these three steps,
the associations can protecttheir financial health while
staying compliant with evolvingregulations and and that's the
answer to that question. Let'shave our follow up.
Robert Nordlund (18:54):
Well, Mitch, you got me thinking here that I
think for so many board membersare thinking, what do I need to
do? Well, I need to send acollections letter. I need to
find them. And you're painting apicture of so many tools that
you have in your toolbox, thetool of nagging, you know,
(19:15):
reminding them, so they arelike, Oh, gee, you're right. I
was out of town that week. Ineed to get on this two week of
other options, other pressureyou can put on, maybe no use of
the pool. You can't vote. Youcan't run for the board of
directors, all those kinds ofthings if you're financially
delinquent, and then poking themwhere it hurts, reaching out to
(19:36):
the bank and in a little kidlanguage, tattling. But yeah,
Mitch Drimmer (19:42):
this is dropping a dime on him, dime on him, like
when he grown up, because he'sin New York, yeah, yeah.
Robert Nordlund (19:48):
But because they are, they're not honoring
their commitment. And theircommitment, well, they bought
in, was to pay their fair share,and that's it, I think one
thing, yeah, one. Thing thathits my heart is that this is a
matter of boards being fair,because it's not fair if you
have 100 units, it's not fairthat 99 of the units are paying
(20:11):
all the bills and one person'sgetting off scot free. It's only
fair that everyone pays theirfair share, and you want to have
the right pressures and theright consequences, and you're
talking about all the differenttools that are available to you
so that you are being fair tothe majority, and if someone's
not fulfilling their obligation,you're not being mean. You're
(20:32):
just saying, Hey folks, youpromised, and we're just going
to hold you to your promise, andthose kinds of things. Well,
that's a heck of a start. Well,let's take a quick break now to
hear from one of our generoussponsors, after which we'll be
back with more common sense forcommon areas.
Russell Munz (20:48):
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(21:09):
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Robert Nordlund (21:20):
Now we're back.
We're here with Mitch drimmer ofExcella technologies, talking
about cash flow and collections.
And my brain is already full.
But I want to go a little bitfarther with Mitch. Let's talk
about some other things. On ourlist of topics that we were
possibly talking about amongyour clients. Is there a normal
delinquency amount that theaverage Association should be
(21:41):
dealing with? Well, I
Mitch Drimmer (21:45):
could tell you what our analytics are, and we
have many 10s of 1000s ofdelinquent units and hundreds of
management companies, andactually 1000s of associations.
The national average delinquencycurrently is 3.5% for HOAs, but
4.3% for condos. Condos alwayshave a more expensive monthly
(22:11):
assessment because, you know,there's elevators, there's
shared water heating, there'semployees, there's a building
engineer, there's a lot go,there's garbage chutes. While
these percentages, they may notseem significant at first
glance, you know, I don't haveto tell you about increasing
prices due to insurance andreserve requirements. And it's
also crucial to remember thatassociations operate as a $0
(22:34):
business, meaning that everydollar that is, you know,
necessary to cover expenses inthis context, even a 1%
delinquency rate can be highlyproblematic. It disrupts the
financial stability, and itmakes addressing the minimizing
delinquencies a top priority forany community. So again, you may
have your averages, but it'sirrelevant. One One delinquency
(22:58):
is not acceptable,
Robert Nordlund (22:59):
yeah, well, I hear that because everyone
signed in for it. So that'sright, the average association
with three or 4% the people thatare on your your bad list, the
delinquency list, you want tomake sure that you have the
appropriate processes in placeso they are gradually clearing,
right? So as they clear, anotherone will pop up, and then you
(23:20):
clear them. It's just part oflife at a community association,
isn't
Mitch Drimmer (23:25):
it? It's like Sisyphus. You roll that boulder
up the mountain, and then itrolls back down, so you gotta
keep at it. But it's better thanrolling five boulders up the
mountain than one. Okay, it'sbetter to roll one than have
five, so if you let it rot, andif you don't, if you ignore
these delinquencies. Now youdon't have boulders you when you
(23:48):
roll it up to the top of themountain. Now you got an
avalanche coming back at you. Soit's, it's, it's, it's got to be
addressed immediately.
Robert Nordlund (23:57):
Yeah, and I like the strategy of keeping
your problems small, becausewhen you keep your problems
small and nothing, you justdon't have big obligations
sitting around. Well, let's talkabout, let's say you have, let's
make it unit owner number 13,where you've they're three
(24:18):
months late, they're six monthslate, they're a year late.
They're two years late. Do youever get to a point where you
just throw your hands up? Orwhen did, yeah, talk to me about
a real problem account. When
Mitch Drimmer (24:32):
I do demos for people, i i I show them what we
do, and I can tell you in thesedays that there is equity. I've
been doing this in 2008 I couldnever say this. Okay, we seldom
do. Association leadforeclosures, but there are, you
know, still delinquencies. Andone of the questions you were
(24:54):
asking is, you know, should theboard's budget for 100% of the
people paying? I think that'swhat you were alluding to. And
the answer is absolutely not.
The budget should include a lineitem for doubtful debt. They
don't based on historical, youknow, historical patterns, if
you have a 4% delinquency rate,then you should budget for 104%
(25:17):
and you know, it's it may seemcounterintuitive that budgeting
for higher assessments may lead,will, will lead to
delinquencies. But if you don'tbudget for the higher
assessment, you know, youeverybody's expecting that
assessment to go up at thebeginning of the year. So your
(25:37):
models will go up at thebeginning of the year, because
if you lie to yourself, if youcon yourself, if you grift
yourself, you're not telling thetruth on your budget, and you're
not budgeting for doubtful debt,you're going to get hit with the
special assessment in April, inJune or July or something,
right,
Robert Nordlund (25:55):
people, because
Mitch Drimmer (25:56):
it catches up with you. It catches up with it.
Yeah. So again, put up with it.
Don't put up with it. Plan forit. Okay, so and again. You know
that's that's very important,yeah, okay, every business
plans, every business plans fora cash shortfall. I know mine
does, yeah. Well, every businessI've ever been in,
Robert Nordlund (26:18):
that's what I was thinking. If you have a
average retail store, there is asmall amount of theft that goes
on, and they call thatshrinkage, shrinkage. And if
shrink, if you're ignoring thereality of that, you're foolish.
And we don't want our audienceto be foolish. So
Mitch Drimmer (26:35):
how we built you're trying to make everybody
smarter. Robert, yeah,
Robert Nordlund (26:39):
that's That's it. We want this to be a good
use of their time, so budget foryour historical averages, but be
collecting on that. And soyou're gradually filling in with
the delinquencies that you'recollecting with the new ones
that are going out. So you'renever really digging a deeper
hole. What are the most commonmistakes that you see boards
(26:59):
making?
Mitch Drimmer (27:01):
Well, the number one most common mistake that a
board makes is that they feelthat they're being benevolent
and that they're not givingpeople a chance to or they're
trying to be kind to people.
They're, you know, they're, theyhave, they have bought in board
members into a very seriousposition, even a small
(27:21):
condominium of 60 units could beworth, could be a $3 million $30
million project. Oh, yeah, it'shalf a million $30 million
project. So again, there's anold expression. He who is
merciful to the cruel is cruelto the Merciful. So these people
(27:43):
who feel that they are are arenow the arbiters of benevolence
and altruism and kindness.
They're not doing they're notdoing the association any good,
and they're doing a disserviceto the delinquent owner, because
the delinquent owner is going tocontinue to make bad decisions,
(28:06):
and these bad decisionssometimes are not reversible.
Robert Nordlund (28:10):
Yeah, I think that's the danger. Is focusing
on the minor and serving theminority instead of the
majority, the 97% that are doingtheir level best. They're paying
their homeowner assessments. Andagain, it's the board's
responsibility to run theassociation, and I often maybe
(28:32):
time to crack the whip.
Mitch Drimmer (28:33):
I often tell boards, you have a fiduciary
duty to the association, not toyour next door neighbor. Yeah,
Robert Nordlund (28:41):
yeah, they're serving the corporation that is
represented by people directors,yeah, yeah. Leave your ego
Mitch Drimmer (28:50):
and your personal prejudices outside the dorm when
you convene a board meeting.
Yeah,
Robert Nordlund (28:57):
I grew up hearing no ticky no laundry.
That's it. It's pretty thatcould be the title of this.
Mitch Drimmer (29:05):
Yeah, it's not that complicated. No, it is not.
Robert Nordlund (29:10):
Yeah, you got to add it up to play in the
game. Let's talk. You talkedabout raising assessments, and I
know there's many in ouraudience that are sensitive to
that, thinking that they don'twant to raise assessments more
than some magic number that's intheir heart or in their brain,
(29:30):
because if they do so, it'llpush people into delinquency. Is
that, from your experience, alegitimate concern? Well,
Mitch Drimmer (29:39):
no, not at all.
Because when it comes to raisingassessments, this is not a
discretionary manner. This isnot well, you know, maybe this
will cost $10 or maybe this willcost $5 you know what your costs
are, or you're making your bestguess at what your costs are.
And if you're being honest,you're going to shoot for a
real. Stick number. You're notI've saw, I've been to so many
(30:01):
meetings where they say $20,000for minor repairs or maintenance
or, you know, and then peoplesay, You know what? That'll
increase the assessments by toomuch. Make it $5,000 this is
there's no discretion here. Youhave to assess the owners based
(30:22):
on the actual cost ofmaintaining the property. If a
board member is hesitant aboutmaking making assessments to
cover these costs, they shouldstep down from the board. I'm
very serious about that. Thisisn't a game of Monopoly where
the stakes are low. We'retalking about the very real
possibility of maintaining theintegrity of a valuable a real
estate asset where families haveinvested their life savings and
(30:46):
most of their equity. So no,don't. Don't play around with
these budgets. Be honest withthese budgets. If you can't
handle the pressure of makingtough decisions like raising
assessments, then you might betime to step aside, as I said,
raising assessment will mostlikely trigger some
delinquencies, and that's areality we can't ignore. But
(31:06):
there's no excuse for allowingthe property to fall into
disrepair, or worse, living tobecome a financial burden that
affects everybody in thecommunity. We have a
responsibility, or board membershave a responsibility to ensure
the long term health of theproperty, and sometimes tough
decisions are the only wayforward. And let me say one more
(31:27):
thing. Being two miles away fromSurfside, we're not just talking
about the landscaping and hownice the lobby is and that we're
paying our people right. We'retalking about a whole structure
falling down and killing 100people. It's life safety issues
here. So when you're on a boardof directors, this is not a
social club, folks. Yeah, thisis a serious business matter,
(31:49):
and we try to make it serious byenforcing Robert's Rules of
orders and having the meetingsvery formalized. So take that
seriousness and act accordingly.
Robert Nordlund (32:03):
Yeah. Well, I'm thinking about gravity here.
Gravity is something you can'tavoid. And just like you said
that if you allow the littledelinquencies to grow and grow
and grow and grow, they justbecome a bigger and bigger
problem. And so I feel like onthe you need to think the same
way on the income side, that ifyou are not increasing the
(32:24):
assessments as much as they needto be, you're gradually building
your own deficit, and you'regradually running yourself into
special assessment land. Andthat's no fun either. And so if
you're if you keep, if you justdo the thought experiment of
what happens when that happens,if you're under raising, or if
(32:45):
you're not raising theassessments as much as they need
to be, you're creating your ownproblem, and that's a bigger
problem than if you just raisethe assessments from $10 a month
to $25 a month, or $50 a month,$75 a month, moving up that
much. And from my point of view,I had that same feeling that,
yes, raising the assessmentsfrom 350 a month to 385 that's a
(33:10):
$35 a month jump, clearly, andthat's money that the homeowner
doesn't have in their pocket.
But number one, it's a bill thatthe association has to pay. And
$35 a month is $1 a day. Are yougoing to lose your home for $1 a
day? You're going to findsomewhere else? $365
Mitch Drimmer (33:28):
is $1 a day. But again, this is not
discretionary. This is notsomething that you could decide
yes or no. It's very binary. Isit, will you cover the expenses
or will you'll not cover theexpenses. That's the decision
you have to make. Yeah,
Robert Nordlund (33:44):
we're talking about making just a solid
mathematical business judgmentdecision here about what does it
cost to run here? Well, gotta
Mitch Drimmer (33:52):
be it's gotta be heartless. Yeah,
Robert Nordlund (33:57):
I personally don't like to be heartless, but
I do know how to run a business,and board members are running a
business. But let me do one morething. If we roll this, what
happens when that happens forone more step, and you do have
to get to a hard point where youare collecting and you're
forcing someone out of theirhome? From my point of view, I
(34:17):
don't see that as a bad thing,because there are some things in
life that I can't afford, and Iimagine there's some things in
your life that you can't afford,right? If you're I want to say
kindly, letting them know thatthe homeowner assessments are
going up a little and a littleand a little and a little each
year. Then gradually they'llsay, I need to move somewhere
(34:38):
else rather than get hit with a$50,000 special assessment or
worse.
Mitch Drimmer (34:44):
I mean, you talk about affordability. I mean, I'm
looking out my window right nowand right there. I'd love to
live in the Porsche building,right, even though it's sinking
into the ground here in thesunny High Schools of Florida,
but I can't afford it, right?
And the same with principal.
Implies assessments. If theybecome so high that you can no
longer afford to pay them, thebest option is to sell and cash
(35:07):
out while there's still equityin your property. And that's
another piece of advice, not formanagers, not for board members,
but for owners who are feelingto squeeze, keep a finger on the
pulse of how much equity is inyour apartment. I'm sitting in
my apartment, I know to to atleast $20,000 differential what
(35:28):
my equity is in this apartment.
And again, in many people'slives, there comes a time to
downsize, when the kids grow upand leave the community.
Association is not to fit itsbudget into everybody's personal
finances, the association has aresponsibility to maintain
property and ensure the longterm viability of the community.
It's that simple, and that oftenmeans making those difficult
(35:50):
decisions about assessments. Itbecomes too much to manage
financially. It's time toconsider other options,
including selling. And that'sjust part of home ownership.
That's part of life, you know?
Robert Nordlund (36:03):
And again, then you get someone new in the
association who is comfortablewith $500 a month and is not
aching for the old days when itwas only $113 a month. And I you
have a better owner in there,supporting the association,
supporting the board. Well,right? And
Mitch Drimmer (36:21):
thank you, and thank you telling all the people
out there, it doesn't getbetter. I've never seen an
association with prices go backdown, because we don't live in
magical buildings. They don'tget younger, they only get
older. Yeah, as a reserve guywould know, as the reserve guy
knows better than anybody elsespeaking
Robert Nordlund (36:38):
my language here. Well, yes, as always, it's
great talking with you. Anyclosing thoughts to add at this
time? First
Mitch Drimmer (36:44):
of all, I just wanted to say that it's a
pleasure to be on on your onyour on your call, on your
podcast. And I got to tellpeople again, don't go straight
to foreclosure. It's notnecessary. I you can resolve 95
to 98% of your delinquenciesthrough through conversation.
(37:11):
You could, you could. You couldresolve a tremendous amount of
delinquencies that you send toattorneys and to collection
agencies before you send them tocollection agencies and
attorneys. By doing morefrequent, as I mentioned
earlier, more frequent outreach,amenity restrictions, all the
things that I gave in thebeginning, let's, let's, let's
(37:32):
do some action plans on thatboards of directors, guys and
managers, and let's make thisright, because there's nothing
better than a well functioningcondo or community HOA
Association, because wheneverybody chips in, everybody
lives a little better. Yeah,
Robert Nordlund (37:50):
that's a good thing. Well, anyone listening,
if you'd like to get in touchwith Mitch, you can email him at
Mitch, at Excella tech.com,that's a X, E, L, A, tech, T, E,
C, h.com, and again, I've gotyour book here, the art of
collections for communityassociations. You want to leave
(38:11):
people with some ideas aboutwhere they can get
Mitch Drimmer (38:14):
that Well, the thing is, if you want reach out
to me, I'll send you a digitallink to the book. The fact is,
as I mentioned also earlier,public policy is requiring state
legislators to change the laws.
Every year I'm talking withpeople in Washington, they want
to do Washington State and stufflike that. So I get out my book
(38:36):
is out of print, and I've givenmost of them away. You still
could use it. It's still veryvaluable. But I'm coming out
with the second edition, whichwill be released at the CAI show
in in May or June of this year.
And it'll have and I'm doingthat for May and June because
I'm contemplating that therewill be more legislative
(38:59):
restrictions coming on to onlineby that time of the year. So I'm
rewriting the book with what Iknow with the 2024 changes, but
I'm also saving space. I'mleaving bookmarks for the 2025
there's going to be a lot oflegislative action because of
(39:20):
what's going on nationally?
Robert Nordlund (39:22):
Yeah, this may be something that you have to
update annually, which means myhard copy here may be a dinosaur
pretty soon, because everythingis updated as a PDF to stay
current. It's alright,
Mitch Drimmer (39:35):
no, I'll update it and print them, and I give
them out at the CAI show, andhopefully they and the CACM
shows, I give them out too, youknow, right? So I don't want to
leave. I don't want anybody inCalifornia not to think I don't
love them. I love you all. And,and I was praying for your last
well, I'm still praying for you.
Your problems are not overthere.
Robert Nordlund (39:57):
Thank you so much. Well, like you said, you.
We function better when wefunction in a community. I'm
glad that we have this communityof board members across the
country. Glad that we have acommunity of people that suffer
with a hurricane here or icestorms there or wildfires out
(40:17):
where we are. And it's great tobe here as part of this, this
bigger team? Well, we hope thatyou learned some HOA insights
from our discussion today thathelps you bring common sense to
your common areas. We lookforward to having you join us
for another great episode nextweek.
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(41:19):
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If a board member is hesitant about making making
(00:02):
assessments to cover thesecosts, they should step down
from the board. I'm very seriousabout that. This isn't a game of
Monopoly where the stakes arelow. We're talking about the
very real possibility ofmaintaining the integrity of a
valuable a real estate assetwhere families have invested
their life savings and most oftheir equity. So no, don't.
(00:24):
Don't play around with thesebudgets. Be honest with these
budgets. If you can't handle thepressure of making tough
decisions like raisingassessments, then you might be
time to step aside. As I said,
Announcer (00:35):
Hoa, Insights is brought to you by five companies
that care about board members,association, insights and
marketplace Association,reserves, community, financials,
Hoa invest and Kevin Davis,Insurance Services, you'll find
links to their websites andsocial media in the show notes.
Robert Nordlund (00:51):
Welcome back to Hoa insights, common sense, for
common areas. I'm RobertNordlund. I'm here today for
episode number 93 with specialguest Mitch drimmer from Excella
technologies. If that namesounds familiar to you, it's
because we had Mitch on theprogram last year for episode
number 54 now here in 2025 we'rethinking that costs continue to
(01:13):
put pressure on Associationbudgets, so we want to bring
Mitch back on the program toshare his insights about
maximizing cash flow with you.
We don't want your budget to becrippled by some non paying or
slow paying homeowners. We wantour podcast audience to have the
advantage and be well informed.
So today, Mitch will share moreof his tips and best practices
(01:35):
to make sure collection issuesaren't tripping you up. This
will set you up for success,paying your bills and making
your scheduled reservetransfers. Well, this is a
follow up to episode number 92with regular co host and
insurance expert Kevin Davis,where we discussed a year end
wrap up of insurance in 2024what's likely going to stay the
(01:57):
same in 2025 and what likelywill change, and also what you
can do to become a preferredaccount enjoying minimized
insurance premiums. I hope thatgot your attention. Well, if you
missed that episode or any otherprior episode, take a moment
after today's program to listenfrom our podcast website, www
(02:17):
insights.org, or watch on ourYouTube channel, but better yet,
subscribe from any of the majorpodcast platforms so that you
don't miss any future episodes.
And those of you watching onYouTube can see the HOA insights
mug that I have here on my desk.
It's a favorite about some boardmembers talking about
(02:39):
deterioration in their commonareas. And you can get, I got
that from our merch store, andyou can browse through that
store merchandise from our hoeinsights.org, website, or the
link in the show notes, you'llfind we have some great items
there, some free stuff, likeboard member zoom backgrounds,
and some specialty items forsale, like the mug. So go to the
(03:03):
merch store, download a freezoom background, take a moment,
look around, find the mug you'dlike and email me at podcast, at
reserve study.com with yourname, shipping address, mug
choice, and mentioning episode93 mug giveaway. If you do that
and you're the 10th person toemail me, I'll ship that mug to
you free of charge. We enjoyhearing from you responding to
(03:26):
the issues you're facing at yourassociation. So if you have a
hot topic, a crazy story, or aquestion you'd like to have us
address, you can contact us at805-203-3130, or email us at
podcast, at reserve study.comnow one of those questions led
(03:46):
us to today's topic, which wasquestion was from Richard in
Denver, who asked, What can wedo to get access to the cash
that delinquent owners aren'tpaying us So Mitch, friend of
mine, friend of the program, andauthor of the book The Art of
collections for communityassociations, which I have right
(04:09):
here on my course. What advicecan you give to Richard?
Mitch Drimmer (04:15):
Well, first of all, I'd like to thank you for
having me on your podcast today,Robert. And I also want to say
that Richard's question is a isan important one, especially
considering that he's fromColorado. Why is that? Well, as
a matter of public policy, statelegislators nationwide have been
(04:38):
revising statutes everylegislative session to make it
more challenging for communityassociations to enforce
Association lean foreclosures.
They're not happy about it.
Colorado is at the forefront ofthis effort, making it
particularly different difficultfor associations to foreclose
people. In other words, they.
Taken,
Robert Nordlund (05:00):
maybe their desire to help the little guy a
step too far.
Mitch Drimmer (05:04):
I don't, I don't think that they helped the
little guy a step too far. WhatI think that they're doing is
trying to bring reason andrationale to this. I mean, I am
against Association leadforeclosures being the first
step, but I'm not against itbeing the last step. Some states
have gone too far. For instance,the state of New Orleans, of New
(05:27):
Orleans, the state of Louisiana,and all other states of the
country, you don't need toconsider the bank's position.
But in Louisiana, now part ofthe credit bid in an association
lien, foreclosure, you got toget an appraiser with two thirds
of the banks debt, or two thirdsof the value of the house is
(05:49):
there. So in Colorado, they haveall sorts of issues. They have
to have a collections policy.
You have to offer payment plans.
You have to wait a minimum threewe a month delinquency, you
know, before you could bring insomebody. Again, they're trying
to encourage associations towork it out before you put them
(06:12):
out. And I agree with that. Ilike that because, you know, we
see all too often horror storiesin the newspapers, and, you
know, with the news, if itleaves it bleeds, and every
week, they got to have an HOAsued somebody for $3 million or
put somebody out. So I supportthese efforts, because taking
(06:34):
someone's home for a few $100 ora few $1,000 is not the right
solution. But this leads to thequestion, What can associations
in Colorado or anywhere in theUnited States do to manage these
delinquencies under such aplethora or an abundance of
(06:55):
constraints? So the thing is,let me give you some practical
advice, some things thatmanagers and boards of
directors, even of self managedassociations, can do before they
need to call in an attorney or acollection agency such as
myself. And the number one thingthat they have to do even before
(07:18):
they even consider it when theysee that their first delinquency
is out there is they've got toget ensure that they have the
right contact information.
Because as a guy who's been amanager, I could tell you so
often, you know, people willtell you, I didn't get a letter,
I didn't get an email and andit's true, because when you move
in. When people move into HOAsand condos, they they got to
(07:42):
give you the current address,the current, you know, the pre
primary address, secondaryaddress, email, text message,
cell phone. But when they changethem, they don't go back into
the office, into the communityassociation office, and say, we
changed it. So by the way, asthey say in cool hand, Luke, you
(08:03):
have a failure to communicate.
Yep, and that's the problem. Soagain, there's a lot of so I
recommend, when somebody goesdelinquent, that your boards of
directors or your managementcompany subscribe to what you
could find on the internet asSkip tracing, where you could
find somebody's address andcontact information, find, you
(08:26):
know, go to Consumer Reports orwhatever, and find the best one
and get it and make sure youhave the right contact
information for your very firstcourtesy letter, or, as I like
to call them, your first partynotifications. The second
suggestion that could
Robert Nordlund (08:44):
it, yes, you Robin, just go to the neighbors
and double check that neighbors.
You don't know. You know,
Mitch Drimmer (08:50):
a lot of people haven't been in their place for
months. You know, I'm here inFlorida. I have phantom
neighbors. I've got neighbors. Ihear them once a year from
Brazil or something, and youcan't go to the Property
Appraiser site because you knowwho owns the property, but it
doesn't tell you their names orcontact information, their
email, their cell phones. Soagain, you got you got to make
(09:13):
sure that you have the rightcontact information. Even call
them up and say, don't call themup as a matter of we've got a
delinquency and we want to sendyou a delinquency letter. Call
them up and say, This is theHOA, and we'd like to know if we
have the right contactinformation. We're we're
verifying our contract. So ifyou've got a delinquent owner,
before you send them a courtesyletter, have one of your interns
(09:38):
or somebody, if you're amanagement company, if you're
working on the board, give thema call with the phone number,
see if you got the right number.
And if you do, double check it,make sure if you've got the
right email, and make sure yougot the right address. That's
how you start this wholejourney, this collection
journey, and then you got toreach out to the owners promptly
and consistently. Well, youknow, one. While associations
(09:59):
should adhere to the first partynotifications that are in their
governing documents. You know,the the courtesy letters and the
in Florida, the Nola letters andin California, they the payment
plans, and the Colorado thepayment plans or or whatever,
notice of intent to lean. Butbefore any of that happens, the
board of directors. When I sayfirst party notification, the
(10:21):
first party is the board ofdirectors. So even though you're
managed, it's the managementcompany giving the boards
letters, because those lettersshould be said, signed for,
signed by the board.
Robert Nordlund (10:36):
So because it's the the board that's and the
association that's collecting,not the management Exactly,
okay, right? And
Mitch Drimmer (10:43):
a lot of management companies put these
courtesy levers under theirheading. If you're a management
company, don't do that. However,there are rules about what we
call these. Are called conditionprecedents. You have to do one
thing before you do another,before you do another, before
you do another. And in somestates they don't exist. Like in
Florida, there's very fewcondition precedents for the
(11:05):
management company or theassociation to adhere to,
whereas in Colorado, there'sdozens of them. However, in no
state is there a rule that saysyou can send a letter every five
days, every 10 days. So what wesee happening a lot is boards of
(11:25):
directors and their managementcompanies, too will often send a
courtesy letter, you know you'vemissed this payment, and then
people won't hear from them forthe next month, and then they'll
say you missed a payment, andthen they won't hear from them
from another month. Yeah,
Robert Nordlund (11:43):
so they're working on 3060, 90 type basis,
exactly.
Mitch Drimmer (11:47):
And remember, out of sight is out of mind. People
get a letter. They right hand,left hand, garbage can. They
don't hear for a month. Theydon't think they have a problem.
I'm recommending to boards ofdirectors and to community
managers to send more frequentletters, to send text messages,
to send more frequent emails.
Now, the pushback on this willbe all the boards don't want to
(12:07):
spend the money because themanagement companies have to
charge $10, 1525, pay it.
Trivia, exactly, pay it, but payit now, or you're going to pay a
lot more later. Yeah, so youwork it out with your management
company. You say, look, everyemail you sent, it will will
accept a $5 charge, or everyletter you send a $10 charge, or
(12:31):
something like that. Again, cometo some sort of arrangement, but
contact them frequently.
Persistence is the key third ifyour governing documents
prescribe late fees and lateinterest, apply them to the
ledger, these penalties act asincentives. They're there to to
to motivate people to timelypayments and failure to access
(12:52):
assess them to the ledgers andto the statement of accounts.
Will diminish the urgency ofthis situation.
Robert Nordlund (13:04):
Well, doesn't mean so look sloppy if you say,
Mitch Drimmer (13:09):
Yeah, of course.
But many, many personal, I thinkall self managed associations
will will never put the lateinterest in. I've seen it. I see
it all the time. I get ledgesfrom all over because it's
simple interest. It's notcompounded. You cannot compound
it. You cannot charge intereston interest. You cannot charge
(13:30):
interest on late fees and latefines for violations. So it's
not that simple to compute. Sothey leave it out when we
received it. Of course, weadhere to the governing
documents. And if the governingdocument says You shall charge
interest, shall is shall, shallisn't, maybe could, would or
should, so you've got to chargethat interest. It's in your
(13:53):
governing documents. So whywould you take a stick that you
have in your governing documentsand not use it. So again, I put
it, I put that to you that thatwould be a good solution.
Another fourth is wherepermissible restrict amenities
to delinquent owners, restrictvoting rights for delinquent
(14:15):
owners, while this may require aresolution of the board during a
properly noticed meeting. It'san effective strategy, believe
me, it works. It's summertime inFlorida, and you can't go to the
pool. You're going to pay yourbills, some things I will tell
you not to do, such as turningoff somebody's water. In case,
(14:38):
you know they get water. Don'tdo that. But if your bylaws and
your state statutes allow you torestrict amenities by all means,
use every, every, every possibleresource you have,
Robert Nordlund (14:55):
I think so often with collections people
and with cash flow problems.
People think of fine as theconsequence. And what you're
talking about here is there areso many other consequences that
you can be creative about. Andif it's not, as you say,
restricting them from the pool,and I know there's, I believe
there's some associations insome states that may prevent you
(15:15):
from doing that to thehomeowner, as you say, you get
into a dangerous area trying toshut their water off, but you
may be able to restrict theirguests from going through the
gate or something like that,right?
Mitch Drimmer (15:32):
Well, let me, let me give a little disclaimer
here. We're Robert and I arefolks are talking about all 50
states, so check your ownbylaws, right? Check your state
statutes, and make sure thatsome of these things that I'm
telling you you can do, you cando, but there is one thing, one
last thing that you can do,which I know you can do because
(15:54):
it's a Fannie Mae and FreddieMac requirement. It's in some
bylaws you could escalate thepressure on a delinquent owner
by notifying their mortgagecompany. It's called a bank
demand letter, because whensomebody is delinquent in their
payments to the association,they've defaulted, then they go
(16:18):
in breach of the mortgageagreement, and just like a banks
don't like it when you don't payinsurance and when you don't pay
taxes, they don't like it whenyou don't pay assessments,
because you have a securityinterest, they have a security
interest. And as a matter offact, when a bank forecloses on
an HOA, they have to name theHOA as as a defendant. So what
(16:42):
they can do by virtue of, and ifa lot of people say to me all
you're piercing the veil ofconfidentiality, no, you're not.
This is when you bought your HOAhome or your condo, you signed
either a PUD rider, playing unitdevelopment rider or a condo
rider that says that if you aredelinquent, the project is to
(17:04):
notify the lending bank when thelending date gets that
notification. In certain states,it's very powerful. It's more
powerful in what we call superlean states, where the banks
will actually cut a check forthe super lien amounts and other
states where they don't havesuper liens, maybe the banks
(17:26):
will pay, or we see banks payfor a lot of assessments, and
but for sure, the banks aregoing to contact the owner and
say, What's going on there. Youhave to pay your assessments,
because if you don't pay yourinsurance, the banks will force
place insurance. If you don'tpay your taxes, they'll force
place the taxes. They'll pay thetaxes, but they'll land it onto
(17:48):
your mortgage. Very fewmanagement companies do this,
very few associations do this.
And I think it's a great idea,and it could, it could work
well, the overarching principleis that a single courtesy letter
rarely resolves delinquencies ifinternal efforts fair, my
recommendation is to partnerwith a merit based collection
(18:08):
agency. Of course, that's what Ido, but with significant equity
in homes, today's foreclosureshould not be the default
option. As a matter of fact, I'meven talking about that, because
although I'm in collections, andI speak to a lot of managers,
lot of people say the lawyersaren't foreclosing like they
used to, but it is a long,expensive process where you get
(18:32):
your money at the back end. Youknow, we're trying to not resort
to drastic measures. So again,by following these three steps,
the associations can protecttheir financial health while
staying compliant with evolvingregulations and and that's the
answer to that question. Let'shave our follow up.
Robert Nordlund (18:54):
Well, Mitch, you got me thinking here that I
think for so many board membersare thinking, what do I need to
do? Well, I need to send acollections letter. I need to
find them. And you're painting apicture of so many tools that
you have in your toolbox, thetool of nagging, you know,
(19:15):
reminding them, so they arelike, Oh, gee, you're right. I
was out of town that week. Ineed to get on this two week of
other options, other pressureyou can put on, maybe no use of
the pool. You can't vote. Youcan't run for the board of
directors, all those kinds ofthings if you're financially
delinquent, and then poking themwhere it hurts, reaching out to
(19:36):
the bank and in a little kidlanguage, tattling. But yeah,
Mitch Drimmer (19:42):
this is dropping a dime on him, dime on him, like
when he grown up, because he'sin New York, yeah, yeah.
Robert Nordlund (19:48):
But because they are, they're not honoring
their commitment. And theircommitment, well, they bought
in, was to pay their fair share,and that's it, I think one
thing, yeah, one. Thing thathits my heart is that this is a
matter of boards being fair,because it's not fair if you
have 100 units, it's not fairthat 99 of the units are paying
(20:11):
all the bills and one person'sgetting off scot free. It's only
fair that everyone pays theirfair share, and you want to have
the right pressures and theright consequences, and you're
talking about all the differenttools that are available to you
so that you are being fair tothe majority, and if someone's
not fulfilling their obligation,you're not being mean. You're
(20:32):
just saying, Hey folks, youpromised, and we're just going
to hold you to your promise, andthose kinds of things. Well,
that's a heck of a start. Well,let's take a quick break now to
hear from one of our generoussponsors, after which we'll be
back with more common sense forcommon areas.
Russell Munz (20:48):
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don't want to work as hardvolunteering? Are you full
managed and looking to savemoney, or are you looking to
split the accounting from amanager's role for better
service? Let communityfinancials handle the monthly
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Robert Nordlund (21:20):
Now we're back.
We're here with Mitch drimmer ofExcella technologies, talking
about cash flow and collections.
And my brain is already full.
But I want to go a little bitfarther with Mitch. Let's talk
about some other things. On ourlist of topics that we were
possibly talking about amongyour clients. Is there a normal
delinquency amount that theaverage Association should be
(21:41):
dealing with? Well, I
Mitch Drimmer (21:45):
could tell you what our analytics are, and we
have many 10s of 1000s ofdelinquent units and hundreds of
management companies, andactually 1000s of associations.
The national average delinquencycurrently is 3.5% for HOAs, but
4.3% for condos. Condos alwayshave a more expensive monthly
(22:11):
assessment because, you know,there's elevators, there's
shared water heating, there'semployees, there's a building
engineer, there's a lot go,there's garbage chutes. While
these percentages, they may notseem significant at first
glance, you know, I don't haveto tell you about increasing
prices due to insurance andreserve requirements. And it's
also crucial to remember thatassociations operate as a $0
(22:34):
business, meaning that everydollar that is, you know,
necessary to cover expenses inthis context, even a 1%
delinquency rate can be highlyproblematic. It disrupts the
financial stability, and itmakes addressing the minimizing
delinquencies a top priority forany community. So again, you may
have your averages, but it'sirrelevant. One One delinquency
(22:58):
is not acceptable,
Robert Nordlund (22:59):
yeah, well, I hear that because everyone
signed in for it. So that'sright, the average association
with three or 4% the people thatare on your your bad list, the
delinquency list, you want tomake sure that you have the
appropriate processes in placeso they are gradually clearing,
right? So as they clear, anotherone will pop up, and then you
(23:20):
clear them. It's just part oflife at a community association,
isn't
Mitch Drimmer (23:25):
it? It's like Sisyphus. You roll that boulder
up the mountain, and then itrolls back down, so you gotta
keep at it. But it's better thanrolling five boulders up the
mountain than one. Okay, it'sbetter to roll one than have
five, so if you let it rot, andif you don't, if you ignore
these delinquencies. Now youdon't have boulders you when you
(23:48):
roll it up to the top of themountain. Now you got an
avalanche coming back at you. Soit's, it's, it's, it's got to be
addressed immediately.
Robert Nordlund (23:57):
Yeah, and I like the strategy of keeping
your problems small, becausewhen you keep your problems
small and nothing, you justdon't have big obligations
sitting around. Well, let's talkabout, let's say you have, let's
make it unit owner number 13,where you've they're three
(24:18):
months late, they're six monthslate, they're a year late.
They're two years late. Do youever get to a point where you
just throw your hands up? Orwhen did, yeah, talk to me about
a real problem account. When
Mitch Drimmer (24:32):
I do demos for people, i i I show them what we
do, and I can tell you in thesedays that there is equity. I've
been doing this in 2008 I couldnever say this. Okay, we seldom
do. Association leadforeclosures, but there are, you
know, still delinquencies. Andone of the questions you were
(24:54):
asking is, you know, should theboard's budget for 100% of the
people paying? I think that'swhat you were alluding to. And
the answer is absolutely not.
The budget should include a lineitem for doubtful debt. They
don't based on historical, youknow, historical patterns, if
you have a 4% delinquency rate,then you should budget for 104%
(25:17):
and you know, it's it may seemcounterintuitive that budgeting
for higher assessments may lead,will, will lead to
delinquencies. But if you don'tbudget for the higher
assessment, you know, youeverybody's expecting that
assessment to go up at thebeginning of the year. So your
(25:37):
models will go up at thebeginning of the year, because
if you lie to yourself, if youcon yourself, if you grift
yourself, you're not telling thetruth on your budget, and you're
not budgeting for doubtful debt,you're going to get hit with the
special assessment in April, inJune or July or something,
right,
Robert Nordlund (25:55):
people, because
Mitch Drimmer (25:56):
it catches up with you. It catches up with it.
Yeah. So again, put up with it.
Don't put up with it. Plan forit. Okay, so and again. You know
that's that's very important,yeah, okay, every business
plans, every business plans fora cash shortfall. I know mine
does, yeah. Well, every businessI've ever been in,
Robert Nordlund (26:18):
that's what I was thinking. If you have a
average retail store, there is asmall amount of theft that goes
on, and they call thatshrinkage, shrinkage. And if
shrink, if you're ignoring thereality of that, you're foolish.
And we don't want our audienceto be foolish. So
Mitch Drimmer (26:35):
how we built you're trying to make everybody
smarter. Robert, yeah,
Robert Nordlund (26:39):
that's That's it. We want this to be a good
use of their time, so budget foryour historical averages, but be
collecting on that. And soyou're gradually filling in with
the delinquencies that you'recollecting with the new ones
that are going out. So you'renever really digging a deeper
hole. What are the most commonmistakes that you see boards
(26:59):
making?
Mitch Drimmer (27:01):
Well, the number one most common mistake that a
board makes is that they feelthat they're being benevolent
and that they're not givingpeople a chance to or they're
trying to be kind to people.
They're, you know, they're, theyhave, they have bought in board
members into a very seriousposition, even a small
(27:21):
condominium of 60 units could beworth, could be a $3 million $30
million project. Oh, yeah, it'shalf a million $30 million
project. So again, there's anold expression. He who is
merciful to the cruel is cruelto the Merciful. So these people
(27:43):
who feel that they are are arenow the arbiters of benevolence
and altruism and kindness.
They're not doing they're notdoing the association any good,
and they're doing a disserviceto the delinquent owner, because
the delinquent owner is going tocontinue to make bad decisions,
(28:06):
and these bad decisionssometimes are not reversible.
Robert Nordlund (28:10):
Yeah, I think that's the danger. Is focusing
on the minor and serving theminority instead of the
majority, the 97% that are doingtheir level best. They're paying
their homeowner assessments. Andagain, it's the board's
responsibility to run theassociation, and I often maybe
(28:32):
time to crack the whip.
Mitch Drimmer (28:33):
I often tell boards, you have a fiduciary
duty to the association, not toyour next door neighbor. Yeah,
Robert Nordlund (28:41):
yeah, they're serving the corporation that is
represented by people directors,yeah, yeah. Leave your ego
Mitch Drimmer (28:50):
and your personal prejudices outside the dorm when
you convene a board meeting.
Yeah,
Robert Nordlund (28:57):
I grew up hearing no ticky no laundry.
That's it. It's pretty thatcould be the title of this.
Mitch Drimmer (29:05):
Yeah, it's not that complicated. No, it is not.
Robert Nordlund (29:10):
Yeah, you got to add it up to play in the
game. Let's talk. You talkedabout raising assessments, and I
know there's many in ouraudience that are sensitive to
that, thinking that they don'twant to raise assessments more
than some magic number that's intheir heart or in their brain,
(29:30):
because if they do so, it'llpush people into delinquency. Is
that, from your experience, alegitimate concern? Well,
Mitch Drimmer (29:39):
no, not at all.
Because when it comes to raisingassessments, this is not a
discretionary manner. This isnot well, you know, maybe this
will cost $10 or maybe this willcost $5 you know what your costs
are, or you're making your bestguess at what your costs are.
And if you're being honest,you're going to shoot for a
real. Stick number. You're notI've saw, I've been to so many
(30:01):
meetings where they say $20,000for minor repairs or maintenance
or, you know, and then peoplesay, You know what? That'll
increase the assessments by toomuch. Make it $5,000 this is
there's no discretion here. Youhave to assess the owners based
(30:22):
on the actual cost ofmaintaining the property. If a
board member is hesitant aboutmaking making assessments to
cover these costs, they shouldstep down from the board. I'm
very serious about that. Thisisn't a game of Monopoly where
the stakes are low. We'retalking about the very real
possibility of maintaining theintegrity of a valuable a real
estate asset where families haveinvested their life savings and
(30:46):
most of their equity. So no,don't. Don't play around with
these budgets. Be honest withthese budgets. If you can't
handle the pressure of makingtough decisions like raising
assessments, then you might betime to step aside, as I said,
raising assessment will mostlikely trigger some
delinquencies, and that's areality we can't ignore. But
(31:06):
there's no excuse for allowingthe property to fall into
disrepair, or worse, living tobecome a financial burden that
affects everybody in thecommunity. We have a
responsibility, or board membershave a responsibility to ensure
the long term health of theproperty, and sometimes tough
decisions are the only wayforward. And let me say one more
(31:27):
thing. Being two miles away fromSurfside, we're not just talking
about the landscaping and hownice the lobby is and that we're
paying our people right. We'retalking about a whole structure
falling down and killing 100people. It's life safety issues
here. So when you're on a boardof directors, this is not a
social club, folks. Yeah, thisis a serious business matter,
(31:49):
and we try to make it serious byenforcing Robert's Rules of
orders and having the meetingsvery formalized. So take that
seriousness and act accordingly.
Robert Nordlund (32:03):
Yeah. Well, I'm thinking about gravity here.
Gravity is something you can'tavoid. And just like you said
that if you allow the littledelinquencies to grow and grow
and grow and grow, they justbecome a bigger and bigger
problem. And so I feel like onthe you need to think the same
way on the income side, that ifyou are not increasing the
(32:24):
assessments as much as they needto be, you're gradually building
your own deficit, and you'regradually running yourself into
special assessment land. Andthat's no fun either. And so if
you're if you keep, if you justdo the thought experiment of
what happens when that happens,if you're under raising, or if
(32:45):
you're not raising theassessments as much as they need
to be, you're creating your ownproblem, and that's a bigger
problem than if you just raisethe assessments from $10 a month
to $25 a month, or $50 a month,$75 a month, moving up that
much. And from my point of view,I had that same feeling that,
yes, raising the assessmentsfrom 350 a month to 385 that's a
(33:10):
$35 a month jump, clearly, andthat's money that the homeowner
doesn't have in their pocket.
But number one, it's a bill thatthe association has to pay. And
$35 a month is $1 a day. Are yougoing to lose your home for $1 a
day? You're going to findsomewhere else? $365
Mitch Drimmer (33:28):
is $1 a day. But again, this is not
discretionary. This is notsomething that you could decide
yes or no. It's very binary. Isit, will you cover the expenses
or will you'll not cover theexpenses. That's the decision
you have to make. Yeah,
Robert Nordlund (33:44):
we're talking about making just a solid
mathematical business judgmentdecision here about what does it
cost to run here? Well, gotta
Mitch Drimmer (33:52):
be it's gotta be heartless. Yeah,
Robert Nordlund (33:57):
I personally don't like to be heartless, but
I do know how to run a business,and board members are running a
business. But let me do one morething. If we roll this, what
happens when that happens forone more step, and you do have
to get to a hard point where youare collecting and you're
forcing someone out of theirhome? From my point of view, I
(34:17):
don't see that as a bad thing,because there are some things in
life that I can't afford, and Iimagine there's some things in
your life that you can't afford,right? If you're I want to say
kindly, letting them know thatthe homeowner assessments are
going up a little and a littleand a little and a little each
year. Then gradually they'llsay, I need to move somewhere
(34:38):
else rather than get hit with a$50,000 special assessment or
worse.
Mitch Drimmer (34:44):
I mean, you talk about affordability. I mean, I'm
looking out my window right nowand right there. I'd love to
live in the Porsche building,right, even though it's sinking
into the ground here in thesunny High Schools of Florida,
but I can't afford it, right?
And the same with principal.
Implies assessments. If theybecome so high that you can no
longer afford to pay them, thebest option is to sell and cash
(35:07):
out while there's still equityin your property. And that's
another piece of advice, not formanagers, not for board members,
but for owners who are feelingto squeeze, keep a finger on the
pulse of how much equity is inyour apartment. I'm sitting in
my apartment, I know to to atleast $20,000 differential what
(35:28):
my equity is in this apartment.
And again, in many people'slives, there comes a time to
downsize, when the kids grow upand leave the community.
Association is not to fit itsbudget into everybody's personal
finances, the association has aresponsibility to maintain
property and ensure the longterm viability of the community.
It's that simple, and that oftenmeans making those difficult
(35:50):
decisions about assessments. Itbecomes too much to manage
financially. It's time toconsider other options,
including selling. And that'sjust part of home ownership.
That's part of life, you know?
Robert Nordlund (36:03):
And again, then you get someone new in the
association who is comfortablewith $500 a month and is not
aching for the old days when itwas only $113 a month. And I you
have a better owner in there,supporting the association,
supporting the board. Well,right? And
Mitch Drimmer (36:21):
thank you, and thank you telling all the people
out there, it doesn't getbetter. I've never seen an
association with prices go backdown, because we don't live in
magical buildings. They don'tget younger, they only get
older. Yeah, as a reserve guywould know, as the reserve guy
knows better than anybody elsespeaking
Robert Nordlund (36:38):
my language here. Well, yes, as always, it's
great talking with you. Anyclosing thoughts to add at this
time? First
Mitch Drimmer (36:44):
of all, I just wanted to say that it's a
pleasure to be on on your onyour on your call, on your
podcast. And I got to tellpeople again, don't go straight
to foreclosure. It's notnecessary. I you can resolve 95
to 98% of your delinquenciesthrough through conversation.
(37:11):
You could, you could. You couldresolve a tremendous amount of
delinquencies that you send toattorneys and to collection
agencies before you send them tocollection agencies and
attorneys. By doing morefrequent, as I mentioned
earlier, more frequent outreach,amenity restrictions, all the
things that I gave in thebeginning, let's, let's, let's
(37:32):
do some action plans on thatboards of directors, guys and
managers, and let's make thisright, because there's nothing
better than a well functioningcondo or community HOA
Association, because wheneverybody chips in, everybody
lives a little better. Yeah,
Robert Nordlund (37:50):
that's a good thing. Well, anyone listening,
if you'd like to get in touchwith Mitch, you can email him at
Mitch, at Excella tech.com,that's a X, E, L, A, tech, T, E,
C, h.com, and again, I've gotyour book here, the art of
collections for communityassociations. You want to leave
(38:11):
people with some ideas aboutwhere they can get
Mitch Drimmer (38:14):
that Well, the thing is, if you want reach out
to me, I'll send you a digitallink to the book. The fact is,
as I mentioned also earlier,public policy is requiring state
legislators to change the laws.
Every year I'm talking withpeople in Washington, they want
to do Washington State and stufflike that. So I get out my book
(38:36):
is out of print, and I've givenmost of them away. You still
could use it. It's still veryvaluable. But I'm coming out
with the second edition, whichwill be released at the CAI show
in in May or June of this year.
And it'll have and I'm doingthat for May and June because
I'm contemplating that therewill be more legislative
(38:59):
restrictions coming on to onlineby that time of the year. So I'm
rewriting the book with what Iknow with the 2024 changes, but
I'm also saving space. I'mleaving bookmarks for the 2025
there's going to be a lot oflegislative action because of
(39:20):
what's going on nationally?
Robert Nordlund (39:22):
Yeah, this may be something that you have to
update annually, which means myhard copy here may be a dinosaur
pretty soon, because everythingis updated as a PDF to stay
current. It's alright,
Mitch Drimmer (39:35):
no, I'll update it and print them, and I give
them out at the CAI show, andhopefully they and the CACM
shows, I give them out too, youknow, right? So I don't want to
leave. I don't want anybody inCalifornia not to think I don't
love them. I love you all. And,and I was praying for your last
well, I'm still praying for you.
Your problems are not overthere.
Robert Nordlund (39:57):
Thank you so much. Well, like you said, you.
We function better when wefunction in a community. I'm
glad that we have this communityof board members across the
country. Glad that we have acommunity of people that suffer
with a hurricane here or icestorms there or wildfires out
(40:17):
where we are. And it's great tobe here as part of this, this
bigger team? Well, we hope thatyou learned some HOA insights
from our discussion today thathelps you bring common sense to
your common areas. We lookforward to having you join us
for another great episode nextweek.
Announcer (40:34):
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about the community,association, industry, you'll
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