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HOAs Seeing Greater Need to Use Collection Firms

(Aug. 09, 2012, Las Vegas, NV) – Payment defaults throughout the housing industry continue to make headlines. What is often overlooked, however, is how homeowner associations (HOAs) are impacted by residents who don’t pay their assessments. Red Rock Financial Services, a FirstService Residential Management company, is a collection company that serves the unique needs of HOAs. Recently, the company has seen a dramatic increase in associations needing to recoup delinquent assessments and maintain neighborhoods.

For instance, the Rancho el Dorado HOA board of directors in Maricopa, AZ faced a difficult decision about how to deal with the increasing number of residents choosing not to pay their monthly assessments. Should the HOA board raise monthly assessments? Close amenities such as the park?

Instead, the board decided to do something that, until recently, was usually done only by large companies — hiring a professional collection agency. They selected Red Rock Financial Services, a Las Vegas-based collection agency that works exclusively with HOAs nationwide and has become the largest company of this type in the industry.

Bill Day, former president of the Rancho el Dorado HOA board of directors, says the decision was not made lightly, but working with Red Rock Financial Services has been a tremendous help for the community of more than 3,000 homes.

“We had so many homeowners who were not paying their monthly assessments,” Day said. “We thought it was more prudent to go after those homeowners who weren’t paying, rather than punishing those who were.”

“Red Rock Financial Services has been a tremendous help to our community,” he added. “The first year of the contract, they were able to collect over $200,000 for the association, which helped us to fully fund our reserve fund and make necessary improvements to the community.”

The Rancho el Dorado HOA has not been the only HOA to seek such help. The Residence at Canyon Gate HOA, located in Las Vegas, also hired the company to help collect its past due assessments.

“For us, it was important to hire a company that specialized in HOAs,” said Michael Cohen, president of the Residence at Canyon Gate HOA. “HOAs in Nevada are governed by the Nevada Real Estate Division, and we wanted someone that knew the laws and regulations specific to HOAs.”

Red Rock Financial Services currently works with more than 1,000 HOAs in five states and has collected more than $67 million for its HOA clients. The growing company is well-versed in the specific HOA laws and regulations in those states, which include Nevada, Arizona, Texas, Virginia and Florida.

Joel Just, president of Red Rock Financial Services, says that many HOAs are facing extreme financial situations and are relieved that expert help is available.

“Many of the HOA boards we talk with have tried everything they can think of to get homeowners to pay their assessments,” he said. “They send letters, hold hearings, send more letters, and eventually have to take the next step of hiring a collection agency.”

It’s not the first choice for an association board’s to hire collection agencies, or even attorneys. At the 385-community Happy Hideaway community in Houston, the HOA had an ongoing issue with homeowners choosing not to pay the annual assessment, which totaled just $50. The association placed liens on delinquent homes, but that only helped the association if a house was sold. The result was homeowners not taking the assessments seriously.

“Ultimately, people have a choice when they receive the first letter to either call and make a payment or schedule arrangements, or ignore the letter altogether,” said Karen Nelson, Happy Hideaway board member and compliance committee chairperson. “Before we hired Red Rock Financial Services to help our association, almost two-thirds of homeowners were not paying assessments. In the year that Red Rock has been working with us, we have reduced the number of delinquent homeowners to just under one-third.”

With the money that Red Rock Financial Services was able to recoup for the Happy Hideaway HOA, the community was able to better maintain landscaping and clean up vacant homes, Nelson added. “It’s not just about making money. It’s about creating a safer and healthier place to live.”

Red Rock Financial Services has been successful in recouping funds for HOAs with no cost to the association. The company’s business model ensures that all HOAs have the ability to recoup the assessments owed, said CEO Just.

The situation is made even worse by homeowners who have decided to default on their mortgage and also choose to stop paying their HOA.

“What people fail to realize is that not paying your HOA assessments does not harm some large, faceless organization,” added Just. “It harms your neighbors, who continue to pay what they agreed to when they purchased the home. It’s not fair they shoulder the costs of those who don’t pay, but who still continue to use the community’s amenities. We’re here to make sure that homeowners who pay their assessments don’t have to carry the burden of those who don’t.”