Collection Attorney vs. Collection Agency
Since I worked as in-house counsel for a debt collection agency prior to joining Barker Martin, I find I am uniquely situated to provide input on whether to turn a particular account over to a collections attorney or to collections agency to recover the delinquent amounts owed to an Association.
My opinion, in general, is that collection agencies are not great avenues for the Association to recover unpaid assessments from a current owner. Under state law (both Washington and Oregon) and the Association’s Governing Documents, the Association has numerous collection powers available to recover the full outstanding balance, including the attorneys’ fees and costs incurred in collecting the delinquent assessments, from a current owner. A few (but not all) of the options available to the Association include pursuing the current owner for their personal obligation to pay the balance or initiating a foreclosure lawsuit to terminate the current owner’s ownership rights to the property. So, why should the Association give away a percentage of the amount owed to the collection agency when there is the possibility of receiving 100% through a collections attorney? In my experience, Associations often walk away with less (and may even have to write-off amounts) when utilizing a collection agency to pursue a current owner to recover amounts owed to the Association. Also, many collection agencies are not setup to collect the ongoing assessments from a current owner—the agency simply splits the ledger at turnover with the agency taking the past-due balance and the Association dealing with the post-turnover amounts. This can be confusing (particularly if the current owner is receiving notices from the collection agency for the pre-turnover amounts and the Association for the post-turnover amounts) and often causes issues with the collection process, which can make it difficult to recover the full balance owed to Association.
That being said, collection agencies can be an excellent resource for the Association to recover amounts owed by a past-owner. If the Association does not know where a past-owner is located or if the Association knows the past-owner lives out of state, in my opinion, that is a great account for a collection agency! If the collection agency recovers funds, great – who cares if the Association pays a small percentage when you didn’t even know how to contact the past-owner about the balance owed in first place! The difficult scenario is a past-owner where the Association has asset information, such as where the past-owner works or banks. In that case, deciding whether to utilize a collection agency or a collections attorney may depend on the amounts owed to the Association. If the delinquent balance is lower, it may be more economical to place the past-owner’s account with a collection agency rather than a collections attorney. However, if the delinquent balance is significant, and the Association has asset information, then a collection attorney can be the better route for the Association to recover the funds.
Ultimately, the Association should evaluate each individual file, discuss the pros and cons of utilizing a collection agency vs. a collection attorney, and then make a decision based on what is in the best interest of the Association. If your Association would like assistance determining whether to utilize a collection agency or a collections attorney, please do not hesitate to contact us!