It's said that the love of money is the root of all evil. Others say it makes the world go around. But in an HOA, love it or hate it, it's needed to keep the boat afloat. Unlike the federal government which can print more money when necessary, it's up to all HOA members to pay their fees or the rest will have to do it for them.

While the governing documents give the authority to collect money from members, there is often little direction on the details of how to do it. Enacting a formal Collection Policy is one of the most urgent and necessary of all policies. Some of the nuts and bolts:

Due Date. While it seems obvious, stating that payment is due by a certain date is necessary. Make it due when it's due. "Due on the 1^st and late on the 5^th" means due on the 5^th (and the post office or dog gets blamed when it doesn't arrive until the 10^th).

Late Fees. Late fees work best when they accumulate daily. A one time late fee doesn't urge payment once incurred. Late fees growing by the day do.

Finance Charges. The credit card companies charge them. Merchants charge them. So should the HOA. 1-1½ percent per month is fair.

Bad Checks. Merchants charge at least $25 for returned checks and so should the HOA. Checks are a privilege not a right. If a member continues to bounce checks, terminate check privileges.

Application of Payment. Unless balance is paid in full, payment should apply to oldest balance which means late fees and/or finance charges continue until balance is paid in full.

Late Notice. Should be mailed within 10 days of the due date.

First Ten Day Demand Letter. Should be mailed when balance is 30 days late.

Second Ten Day Demand Letter. Should be mailed when balance is 60 days late. After 10 days, the matter is turned over to an attorney for collection which can include filing a personal judgment, lien on the property, garnishment of wages and foreclosure of property.

The goal of a good Collection Policy is to bring money in promptly and in full. Penalties should be severe enough to get attention but not so severe as to create animosity or resistance. Be consistent and timely in the Policy application. Be very careful about exempting friends. Collections is one of the main reasons that HOAs should be professionally managed. No one should have to collect money from a neighbor. If you are having payment problems, engage a professional HOA manager soon to help put finances back on track.

Money matters in an HOA. Make sure you have a good collection policy to keep the HOA's coffers full.

Published: April 7, 2004

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Richard Thompson owns Regenesis, a management consulting company that specializes in condominium and homeowner associations. He is a nationally recognized expert on HOA management issues. Regenesis publishes The Regenesis Report, a monthly newsletter for HOA boards, developers and managers. To subscribe, go to Regenesis.net. He can be contacted by email at .