Conclusive, So You Terminated Your Community Association Management Company.

Terminated your previous Management company? Ensuring a smooth handover of all documentation, especially financial records, is crucial when transitioning management companies. It is critical in the context of collecting delinquent assessment payments for community associations. Community association management companies should comply with best practices to facilitate the transfer of accurate and comprehensive financial information and avoid sending incomplete ledgers. But how can you ensure they do? Here are some helpful tips:

  1. Request that the terminated management company provide detailed ledgers for all owners, including a comprehensive breakdown of all charges, payments, late fees, and other relevant financial transactions. This ledger should ideally cover the entire account history, ensuring no gaps in information. Suppose the ledger contains “beginning balances” that cannot be detailed (date, description, amount of each individual charge, and absence of credits). Courts may consider the balance uncollectible. Amounts past the statute of limitations can appear on the ledger but should not be included in a lien. Your HOA collections company will thank you for sending them ledgers that they can work on.
  • Encourage the outgoing management company to document all financial transactions clearly and consistently. This documentation should include dates, descriptions of charges or payments, and any applicable interest or late fees. Having well-maintained records ensures a seamless transition  for the new management company and an enhanced cash flow for the community. Without clear and detailed financials, your community association’s cash recovery will be hobbled. 
  • The prior management company should send over all documents about your community, including but not limited to contracts, warranties, CC&Rs, amendments, rosters, minutes, notices, budgetsspecial assessments, and much more. Getting anything less and having your documents fall into the abyss is harmful to any community association. Document retention is one of the services you paid your management company for, and they have a legal and ethical obligation to turn over the association’s documents to your new management company.
  • Ask the terminated management company to reconcile accounts before the transition. This reconciliation process involves comparing the ledger balances with the association’s bank statements to identify and resolve any discrepancies. Reconciled accounts provide a clear and accurate financial picture for the new management company.
  • Recommend using a standardized ledger format that includes specific categories such as assessment charges, late fees, fines, special assessments, and payments. A consistent format makes it easier for both parties to understand the financial history of the association. 
  • Emphasize the legal obligations associated with document transfers. Stress that incomplete or inaccurate ledgers can have legal implications, making it essential for them to provide a complete and accurate account history. Compliance with legal requirements ensures that collections can proceed effectively. In most states, the law requires that when a community transitions from one management company to another, they provide accurate information and up-to-date ledgers. However, we do not live in a perfect world, and those laws are not always easy to enforce. Therefore, we recommended that community associations include codicil in their engagement agreements with management companies, some guarantee, for when the time comes for the management company to exit. We always hear about a “seamless transition” when a new management company comes in. In reality, it seldom seems that way due to gaps in information provided by prior management.
  • Foster open communication and collaboration between the outgoing and incoming management companies. Encourage them to work together during the transition period to resolve any discrepancies and provide additional information if needed. A collaborative approach can lead to a more thorough and accurate ledger transfer. It also protects the professional reputations of the companies involved. 

By emphasizing the importance of accurate, detailed, and legally compliant ledger transfers, you can improve the chances of successfully collecting delinquent assessments and minimize the risk of write-offs for the association. Clear communication and collaboration between management companies are vital to achieving this goal. For a complete no-cost and no-obligation collections analysis, please contact Axela Technologies for a demo of “How the Future Collects.”


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