Until now, failing to make timely assessment payments could lead to additional charges for late payment fees, interest charges, collection fees, and may even result in the filing of a lien against your property and foreclosure of the recorded lien. However, delinquent assessments rarely show up in the member’s credit report, unless the debt becomes a matter of public record (e.g., an assessment foreclosure) or the debt is reported to the credit bureaus by a collections agency.
While residential in character, operating a community association is still a business. In fact, the Community Association Institute reported in its 2014 Statistical Review that of the approximately 333,000 community associations in the United States, community associations and property management companies collect approximately $70 billion in assessment payments each year. Until now, a member could miss a $30.00 minimum credit card payment and be penalized with a lower credit score, but if that same member was thousands of dollars delinquent in his or her assessment payments, it would not negatively affect their credit score, unless formal collections actions are taken by the association, such as turning over the delinquent account to a collections agency which reports the debt to the credit bureaus or a judgment of foreclosure is ordered against the owner. Well, this great injustice is about to change.
Typically, reporting debts to credit reporting agencies requires membership to the credit bureaus. This is a strict and costly process. However, it is sometimes possible for community association related debts to appear on a member’s credit report because the credit reporting agencies have employees which comb the public records for this type of information, including accounts with collections agencies, civil money judgments, and foreclosures. Once this debt appears on the member’s credit report, their credit score is severely lowered by as much as 300 points in the case of an assessment foreclosure.
Until recently, late assessment payments did not affect a member’s credit report or credit score. However, non-traditional credit data sources, including community association assessment payments, will soon begin to regularly appear on credit reports, and a missed payment will negatively affect credit scores. Equifax Inc. (“Equifax”), one of the three major credit reporting agencies, has recently entered into an agreement with Sperlonga Data & Analytics (“Sperlonga”), a data aggregation business for non-standard credit data sources, and will soon take into account community association assessment payments.
Homeowners who are late on assessment payments should expect to see a negative effect on their credit report and credit score. Similarly, homeowners who make timely assessment payments may soon see a positive effect on their credit report and credit score. A test run of the new community association assessment reporting will begin in August 2016 with full reporting planned for October 2016.
As stated by Matt Martin, chairman and founder of Sperlonga, “Until now, HOA payments have gone largely unreported to the national credit reporting agencies. Our service will help elevate association payments to the same level of importance as the consumer’s other financial obligations like residential mortgages, auto loans and credit card payments. Property owners that pay HOA fees on time should begin to see the similar impact to their credit reports as they would with other payment obligations traditionally found in a credit report, while associations and property management companies should begin to see reduced delinquencies and improved cash flow. Our goal is to empower homeowner associations and management companies with the same credit reporting tool that banks and lenders already use to manage consumer debt and credit-related payments.”
Mike Gardner, senior vice president and sales leader at Equifax, has stated, “Equifax is committed to providing consumers with additional means for building their credit histories. Introducing new sources of data beyond what has traditionally been found on credit files can provide additional insight into a consumer’s financial behavior and help deliver expanded credit access.”
Critics of the new community association assessment reporting argue that assessments are not the same types of debt as mortgages or other loans because associations do not provide financing for purchased goods, they provide property maintenance and services only. In this instance, the critic’s arguments of this new aspect to credit reporting is completely meritless. Simply put, if a member does not want to see their credit score go down, then they should pay their assessments on time. This type of credit reporting is long overdue and should be welcomed by community associations throughout Florida and the rest of the United States.
Jeffrey Rembaum, Esq. of Kaye, Bender, Rembaum attorneys at law, legal practice consists of representation of condominium, homeowner, commercial and mobile home park associations, as well as exclusive country club communities and the developers who build them. He is a regular columnist for The Condo News, a biweekly publication and was inducted into the 2012, 2013 & 2014 Florida Super Lawyers. He can be reached at 561-241-4462.