Page 22 - Jan 2012


Collecting what’s due: New tactics may be needed


by Beth Moore, CPA


According to the Mortgage Bankers Association, about 9 percent of mortgage borrowers are behind on pay- ments, and 4.6 percent of homes are in foreclosure. Optimists will note that timeshare owners are doing as well as or even better than that. According to ARDA International Foundation Research, the vast majority of timeshare owners – more than 92 percent – are cur- rent on their timeshare payments. When it comes to annual assessments, 91 percent are current, and just 8 percent are more than 120 days past due.


However, it doesn’t take a pessimist to see that those missed payments represent a significant challenge for resort developers and HOAs who need to keep resort facilities and service up to par without the funds they are due. In today’s tough economy, keeping up with accounts payable can mean the difference to a resort’s long-term survival.


Changing mindsets


With unemployment hovering at 9 percent and foreclo- sures becoming more common, consumer attitudes to- ward debt have changed to reflect new-found realities. In a recent survey, one in five Americans said it is okay to walk away from a home loan and terms such as “strategic default” are entering the country’s lexicon. While this is a reflection of the estimated 11 million mortgages that are “underwater,” trying to shame or en less ef


bully debtors into paying up is going to be even less ef- fective than it was before the current financial crisis.


“Many owners are suffering from the economic times and therefore can’t make ends meet,” says Odilia Orozco, vice president of client service for San Diego- based ResortCom International LLC, which provides receivables servicing on timeshare and fractional loans and maintenance fees. “We’ve seen an increase in membership surrenders from long-time owners who have paid their memberships in full because they can’t make their payments on maintenance fees.”


Greg Sheperd, president of Meridian Financial Services, an Asheville, N.C.-based loan servicing and collections firm, agrees. “The rise in un employment and foreclosure rates means that there is a larger percentage of the population that can’t afford to continue ownership of their timeshares,” he says. “A part of our responsibility to our clients is to help identify these consumers, educate them on available resources, and recommend solutions to help them resolve their financial obligations.”


ise in un- Getting strategic Even in the face of today’s economy, re-


sorts can make the best of an unfortunate situation by developing a plan for dealing with unpaid annual assessments and other debts and then sticking to the plan. For HOAs, I recommend that the board of direc tors approve a timeline for unpaid debt, and that the timeline be communicated to all owners so there are no surprises for owners who don’t pay.


o- ec-


are turning to payment plans for annual assessments and, for seriously delinquent annual assessments, even forgiving part of the debt to get owners back in their good graces and using their vacation time. “This can be effective for older resorts that have a large amount of multiple-year debts and no effective mechanism for resales,” Sheperd says. “We have been very success- ful utilizing ‘amnesty’ programs that relieve consum- ers from a portion of their debt to return them to a current status. Forgiving late fees and finance charges is a successful and routine procedure for motivating consumers to pay.”


Another way to recover lost income is to rent out the weeks of owners who have lost their use privileges. “This is a great idea,” Orozco says. “Renting non-used owner inventory can compensate for collection ef- ficiency decreases. This is a good revenue stream so HOAs should have a rental program in place no matter what the times.”


Getting serious Eventually, some debts may need to be turned over to third-party collection services. The advantage to this is that these firms are experts in debt resolution. For example, they have the technology and know how to reach consumers who may be ducking your calls. “One way to overcome this (call screening through caller ID technology) is by purchasing and using local direct inward dialing (DID) that displays on the consumer’s caller ID as a local or regional area code,” Sheperd says. “Consumers are more likely to answer a call they consider to be local before a toll-free number or an unrecognized long distance area code.”


Take care, however, in choosing an agency. The Fair Debt Collection Practices Act, the Fair Credit Report- ing Act, and other federal and state regulations strictly govern what companies trying to collect debt can and cannot do. Violations of these laws could result in fines and bad publicity for your company. “You want to ensure that any collections firm you use is compli- ant with all state and federal laws,” advises Philip W. Richardson, an attorney at Eck, Collins & Richardson of Orlando, Fla. “Because timeshare owners are all over the country, you also want to make sure they’re regis- tered in all 50 states.”


The plan should have escalating penalties that auto matically come into play as payments reach designated plateaus, such as 60-days, six-months, or longer past due. Late payments may be assessed interest or late fees, while seriously delinquent accounts will trigger loss of use privileges, being turned over to third-party collection firms, or legal action.


Resorts will want to reach out to owners soon after the payments are in arrears. “Creditors should be in contact with consumers immediately upon becoming delinquent and should communicate the collection process throughout,” Sheperd says.


Policies can allow for creativity, though. Many resorts


Richardson also says that contracts should clearly as- sign penalties for violations to the collection firm.


Because you’ll be providing the collections firm with owner data, such as Social Security numbers, you should also ensure that their firm has proper proce- dures in place to protect that data. “The contract should specify that the collector has to bear the expense of protecting debtors if data is breached,” Richardson says.


Before choosing just one firm, you may want to test your final favorites by assigning similar accounts to two companies and see which one performs best. Keep in mind, however, that this only works if the accounts are truly equivalent.


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