Effective Strategies for Managing Arrears and Maintaining Cash Flow in Co-ops and Condos

All businesses need a healthy cash flow to operate, and in co-ops and condos the bulk of this cash flow comes from monthly maintenance or common charge payments. When payers are late, budgets get disrupted and vendors get concerned. Monitoring the cash is key, says Adam Reisman, president of client operations at MD Squared Property Group. “The most efficient way to run a building is to make sure all the money that’s supposed to be collected is collected.”
Timeliness Matters
The first line of defense against arrears is a robust monitoring system. “We partnered with AppFolio, a very user-friendly platform that tracks each unit-owner and shareholder,” says Reisman. “If somebody always pays on the 10th, but hasn’t paid by the following week, we know it's something we need to look into,” he says.
When late payments are detected, prompt and friendly communications are sent. Reisman recommends a tiered approach that includes a gentle reminder, a firmer notice and then a warning about potential further action. AppFolio automatically sends out reminders based on the due date. The escalating communication strategy often resolves issues before they become serious problems.
Neighbor Concerns
“Generally when someone isn’t paying,” Reisman notes, “they are trying to get attention for one reason or another. So making a friendly visit might get us the answer, particularly if somebody is unresponsive or we can’t get in touch with them.”
In rare cases, a board member might reach out, particularly if he or she has a long-standing relationship with the late payer. “If neither of these steps works,” he says, “we might get a third-party involved to start a collection case.” MD Squared works with Axela Technologies, a firm specializing in community association collections. Unlike a typical collection agency, Axela earns its income through interest and fees on top of the common charges or maintenance that is owed. So when (and if) the collection is successful, the co-op or condo gets paid in full.
When reminders and late fees aren’t enough, Reisman turns to legal action. Here the distinction between co-ops and condos becomes crucial. For co-ops, the process is generally faster and more straightforward. “Co-ops can take back shares if a shareholder is in arrears,” he says. This often involves initiating a summary proceeding in landlord-tenant court. Condos face a more complex process, he says. “You file a notice of lien, which preserves the condo’s rights but doesn’t provide the same swift resolution as co-op proceedings.”
Compassion and Flexibility
Every building has its own ebb and flow of cash, but Reisman says the goal across the firm’s entire portfolio is to keep arrears below 3 percent. “Consistent enforcement is important,” he notes, but boards should be prepared to show flexibility in genuine hardship cases. Sometimes working out a payment plan can be more beneficial than legal action, he adds. The goal is not just to collect payments, he says, but to ensure the long-term health and harmony of your community.
—Carol Ott