Financial Consequences of Increasing Community Debtors

The debtor listing issued for AEA 17/10/12 makes worrying reading :-

Our total Debtors exceed 465,000 Euros.

 59 of the 126  owners who are overdue owe more that 2,400 Euros.  

These 59 hard case debtors owe a total of 397,427 Euros.  The highest debt was over 15,000 !!  The average debt value of these 59 hard cases is 6736 Euros.  That's equal to FIVE years community fees.

I have read one EyeOnSpain that should an owner become insolvent then the community can only claims two years outstanding fees when the property is liquidated.  Not sure if we get anything in the case of negative equity (which might apply to both homes if the owner has two).

We should be very concerned.  These debts continue to grow and all other things being equal  you and I will need to pay equivalent of double community charge in the next couple of years to keep our community solvent.

Or puy it another way - we will need to pay 25% extra on our charges for four years as a consequence of bad debts.

It was reported at the EGM that the Spainish Courts have a big backlog of legal actions for debts due to the high increase in applications.  For this reason the court are still processing applications for 2011.

If  the debtors live outside of Spain (e.g. UK) we need to undertake a faster route/process to collect these debts.  I am not a specialist but I have heard and read there are quicker processes for UK and other non-Spainish debtors that avoids the slow Spanish court system.  If this is true then we need to take advantage of this route.

My thoughts are that A.E.A. don't have any incentive to look for a better process.  It's just paid work for them.  It's we the owners who get to suffer when the chickens come home to roost.

Does anyone have any knowledge and recommendations we can out to our President?

 

My parents bought just down the road from us this year. When my dad saw the debtors listing he got himself elected as Vice President and started chasing the debts himself. He obtained the debtors details and emailed them all telling them that they had until 11th November 2012 to pay or he would be sending a UK debt collection agency after them. He recovered about 25% of the debt before the 11th, and many others have been put on a repayment plan. He also found out that there were a number of properties where the owners had handed the keys back and the banks had not notified the community administrators. This is because it is true that the repossessed properties will only contribute fees for the last 2 years. If they don't tell the community then they don't count the 2 years until they do.

The administrator was a waste of time, they didn't have any inclination to chase the debts. (Not Aea btw)

The problem we have is that AEA will not release details to anyone who wishes to do this obo the community.

The debt collection agency that my dad appointed in the UK work off a very small upfront fee and then a cut of the recovered debts so they are incentivised to recover debts. This agency has already received debts for his community in 1 month.

This is what AEA should be helping us to do!!!!

Daniela,

That is interesting.

 Someone PM'ed me with similar sentiment about community fees.

This EoS thread here suggests that our community experience is not unusual.

Key points is the above thread are:-

* "members must understand that if their fees are not paid this will only lead to the other paying members having to increase their share of the running costs"

* "Communication with the debtor is primary as from here a negotiated payment structure can be achieved"

* "If the debtor is a UK resident ( and most north European countries( Denmark excluded)) then a quick & effective method of collection can be made via the county courts using European law by a specialist lawyer or debt collector."

* "if the member is Spanish resident then the system is less effective in time and more costly in the courts ( average 1500€)"

* "some [Spanish] lawyers will take the case on a 10% deposit of costs the community must pay the account at sentance point in the future whether the debt is recovered or not."

* "the most important factor is for the administrator to be on top of the debtor before the outstanding balance becomes a a problem to the commuity's finances."

Given the state of out debtors I cannot believe that A.E.A. are on top of the situation and never have been else the debts would not have got into this state.

Adding [Spanish] debot collections costs onto the uncollectable debt is just fooling ourselves.  We are just incurring additional costs and  liabilities that we paying member will have to fork out.  We need effective, fast track and lower cost debt collection services - taking a similar apporach to your (Daniela's) father.

Our accounts do not show how much we are paying in debt collection costs because all of that cost is hidden in the debitors.  This is an accounting/reporting failure.

I will write to our President on this subject.

 

This message was last edited by PMillsom on 06/12/2012.

This year I have not had much time what with exams and the such but next year I expect to have some free time. (Depending on this sitting, hopefully the last one)

I would be willing to do some work on chasing debtors on behalf of the community as I have helped my dad with the collection of his debtors. But I would need help from AEA and also access to the email and home addresses of outstanding debtors. In the past I have been told that due to data protection I cannot have any details. But I can't see any reason not to have these details as I am on the executive committee and I would be working on the community's behalf.

When you write to Francisco please ask him if this is the case and whether the community would support me doing this. I am almost positive I could do a better job in my spare time than is being currently done.

Even if we do get a court ruling here in Spain, how do you collect debts in the UK? Is it enforceable cross border? And if it is how much does it cost? We end up with Spanish legal fees and debt collection fees. Why don't we just cut the legal fees and go after them in UK? Not sure if that can be done or not. Just feel like most the time we get the brush off with AEA, they don't care about the debtors as they still get their fee. We end up paying more to cover it!

 Daneila,

 

it would be excellent if A.E.A. worked in harmony with the collective talents and combined energy of our community.

There is no real reason for them not coopting any member of the community to act as their agent in the end or cement of debt collection.

Another point to add, I was contacted by a tenant who became aware that the owner of the apartment was overdue on the community fees.  The tenant was on a long term let ans wanted to be sure of continued tenancy so he negotiated with the owner and A EA for his rent to be paid to SEA until the community fees are cleared.

The owner freely agreed to the arrangement.  It seemed to the tenant that the owner had not to date be pressed on payment.

So this example adds to the growing evidence that the collection process we have is ineffective.  

I used to work in Finance and later in IT for a uk company with 400,000 customers who bought on credit.  Typically there were a hard core of say 15% who stalled payment until the threat of legal action was received AND the threat was convincing.

For a few nothing short of a C.C.J. would suffice.  So for uk debtors they need a local credible threat.  

EU law means we can act directly in the country of the debtor.  We just need proof of debt.

see

http://www.communityfees.com/the-process/ 

 

 Our President, Francisco, has explained

[translated by google  " The Community, through various boards, two procedures agreed to prosecute defaulters. Those who live in Spain are in the hands of a lawyer who gets the relevant allegations in the courts of Estepona which is where it belongs the municipality of Manilva. Residents in the UK we are claiming their debts through a company that is dedicated to these purposes called "Kettlewel". The big problem that we encounter is the slow procedures." ]

Francisco invites me to take up the AEA the points about the status of debts and I am inclined to see if i can help.

a) the communications to debtors need follow the following criteria  :-0

i) timely  - we should ensure they are chased as soon as they are overdue

ii) collection effective - overdue debtors need to be clear that they will incur interest charges and costs and that ultimately the community will proceed to county court judgements (in the case of UK owners)

iii) incremental - starting with a prompt gentle reminder and turning up the notched.

iv) cost effective - where a debtor clearly cannot pay and where we are limited to two years backlog - it makes no sense to allow debts of five years or more to accumulate with interests and costs  (which is what has happened) which are unlikely to be collected.  

Where a debt is not collectable we fool ourselves to add collection costs and interest to the debt - when we know if it highly likely that the debt is irrecoverable.  As this point the community profit and loss (income and expenditure) accounts need to report a costs to the community such debt collection activity.

I will ask AEA if they have a written, staged, collection process for community debts.  If not why not and can I help them write one?  

I will also ask to see copies of their template debt chasing communications sent by the administration to overdue owners - i.e. what chasing is done and when prior to handover to the collection agent.  I may be able to help improve the english version.  And it's useful toknow if there are phone calls made - these can be more effective for some instances.

Finally we should have  an effective process to urge all new buyers (and existing owners too) to enter into direct debit payment arrangement for community fees (or failing that then at least a standing order).

It would be comforting to have more visibility over what action has been taken against each debt.  If there is a standard process (e.g. friendly reminder,  second warning,  threat of legal action from AEA,  with collection agent,  CCJ awarded etc.) then each debt can be simply be graded against the stage of action.

Will keep you posted.

regards,

Paul

 

I agree. May test the process by not paying my fees for a while, see if anyone bothers chasing me! (Joke)

I am going to bring this up at the next committee meeting.

I am going to suggest that you and I maybe collaborate on chasing the UK debtors. Who knows, a friendly phone call may just be what it takes for people to pay up.

I can also check if people are renting their apartments by just knocking on the door, if they are renting it may just be a case of arranging the fees to be paid out of the rent as mentioned.

I agree. Some of the debtors might be elderly UK based owners who have literally forgotten to pay, or maybe they have lost a spouse who used to handle those affairs. A friendly phone call together with advice and assistance in setting up payments would be just what was needed. At the very least it would help build a picture of the circumstances of each case, which will no doubt be mixed and varied. A spreadsheet recording results of these and follow up calls would assist in continuity with handling each case.

 

Having just bought an apartment at Duquesa Village, initially for family holiday use, I hope our contributions, paid regularly. will help swell the coffers, and there must be many new home owners who like us have decided to purhase, so as sales flourish so will the community account presumably. Positive media coverage would assist in making Duquesa Village a desirable community in which to invest.

 

Perhaps some sort of community welcome pack might be advantageous for new owners. And maybe an incentive for those who pay their community fees by diret debit? As we live in Great Britain, all arrangements for payments are having to be made through the bank/lawyer, so any advice would be well received regarding important deadlline dates for payments etc.

 

Also, new and existing owners could be offered the opportunity to make some additional voluntary financial payment, large or small towards the community expenses. Some might be in a position to do this very wilingly or prefer to build a donation into their Will, in their own,, or a family members memory. Some owners might even decide to bequeath or cede their Apartment to the community. Owners could also be invited to contribute their professional skills at no cost to the community.

 

 

 welcome sunseaandsand

since the village was completed the developer paid fees on unsold properties.  these represented a majority of units and thus the developer got the majority vote at the agm and held the presidency.  the developer sold several hundreds of units to two banks. those banks then paid community charges for their units.

that the units now being sold at bargain prices by the banks and the developer does not therefore improve the communityincome.

in fact it might result in a decline in income as the banks and the developer always paid their charges promptly. .  soit is now even more important that the administrator becomes effective in administering community fee collection.  our bad debt experience to date arose from that minority of units not owned by the developer or banks.  So as all units become privately owned by individuals the potential for bad debts more than doubles.  that potentially adds 25% to our community costs (my estimate) unless our administrator gets more effective.

 what your lawyer should have advised you when purchasing a unit in a community is that you take on a share of  liability for any deficit in community funds as well as any debt concerning your unit.  that includes any past under funding caused by bad debtors that are not collectable. sorry if this is news to you.  I've not been impressed by Spainish Lawyers in their quality of service to we Brits based on reports on this site and it would not surprise me if your lawyer never mentioned this.

even if your lawyer does advise of this potential liability you could be deceived by the poor accounting process being used which puts all debt collection costs on to the debt and assumes that all debt will eventually be collected in full along with costs and interest.  no sensible uk company I know of would produce accounts on that premise.  the accounts are deceiving the community which is probably why most of the existing community has not yet got excited by this subject.  Daniela and I are accountants and thus somewhat more concerned.

on the subject of direct debits it makes good sense to get water, electricity and rates on this payment method because you are unlikely to see many bills unless you are a permanent resident.  the administrators keep a month's post at the gate house.  anything left uncollected  longer than a month seems to get binned.  

the local authority applies penalties and interest on late payment.  So hopefully your lawyer has advised to set these up on direct debit.

the electricity and water are quickly cut off if unpaid.

 

 

 

This message was last edited by PMillsom on 18/12/2012.

This message was last edited by PMillsom on 18/12/2012.

I am agree with you PMILLSOM, banks allways paid their fees,all aptmts. sales are comming from banks and private owners are the risk.

SUNSEAANDSAND it is very easy make a direct debit in your spanish bank account, you only have to open a bank account with your NIE in a local brach y tell AEA direct debit ,same with electricity,phone,etc.

It doesen´t matters where you live UK or SPAIN , to pay community fees is very easy but i think some owners sinply don´t want to do it.

Don't worry I will set up a direct debit immediately!