How to handle levy default when debit orders bounce

Dec 14, 2020 | Debtor Finance

Homeowners’ Associations (HOA) and Sectional Title schemes regularly face the situation where people default on their levies or are late in paying every month. This causes a financial burden on the community scheme, and they’re then unable to pay bills and perform necessary maintenance. This is especially felt during the busier times of the year, such as over the holidays when there are more people at home or guests visiting. Common areas, pools, and security upgrades are necessary around that time of year, and so it can be very unfair to paying members when others consistently default.

Levy default is quite common during the holiday season; very often people are paid their salaries early and don’t budget properly or have unseen expenditures and their debit orders for their levies bounce. The pandemic has also played a role in levy default, as many members have faced a loss of income or employment. 

This then puts undue pressure on the community scheme. However, no matter what time of year it is, there will always be people who are reluctant or slow to pay or wait until the community scheme takes legal action. By this stage, it will already have made it difficult for the community scheme to continue providing services, security, and maintenance to the estate. Legal action is also expensive and takes up a lot of time, so it’s important to know how to handle the levy default and even avoid it if possible.

 

Early communication to keep levy payments front of mind

Bearing in mind that the holiday season is a time of year where most levy defaults occur, the community scheme should attempt to communicate with members about ensuring that debit orders are updated and honoured. Perhaps an earlier debit order date can be arranged if their salary is paid earlier in the month. However, if there are still levy defaults, then the community scheme should consider a Debtor Finance solution.

 

Community Schemes can rely on Propell to cover levy shortfalls

Propell’s Debtor Finance is a revolving loan that provides up to 80% of homeowners’ levy arrears. An initial advance is made to the community scheme equal to 80% of levy arrears at the time of the agreement, and then every month this is re-evaluated based on an updated report of arrears. Propell then determines whether it should make a further advance to the community scheme or whether the community scheme needs to make a repayment.

If the total arrear levy balance increased, then Propell would advance an amount equal to 80% of the increase. Should the arrear balance have decreased, the community scheme would pay an amount equal to 80% of the decrease back to Propell. This revolving line of credit gives community schemes back their ability to function properly and relieves them of the pressure that unpaid levies cause on their budget.

 

If payments have dried up, your revenue stream shouldn’t

For more information on how Debtor Finance can help your community scheme, please contact us for a quote. We’ve also put together an informative video that you can share with other members of your community scheme, you can watch it here.