Assessments are among the legally binding obligations owners agree to when they buy a home in the HOA. In return, collection of dues covers budget items, such as common area maintenance and repairs. Through the budgeting process, the HOA board has the authority to determine owners’ required contribution to meet all HOA expenses. Members tend to forget that without an HOA, they would be personally responsible for routine maintenance like mowing the lawn or cleaning the pool. They’d also need to set aside money for major repairs, like painting, siding or roof replacement.
HOA members’ property values are maintained through members monthly, quarterly or annual dues. In this article, we’ll review the basics of collecting HOA assessments, commonly referred to as dues.
A job loss, major medical expenses, or other personal crises can force HOA members into making difficult choices when prioritizing their expenses. And sometimes that could mean pushing their HOA dues toward the bottom of the priorities list.
During the financial crisis of 2008 and 2009, for example, assessment collection became a common concern among HOA communities. When mortgages weren’t being paid, owners weren’t paying HOA dues either. That meant delinquent member dues skyrocketed, and HOAs had a difficult time meeting their expenses.
According to the Community Association Institute (CAI), delinquencies can be a useful gauge of an HOAs financial performance. Regardless of its financial rating, HOAs have legal rights to pursue all collections. Of course, state regulations, HOA documents and board collection policies must be followed. The Fair Debt Collection Practices Act is also likely to apply. All of these factors determine the collection process.
Here are 5 basic steps to follow for collecting delinquent HOA dues:
- A delinquency notice is sent to the owner. This is the first communication, which outlines the due date and any established grace period. When the due date passes and the grace period ends, late fees and interest charges begin to accumulate at the appropriate times.
- Next, a pre-lien notice is issued using certified mail. These letters are sent usually at least 30 days prior to the actual lien filing. Details of the delinquent amounts, the owner’s rights, and the HOA’s rights to pursue further action should be included.
- The lien is approved by the board, recorded, and sent to the owner(s). Liens secure the debt owed to the HOA. Otherwise, it is considered unsecured debt, making it harder to collect.
- Depending on the collectability of the debt, the board may decide to move forward with foreclosure. Collection agencies, familiar with HOAs, can provide collectability reports that help a board make this decision. Factors will include a senior debt holder, such as a mortgage, and financial resources that gauge the debtor’s ability to pay.
- Bad debt write-off. When steps 1-3 are completed, and foreclosure is not a viable option, it may make sense to stop pursuing the delinquent owner. Costs of continuing collection efforts could outweigh the likelihood of success. Managers should work with the board to decide if the owed amount can be collected – or not. Ideally, the board has a delinquency policy in place that establishes write-off criteria.
It’s a good idea to ask yourself—do we have a “pay-now” attitude or a “helpful hand” attitude? Managers and boards should begin with a spirit of cooperation.
Find a professional partner in HOA collections
Collection agencies that specialize in HOAs provide professional support to managers and the board. A good agency can even help with legal aspects of more complex collections, such as bankruptcies or probates.
Legal and collection agency costs can be included in the balance due. Depending on statutes, HOA documents, and contracts, managers or collection agencies can negotiate payment plans on behalf of the board. The agency can also manage the plan on your behalf. If the owner fails to keep up the agreed payments, the collection process resets.
Collecting HOA dues doesn’t have to be ugly
When going into the collection process, it’s a good idea to ask yourself—do we have a “pay-now” attitude or a “helpful hand” attitude? Managers and boards should begin with a spirit of cooperation. Working with owners to avoid additional fees and interest, or even losing their home, is always preferred – for both the HOA and the member.
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