Should An HOA Waive Late Fees?

Should an HOA waive late fees? Board members of an HOA community will likely struggle with this question at least once during their tenure. Before making a snap decision, board members should understand their governing documents. Moreover, it is important to consider the advantages and disadvantages that such an action would bring.

Can HOA Waive Late Fees?

In an HOA community, homeowners have an obligation to pay regular dues. When homeowners miss the deadline for paying these dues, they can face a slew of consequences — HOA late fees being one of them.

Late fees help discourage homeowners from missing their dues payments. They are an enforcement tool that many HOAs use to collect unpaid dues. Of course, every now and then, a homeowner might want to negotiate their debt and ask the HOA to waive the late fees. When that happens, can the HOA board allow it?

The first thing board members should do is check the HOA’s governing documents. The CC&Rs and bylaws, in particular, may contain a provision for it. However, more often than not, the governing documents of an HOA are silent on this issue. In that case, the board can check past actions by previous board members to see if it has been done before. If that does not bring up anything, then it becomes a matter of board decision.

In theory, an HOA board can choose to waive late fees. However, the board must understand that, by doing so, they are setting a precedent. While waiving late fees is possible, it is important not to waive the unpaid dues and assessments. The board must make this clear to the homeowner.

Can HOA Charge Late Fees?

Whether or not an HOA has the authority to charge late fees in the first place relies on two things: state laws and the HOA’s governing documents. Many states expressly state that charging a late fees falls within the powers of an HOA.

For instance, Section 47F‑3‑102(11) of the North Carolina Planned Community Act allows HOAs to impose reasonable charges for late dues payments of 30 days or longer unless the governing documents say otherwise. It also requires the HOA to provide notice and the opportunity to be heard.

An HOA’s governing documents may also give the association the power to impose a late fee. The HOA board should make sure that all homeowners understand the HOA late fee policy to avoid miscommunication.

In addition to the authority to charge a late fee, state laws and the governing documents may also dictate a limit when it comes to the dollar amount. The same section of the North Carolina Planned Community Act limits late charges to $20 per month or 10% of the unpaid installment, whichever is greater.

Pros and Cons When You Waive Late HOA Fees

If an HOA community has yet to make a decision, it will help to weigh the pros and cons of waiving late fees.

Pro: Sows Goodwill

By waiving a homeowner’s late fees, the HOA board can practice forgiveness and sow goodwill in the community. The action shows that the HOA board cares and can empathize with an owner’s struggles. Allowing an owner to catch up on their payments without penalty fosters amity.

Con: Risk of Selective Enforcement Accusations

Waiving late fees runs the risk of receiving accusations of selective enforcement. This happens when the HOA board forgives some owners’ late fees but not others. Of course, the HOA board should evaluate each person’s situation separately, as not everyone deserves to be waived. As such, board members may want to adopt criteria for something like this.

Pro: Helps Settle Unpaid Dues

Another advantage to waiving HOA late fees is that it ultimately helps the association reach its required budget. Late fees are a way to enforce the HOA’s collection policy. In the end, what matters is that the HOA can collect the amounts that it needs to fund the year’s expenses. If it helps owners settle their dues, waiving late fees can be good.

Con: Risk of Abuse

While waiving late fees shows compassion, there is always a risk of abuse. Some might see it as an excuse to miss their payments. After all, if the HOA forgave them once, it might be able to do it again.

Ultimately, an HOA board should approach the topic on a case-by-case basis. There is no universal answer that will apply to all homeowners. One homeowner may struggle financially, while another may have a history of missed payments.

Typically, if a homeowner’s track record is good—they’ve never paid late or been delinquent—the HOA board can easily waive the late fees. Board members can offer to waive the late charges if the owner agrees to pay all other outstanding debts.

Sometimes, for long-term delinquencies, an HOA board might offer to waive some of the late charges on the condition that the owner brings their account to the current through the end of the year. Homeowners will usually agree to this to avoid more extreme collection actions.

Whatever the decision, though, it is paramount that an HOA treat all homeowners fairly and consistently to avoid accusations of selective enforcement. For instance, an HOA board can consider waiving late charges once for every owner.

Keep in mind that the goal is to have homeowners pay their outstanding balances. Waiving it one time can do a lot of good, but HOA boards should be careful not to let it happen too often because of the risk of abuse.

Does a Late HOA Payment Affect Credit Score?

Late HOA payments can affect a person’s credit score. Not all HOAs make a point to report the missed payments to credit bureaus. After all, most associations are small in size and resources, so they don’t tend to bother with the reporting. However, if an HOA does report it to a credit bureau, a homeowner’s credit score can take a hit.

It is also worth noting that an outstanding collection account is an unfavorable report. Even if the owner settles the debt, the negative report remains on their record for up to seven (7) years. During this time, the owner may find taking out a loan or other form of credit difficult. It might also impact job applications.

Of course, the easiest and most obvious way to avoid this is to remain up-to-date on HOA dues and other payments. If a homeowner feels they need assistance, they can ask the HOA board for a payment plan. Not all HOAs offer this, though some are required by law or the governing documents. In Colorado, for instance, HOAs must offer payment plans before referring an account to collections.

Should HOA Waive Late Fees? Answered!

Whether or not an HOA can or should waive late fees does not have a black-and-white answer. It ultimately depends on state laws, the governing documents, and the individual case. When in doubt, HOA boards should seek professional advice.

Clark Simson Miller offers assistance with HOA collections, among other things. Call us today at 865.315.7505 or contact us online to request a proposal!

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