Many homeowners associations have residents who are behind on their assessments. There are many ways to collect these late delinquent dues, one of which is by setting up HOA payment plans.
HOA Payment Plans: Are They a Good Idea?
Assessments are the lifeblood of any homeowners or condominium association. Without assessments, an HOA would have nowhere to source funds for the maintenance and repair of the common areas of a community. When homeowners purchase a property in an HOA, they first agree to a set of stipulations provided by the association. This includes the payment of regular assessments. By defaulting on these dues, a homeowner is violating a covenant set forth in the association’s governing documents. Violations carry consequences, some of which are very serious.
In most states, one of the courses of action an HOA board can take is to file a lien and foreclose on a delinquent homeowner’s property. But, of course, no one wants to immediately jump to legal recourse. Besides imposing late fees and revoking homeowner privileges, another option to encourage payment is to offer an HOA payment plan.
Is It Required to Offer an HOA Re-Payment Plan for Delinquent Homeowners?
Your board may be in the midst of discussing whether to offer HOA payment plans to delinquent homeowners. However, depending on where you are, that decision may have already been made for you.
It is important to check your state laws on provisions regarding HOA payment plans. For instance, in Colorado, it is mandatory for associations to offer plans for payment of delinquent assessments.
If your state and local laws remain mum on the issue, the next place to look is your governing documents. Most of the time, an association’s bylaws and CC&Rs will contain provisions regarding HOA payment plans. This typically includes standard procedures and schedules.
If your governing documents contain no such rules and your board would like to make it a standard policy, then considering amending your documents. You must do this with the help of an HOA attorney to ensure no alterations come into conflict with existing covenants or the law.
On the other hand, you must be careful about prohibiting payment plans in your HOA community. In some states, like California, HOA boards must agree to a payment plan should a homeowner submit a written request for it.
Guidelines for Delinquent Assessment Payment Plan
If you decide to allow delinquent homeowners to settle their dues via an HOA payment plan, there are some things you must keep in mind. The first thing you must do is to draft a format written agreement with the delinquent homeowner. The contents of this agreement must include but are not limited to the following:
- The owner’s declaration of hardship
- Specific payment plan details
- Any late fees levied against the homeowner
- How many months the HOA will delay collections
- The HOA’s right to continue with collection if the homeowner violates the agreement
To ensure both parties acknowledge and accept the stipulations of the agreement, the association and the homeowner must sign it. Additionally, you must familiarize yourself with your state’s statute of limitations when it comes to debts. It is best to have your association’s attorney look over the agreement before signing it.
Defaulting on HOA Payment Plans
Ideally, setting up an HOA payment plan takes care of both the homeowner’s and the association’s delinquency issue. Unfortunately, that does not always happen. Some homeowners default even on their payment plans for either a lack of funds or just general indifference. As part of your DQ collection policy, you must prepare possible courses of action in the event that a homeowner defaults on the payment plan itself. One such option is to continue assessments collection from the point in time before the payment plan began.
Late Dues Payment Plan Alternatives
Sometimes, giving delinquent homeowners the benefit of the doubt does not pay off. Apart from levying late fees, your association may need to turn to other collection methods to settle the late dues, such as:
1. Suspend Homeowner Privileges
Assessments afford homeowners the luxury of community amenities. When a homeowner refuses to pay their dues, it stands to reason that your association can take away these privileges. Until a delinquent homeowner settles their account, you can bar them from using the community pool, clubhouse, gym, etc. These privileges will only return after the homeowner in question catches up on all of their late payments.
2. Place a Lien
Usually, an association can exercise the power to place a lien on a delinquent homeowner’s property. Your board can choose to do this for residents who fall behind on their dues or simply refuse to pay them. You can also record the lien with the country recorder’s office as a formality. Some states require this, though.
A lien may not immediately cause problems for the homeowner. But, when the homeowner decides to sell their property or refinance their mortgage, the lien will prove troublesome. Additionally, liens can cause a huge issue for the homeowner if the association chooses to go with the third option (below).
Depending on state laws and your governing documents, your association may have the ability to foreclose on a delinquent homeowner’s property. You can also foreclose on a lien even if the property is mortgaged. Foreclosures happen all the time in the HOA world. In fact, some associations foreclose even if the homeowner only owes a small sum. There are two ways to foreclose on a lien:
- Judicial Foreclosure. To do this, an HOA must file a lawsuit against the delinquent homeowner and then get the court’s permission to sell the property to settle the lien.
- Non-judicial Foreclosure. On the other hand, a non-judicial foreclosure does not need to involve the court. Instead, an HOA follows state laws and its CC&Rs to foreclose on a lien.
The Case for HOA Payment Plans
HOA payment plans provide associations with a non-disruptive and practical way to settle delinquent accounts. It also allows homeowners to catch up on their late payments little by little without worrying about liens. When it comes down to it, though, the decision to offer HOA payment plans to delinquent homeowners lies with your board. Just make sure to check your state laws and governing documents first.
If your HOA needs help setting up reasonable payment plans, it is a good idea to seek the help of a professional management company like Clark Simson Miller. In that case, give us a call anytime.
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