Late HOA dues affect HOA finances in a big way. While homeowners may not see it — often worried about their financial strains — late payments can significantly negatively impact an HOA community. As such, homeowners should always strive to pay their dues on time and consult their HOA board for options in financial struggles.
How Do Late HOA Dues Affect HOA Finances?
Homeowners associations operate much like corporations. They rely on a consistent revenue stream in the form of regular dues to fund the community’s various expenses. Homeowners agree to fulfill a financial obligation to pay these dues when they buy into the community. Unfortunately, many things can go wrong along the way, and some homeowners may miss due dates or stop paying their fees altogether.
When this happens, HOAs must scramble to keep up and adjust to the reduction in cash flow. Several consequences can quickly follow. Most homeowners don’t even realize their late payments can have detrimental effects.
Late HOA dues affect HOA finances in the following ways:
1. Delayed Maintenance and Repairs
An HOA with a high delinquency rate faces deferred maintenance and repairs. Without sufficient funds, an HOA won’t have the resources to cover maintenance work for all common elements and amenities.
Simple things such as daily cleaning and repainting could be pushed back. More comprehensive maintenance work, such as pool maintenance, electrical repairs, and plumbing updates, could also be lower on the priority list.
While delayed maintenance and repairs might not seem like a big deal to some, homeowners will notice the aftermath. Amenities that were once pristine and well-kept will deteriorate. The same goes for common areas like hallways, stairwells, elevators, sidewalks, and parking lots.
2. Poor Insurance Coverage
Insurance is an important tool in preserving an HOA’s financial health. In the event of disaster, liability, or unforeseen circumstances, insurance is an association’s first line of defense. It helps cover significant costs, allowing an HOA to use its resources for other purposes.
However, an HOA can’t secure adequate insurance coverage with a lack of budget. The board will be forced to make compromises and choose subpar insurance policies. When an emergency does eventually strike, the association will be left defenseless, pushing the board to tap into its reserves or exhaust all of its funds to cope with the damages.
3. Significant Cutbacks
An HOA board must reallocate funds and restructure priorities when money is tight. Board members will be forced to cut back on expenses on a sizable scale to keep up with everything else. Upcoming projects may need to be shelved, and services may need to be downgraded.
Sure, an HOA board may be able to rearrange the budget to cover the bare minimum. However, this would also involve canceling convenient services and luxuries that many homeowners have grown accustomed to, which could lower the standard of living in the community.
4. HOA Dues Increase or Special Assessments
When homeowners constantly make late or no payments, an HOA board will need to bridge the gap by increasing regular fees or levying special assessments. Neither option is particularly attractive to homeowners, who will undoubtedly push back on the decision.
Unfortunately, left with little to no choice, a fee increase or a special assessment is the only thing that might keep an HOA from tipping in the red. To maintain the same quality of life in the community, an HOA must find a way to secure the necessary funds to pay for its operating expenses.
Of course, not all associations can increase regular fees without a hitch. In Arizona, for example, the law clearly states that an HOA can only raise dues by 20% of the previous fiscal year. Anything beyond that will need approval from the membership.
5. Loans
Raising regular fees and charging special assessments are two ways an HOA can secure more funding, but those options turn to homeowners for it. Another way is to take out a loan or line of credit from a bank.
Turning to a bank is a good option if an HOA needs funding urgently. However, loans come with interest, and a bank will require proof that an HOA can pay back the sum. It might request to see financial statements, too.
Additionally, a loan isn’t free money. An HOA will still need to settle the debt with interest, which means it must increase regular dues or levy special assessments.
6. Loss of Appeal, Declining Reputation, and Lower Property Values
Ultimately, delayed maintenance, poor insurance, and significant cutbacks will domino effect on an HOA. With deteriorating amenities and lacking services, an HOA will lose its appeal to potential buyers and existing homeowners.
Prospective homeowners also review an HOA’s financial statements before making a sale. If they don’t like what they see, they might back out. One of the red flags they might spot is a high delinquency rate, which signals that a sizable special assessment or dues increase is in store in the future.
Late HOA dues affect HOA finances, but they can also affect current homeowners’ investments. All these things combined could contribute to lower property values, meaning homeowners won’t have a large return if they ever sell.
Getting to the Root of the Problem
While seeking a solution is essential, an HOA should also focus on determining the cause of late payments or delinquencies. Here are just some of the strategies an HOA can use.
1. Understand the Reasons for Delinquency
An HOA board should conduct surveys or have conversations with homeowners to understand why they are not paying their dues. Common reasons may include financial hardship, dissatisfaction with the HOA, or lack of awareness about dues and deadlines.
2. Improve Communication
An HOA board should ensure that all homeowners know their dues, payment deadlines, and consequences for non-payment. Board members should use multiple channels, such as emails, newsletters, and physical notices. Additionally, an HOA should provide regular updates on how dues are used and the benefits they provide. Transparency can increase homeowner buy-in and compliance.
3. Flexible Payment Options
Financial hardship is a real problem for many homeowners. Offering flexible payment plans will make it easier for homeowners to catch up on overdue payments. In addition, an HOA should provide convenient payment options, such as online payment portals, automatic bank drafts, and credit card payments.
4. Review and Revise Policies
An HOA board should review the structure of late fees and interest rates to ensure they are fair. Moreover, consistent enforcement of collection policies will show homeowners that the HOA follows through on established consequences for non-payment.
5. Regular Review and Adjustment
Board members should regularly review the HOA’s financial health, dues structure, and collection policies and make adjustments as necessary to meet the community’s needs and economic conditions. Furthermore, an HOA can ask homeowners for feedback to inform the board’s approach to managing dues and funds.
Education Is Key
The way late HOA dues affect HOA finances can start small, but the consequences can quickly snowball. In the end, the homeowners themselves will suffer the aftermath. As such, HOA boards should educate homeowners on the detrimental impact of late or missed payments.
Clark Simson Miller provides expert HOA management services to homeowners associations and condominiums. Call us today at 865.315.7505 or contact us online to learn more!
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