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HOA Basics: How to Handle Delinquent Payments

Fort Pitt Property Management - Tuesday, April 10, 2018

Collecting assessments in a timely fashion ensures the operations of managing and maintaining the community continue un-impeded. Assessments (sometimes called dues or maintenance fees) are defined as the owner’s obligation to a community association during a given time period. These assessments cover an owner’s share of the common expenses, such as grounds maintenance and reserves toward exterior maintenance of the dwellings. There are two types of assessments:

  • An annual assessment that can be paid monthly, quarterly or annually.
  • A special assessment is a one-time payment usually voted on by the owners to cover a major expense that was not budgeted for.

The association is granted the authority to collect assessments usually by state statue and the governing documents drafted at inception. The consequences of delinquent payments are many. They include:

  • Increasing other owner’s assessments to cover the deficit
  • Essential maintenance is deferred due to lack of funds
  • Reduced property value from deferred maintenance
  • Deficits in future budgets
  • Borrowing from reserve funds or a lender
  • Consternation between paying and delinquent owners

Creating an Effective Collections Policy

One of the first duties of the board once established is to create a formal resolution regarding collections. This resolution will specify the actions within the power of the board to collect delinquent assessments. The policy sets firm dates for collection, outlines the collection procedure taken when a payment is late, and specifies when and how delinquent owners are referred to legal counsel for collections. It also should allow for discretion by the board in special circumstances.

Define the following in your formal collection policy:

  • When, how and on what frequency late notices should be sent
  • What will be stated on the notice
  • The late fee to be assessed
  • When collection will be turned over to legal counsel
  • If collections will be accelerated in the future

Legal Remedies

If push comes to shove, the following legal actions can be taken:

  • Late fees
  • Reporting to a credit agency
  • Suspending owner’s privileges and voting rights
  • Lien
  • Foreclosure

Remember that due process is a right all owners are afforded. Give them their day in court with a hearing before the board to hash out both sides of the story. Many times, a simple conversation will alleviate concerns and get the owner out of arrears. Also remember, in the case of a bankruptcy always immediately contact legal counsel and stop all collection efforts. The prompt filing of a lien can make a big difference in getting money owed to a community.