HOA Fees: What Happens When Members Fail to Pay?
The obligation for members to pay HOA fees primarily comes as a contractual obligation created by the association's recorded declaration.
Homeowners living in HOA Communities face a variety of requirements, regulations, and rules by choosing to live in these private communities. One of the requirements for members is the payment of HOA fees. This article will attempt to give members necessary information concerning HOA fees and the many issues that may come along with them when homeowners fail to pay.
Obligation to Pay HOA Fees
The obligation to pay fees assessed by an association primarily comes as a contractual obligation, which is created by the Covenants, Conditions, and Restrictions (CC&Rs), as well as the Bylaws and Operating Rules.
Importantly, the fee obligation runs with the land, and as such, the contractual obligation continues until ownership of the property changes to the next owner.
HOA fees are the costs assessed to all property owners for maintenance of the community, such as lawn care, snow removal, utilities, common area, landscaping, pools, gyms, and other operational needs. The amount of HOA fees will vary depending on the nature of the community, its location, and the services provided.
In general, the CC&Rs provide that homeowners are not permitted to offset anything owed to the HOA for fees in exchange for items that homeowners believe should be provided in the community. Here is an example of the language the CC&Rs provision typically provides:
NO OFFSET. The obligation of every owner to pay assessments levied by the association is absolute and shall not be affected by any claim the owner may have, or believes he has, against any other Person, including Declarant or the Association, nor shall such obligation be affected by any irregularity in the manner or timing in which notice of assessment is given.
Based on this language, homeowners cannot offset or withhold the payment of HOA fees due to the association’s alleged mismanagement, failure to act or perform its obligations.
Collection Policy Requirements
The requirement for HOA to adopt a collection policy varies based upon applicable state law and the association’s governing documents. However, well-governed associations that choose to adopt a fee collection policy, even when not required, provide community members with a road map outlining the steps the association will take when a member fails to pay.
HOA Collection Methods
An HOA’s primary function is to provide maintenance and upkeep of the community and enforcement its rules uniformly. This responsibility helps ensure the long term viability of the community and the value of the property owners’ investments.
Thus, the function of the association is to determine what services are needed to do so, contract for those services, and then collect sufficient fees while maintaining reserve funds to deal with unexpected maintenance issues that may arise.
When a homeowner fails to pay the fees when due, the association has a contractual obligation to collect the delinquency under the CC&Rs. For this reason, an HOA needs to have a standard process or collection policy to follow to ensure that issues of discrimination do not arise.
In other words, associations must provide all delinquent homeowners with the same notifications and opportunity to cure the delinquency to avoid claims of discrimination for failing to have a consistent collection policy. To help our readers understand what a standard collection policy looks like, below are the typical steps associations take to collect past-due HOA fees.
Friendly Reminder (Late Notice)
Generally, HOAs start the collection process by sending the defaulting owner a friendly reminder notice. Sometimes things get lost in the mail or overlooked, and most cases of late payment, a simple, friendly reminder can get the job done. If that does not work, then associations take more formalized procedures to collect the fees.
Initial HOA Collection Demand Letter
After the initial friendly reminder notice, if the homeowner fails to respond or take action, the next step HOAs generally take is a formal demand letter which must meet the requirements of the Fair Debt Collection Practices Act (FDCPA).
For example, in 2017, a court ruled against an association trying to collect past-due fees because the notification processes and demand letter were not consistent with the requirements of the FDCPA. Mashiri v. Epsten Grinnell & Howell, 845 F.3d 984 (2017). This case highlights the importance of board members to properly follow applicable laws and procedures when attempting to collect fees from homeowners. Failure to do so gives homeowners a legal basis to challenge a collection action.
Subsequent HOA Collection Demands
After the initial demand letter, an association can choose to send additional collection letters in an attempt to avoid legal action. If that does not work, most HOA move forward with lien enforcement, personal money judgment lawsuits, and even foreclosure.
The options available vary by state law and also will depend on the language of the CC&Rs. For example, in a 2014 case, a California Court found that HOAs are required to accept partial payments made by a delinquent homeowner and to allocate them as provided in California law, even after the association has filed an assessment lien. Huntington Continental Townhouse Association, Inc. v. Miner, 230 Cal.App.4th 590 (2014).
While this case is somewhat specific to California law, it demonstrates that sometimes external laws and regulations will require HOAs to provide different options to members (accepting partial payments in this case) then perhaps what the association’s CC&Rs provided. This type of issue also demonstrates that members must understand what the rights of the HOA are in terms of collecting fees.
Attorney Fee Liability
Depending on what the CC&Rs and state laws dictate, homeowners may be liable for attorneys’ fees and related collection costs. In particular, most CC&Rs provide that if a homeowner fails to pay, and compels the association to commence collection procedures if the association prevails in court, the homeowner would be liable for the association’s legal fees and costs it incurred attempting to collect the past-due fees.
Resolving Collection Matters
If homeowners are facing collections initiated by the HOA, the first place to start is by discussing the issue with the Board of Directors or its managing agent. If there are reasons why the homeowner is not paying, then those can be discussed, keeping in mind that a homeowner is not allowed to withhold assessment payments.
It is also possible that an alternative arrangement can be worked out if the homeowner is experiencing financial hardship. Rather than spending thousands of dollars on litigation, there are very often ways in which homeowners can address the issues without ending up with a personal money judgment lawsuit or foreclosure.
It is also essential for members to understand their legal rights, and the collection procedures associations are required to follow when collecting HOA fees. These procedures will vary by state most generally, but information on these topics is available to members on this website.
Conclusion
Members have a contractual responsibility to pay their fees on time. When the failure to do so happens, it is generally a much better practice for members to find ways to resolve those issues short of litigation.
Litigation can be costly and frankly can result in adverse consumer credit consequences. In most cases, that is not worth the risk nor hassle involved.
