Unfortunately, though, homeowners are sometimes financially unable to pay assessments. And sometimes they just choose not to. Because assessment revenue is vital to an HOA’s functioning, community associations are afforded significant legal remedies in the event of non-payment.
Whether a homeowner is serving on an HOA’s board or faced with potential collections action him or herself, understanding how the HOA collections process works—and the legal rights and redress available to both homeowners and the association—can go a long way toward resolving conflict and avoiding escalation.
HOA Collection Policies:
- 1 HOA Collection Policies:
- 2 Notice of Delinquent Assessment.
- 3 Late Charges, Interest, Fines, and Administrative Fees.
- 4 Collection Costs and Attorney’s Fees.
- 5 Collection Demand Letters and the FDCPA.
- 6 Payment Plans and Partial Payments.
- 7 HOA Assessment Liens.
- 8 Pre-Lien Notice of Intent to File.
- 9 Contents of Notice of Lien.
- 10 Lien Priority.
- 11 Lien Enforcement.
- 12 Pre-Foreclosure Requirements.
- 13 Judicial vs. Non-Judicial Foreclosure.
- 14 Homeowner Right of Redemption.
- 15 Small Claims Collection Actions and Money Judgments.
An HOA’s collection policy is its internal protocol for determining how the association will handle unpaid assessments. By necessity, an HOA’s collection policy must be derived in part from the legal and contractual authorities governing collection by the HOA. Relevant authorities include the applicable state’s HOA statute; other state and federal laws applying to HOAs or governing collection of consumer debts generally (e.g., FDCPA, state collection statutes, U.S. Bankruptcy Code); the HOA’s declaration and bylaws; and any relevant rules or regulations adopted by the HOA board.
Among other things, a homeowners’ association’s collection policy should
define when assessments are due and when they are considered “delinquent;”
describe any fees charged by the HOA and when they can be imposed;
establish steps taken by the HOA to collect delinquent assessments, including any required written notices; and
identify any third-party vendors whose services the HOA uses for collection—such as collections agencies and lawyers.
Not every HOA adopts a formal, written collection policy. They’re required in a few jurisdictions but usually left up to the board’s discretion. See, e.g., Colo. Rev. Stat. § 0944605190 (requiring written policy); O.R.S. § 5312.06(d)(11) (permitting but not requiring formal collection policy).
Smaller associations that don’t have significant delinquency problems are particularly prone to “winging it” when the odd delinquency does arise. This is generally a bad practice because one of the chief functions of a collection policy is to ensure compliance by including relevant legal requirements within the collection procedure.
In some jurisdictions, for instance, an HOA must provide written notice before filing a lien or pursuing a civil action against a delinquent homeowner. See, e.g., Fla. Stat. §0944605190) and (5). Board members are less likely to be aware of the relevant requirements if they are not outlined in an easily-referenced written policy.
A mandatory collection procedure can also help avoid homeowner claims of uneven enforcement. In general, an HOA board’s enforcement activities must be “procedurally fair and reasonable,” and its decisions must be made in “good faith … reasonable and not arbitrary and capricious.” Saunders v. Thorn Woode Partnership, L.P. 265 Ga. 703, 462 S.E.2d 135 (Ga., 1995).
A homeowner able to demonstrate that an HOA previously declined to act in a similar situation may have a defense against enforcement action. See, e.g., White Egret Condo., Inc. v. Franklin, 379 So.2d 346 (Fla. 1979); Cowling v. Colligan, 312 S.W.2d 943, 945 (Tex. 1958).
Notice of Delinquent Assessment.
In most cases, an HOA’s first step to collect assessments is to send homeowners a statement identifying the assessment amount due and the date by which it must be paid. The majority of homeowners send a check, in response to the statement, and the assessments never become “delinquent.”
For homeowners who fail to pay the initial statements, the next step is usually a “Notice of Delinquent Assessment,” or similarly titled document. The Notice advises the homeowner of the past-due amount and typically informs the homeowner of any collection actions the HOA will take if assessments remain unpaid.
Many HOAs state in their Notice of Delinquency that the board will record an assessment lien if the amounts are not promptly paid. A notice might also inform the homeowner of any late charges or interest that will be charged or which have already been charged.
Late Charges, Interest, Fines, and Administrative Fees.
The authority to include late charges, fines, and interest as part of a homeowner’s financial obligation to an HOA comes from the HOA’s recorded declaration and the state’s HOA statute.
An HOA cannot arbitrarily charge late fees, fines, or interest. They must be authorized by state law and/or the association’s declaration and must be charged consistently with the applicable authority. See, e.g., O.C.G.A. §0944605190; Tex. Prop. Code §0944605190).
Interest rates and late fee amounts are frequently set or restricted by statute. A common approach is for the state’s HOA statute to allow for accrual of interest on unpaid assessments at the rate established in a community’s declaration, up to a defined maximum rate. In North Carolina and Florida, for example, the statutory interest rate is 18.00%. N.C.G.S. §47F-3-115; Fla. Stat. §0944605190). Some states set a lower maximum rate, such as Georgia’s 10.00% rate. O.C.G.A. §0944605190(b)(2).
Late fees normally work in the same way. They can be imposed if included in the declaration up to a statutory maximum. Florida allows late fees of $25 or five percent of the past-due installment, whichever is greater. Fla. Stat. §0944605190). Georgia and North Carolina both set a late-fee maximum of ten percent of the delinquent amount. N.C.G.S. §47F-0944605190); O.C.G.A. §0944605190.
In some but not all states, HOAs are empowered to charge fees to cover administrative costs caused by late payments, such as the cost of administering a payment plan. Administrative fees are usually not subject to a definite maximum amount but must be “reasonable” in light of the actual burden and additional cost on the association.
Collection Costs and Attorney’s Fees.
In the HOA assessment collection process, “collection costs” and “attorney’s fees” refer to the additional costs incurred by an association in collecting on a delinquent assessment.
If, for instance, an HOA refers an unpaid assessment account to a collection agency and the agency charges as its fee 20% of the amount collected, the “collection cost” is the additional 20%, which in some cases can then be charged to the property owner.
As a general rule, an HOA can recover its collection costs if recovery of collection costs is permitted by either the association’s declaration or the applicable state HOA statute. See, FDCPA, at 15 U.S.C. §1692f(1) (allowing recovery of additional charges if “expressly authorized by the agreement creating the debt or permitted by law.”).
This means that, unless either the declaration or state HOA law expressly allows for recovery of collection costs, a collection agency cannot charge or collect the collection costs from the homeowner.
Many state HOA laws specifically authorize homeowners’ associations to recover collection costs or attorney’s fees if the HOA has to refer a delinquent account for collection.
Ohio’s law provides for recovery of attorney’s fees and other enforcement costs “if an association is required to file a civil lawsuit to collect assessments.” O.R.C. §5312.11. North Carolina allows HOAs to collect collection costs and attorney’s fees incurred in collecting delinquent amounts, as long as the declaration allows for recovery and the HOA gave the owner at least 15 days’ notice of its intent to recover the additional fees and the opportunity to resolve the delinquent assessments without the additional fees. N.C.G.S. §47F-3-116(e) and (h).
Whether a specific HOA has the right to recover attorney’s fees and collection costs depends on the language of the association’s declaration and the laws of the state in which it is located. In many states, if either source allows recovery of collection costs and attorney’s fees, they can be charged. However, a small minority of jurisdictions prohibit the recovery of collection costs by debt collectors altogether. See, e.g., W.Va. Code §46A-2-128(c).
Collection Demand Letters and the FDCPA.
If assessments remain unpaid after one or two notices, many HOAs refer the account to a third party for collection. When that occurs, the debt is turned over to a collection agency or a law firm, either of which is typically governed by the Fair Debt Collections Practices Act (“FDCPA,”) in their attempt to collect the unpaid assessments from the homeowner.
The FDCPA is a federal statute governing the collection of debts from “consumers” by “debt collectors.” In addition to prohibiting a variety of actions defined as “abusive,” “unfair,” or “misleading,” the FDCPA also requires specific disclosures to consumers by debt collectors.
A debt collector’s initial demand letter (or another communication within five days of the debt collector’s first communication with the consumer) must inform the consumer of the amount of the debt, the identity of the creditor, and the consumer’s right to request debt verification. 15 U.S.C. §1692g. And, in every communication with a consumer, a debt collector must identify him or herself as a debt collector. 15 U.S.C. §1692(e)(11).
HOA fees owed by homeowners who reside in the community are, for the most part, considered consumer debts for purposes of the FDCPA; however, the law’s application is limited to third parties engaging in debt collection and does not apply to most creditors collecting their own debts. Ladick v. Van Gemert, 146 F. 3d 0944605190th Cir.1998).
So, in most cases, an HOA sending its own demand letters is not governed by the FDCPA, but a collection agency or law firm the association hires to collect unpaid assessments most likely is. Fuller v. Becker and Poliakoff, 192 F. Supp. 2d 1361 (M.D. Fla. 2002).
A few states have state-level debt collection laws that apply directly to creditors collecting on their own behalf. See, e.g., N.C.G.S. §75-50(3); W.Va. Code §46A-2-122.
A “debt collector” that violates the FDCPA—whether by communicating with a consumer known to be represented by counsel, misrepresenting the nature of a debt, threatening to take action that cannot legally be taken, or engaging in any other FDCPA-prohibited conduct—is liable to the affected consumer for civil damages of up to $1,000, actual damages, and attorney’s fees. 15 U.S.C. §1692k(a). FDCPA claims can be pursued in federal district court or in a state court with jurisdiction over the parties. 15 U.S.C. §1692k(d).
Payment Plans and Partial Payments.
An HOA’s board usually has the authority to approve payment plans for homeowners. If the assessment debt has been referred to a collection agency or law firm for collection, the homeowner may need to work through the agency or firm, but the board remains the ultimate decision-maker.
For the most part, payment plans are a matter of private agreement between the HOA and the member. However, a few states have provisions addressing payment plans in their HOA laws.
In North Carolina, for instance, an HOA board can accept payment plans from homeowners, but acceptance or denial of a proposed plan is at the board’s sole discretion. N.C.G.S. §47F-3-116(i). If a plan is accepted, the HOA is authorized to charge a “reasonable administrative fee” to the homeowner to cover the costs of processing payments in installments.
In Texas, on the other hand, all but the smallest HOAs must make payment plans available. Tex. Prop. Code §0944605190. A plan can stretch from as short as three to as long as eighteen months. Id. California’s Davis-Sterling Act governing HOAs strongly encourages payment plans and requires HOA boards to discuss payment options at a homeowner’s request. Cal. Civ. Code §5665.
The law does not actually require the board to accept any specific payment terms, but, if a partial payment is tendered, the HOA must process and apply the payment toward the outstanding balance. Huntington Continental Town House Association, Inc. v. Miner, (0944605190 Cal.App. 4th 590.
Traditionally, partial payments, when made, are applied first to outstanding fees and costs, then to interest owed, then to principal. A few states have enacted laws requiring HOAs to use a different order of priority when processing partial payments.
In California, an HOA must first apply payments toward outstanding assessments, and, only after all assessments have been paid, can the HOA apply payments toward collection costs, late charges, and interest. Cal. Civ. Code §5655(a). In Texas, partial payments must be applied to delinquent assessments, then to current assessments, then to attorney’s fees, fines, and finally to “any other amount owed to the association.” Tex. Prop. Code §0944605190(a).
If an HOA board makes payment plans available, it needs to offer them to owners in a consistent, non-discriminatory manner, always bearing in mind the board’s fiduciary duty to the association and its members.
HOA Assessment Liens.
As security for the obligation to pay assessments, state HOA laws and association declarations grant HOAs a lien on the properties of non-paying owners. Technically, an assessment lien attaches to the property as soon as the assessments become delinquent. However, to “perfect” a lien (and to give notice of the claim to third parties), the board must record a notice of the lien in the land records of the county where the community is located.
Once a lien notice has been recorded, the HOA’s lien will show up whenever anyone conducts a title search on the property. If a property owner with a lien in place wants to sell the home or refinance the mortgage, the lien will almost always have to be paid first. If the assessments remain unpaid, the HOA will need to “enforce” its lien by filing a civil lawsuit against the homeowner. Usually, that means asking a court to allow the association to foreclose the lien.
The procedural rules governing how HOAs record and enforce liens vary from state to state, but there are almost always some statutory requirements. Properly following mandatory procedures isn’t just a formality—HOAs must respect homeowners’ due process rights. An HOA’s failure to precisely comply with all legal prerequisites can result in a lien being held invalid and, in some cases, even lead to civil liability. See, Diamond v. Superior Court, 217 Cal. App. 4th 0944605190).
After assessments secured by a lien are paid, the HOA needs to ensure that a lien release is promptly recorded in the county land records. The timing for the release varies among states but is usually somewhere around 20 to 30 days. See, e.g., Cal. Civ. Code §5685(a) (allowing HOA 21 days to record release).
The cost of recording the release can usually be charged to the homeowner if permitted under the association’s governing documents and state law. At least one state mandates that lien releases be recorded “at the expense of the association.” W.Va. Code §36B-3-116.
Pre-Lien Notice of Intent to File.
Although not required in every state, advance notification of an HOA’s intent to record a lien is necessary in many jurisdictions. Where pre-lien notice is required, the content and timing vary, though notice must usually be made in writing, state the amount due, and state that the HOA intends to record a lien.
In Florida, an HOA must provide 45 days’ written notice to a homeowner before recording a lien. Fla. Stat. §0944605190). North Carolina requires written notice at least 15 days ahead of time. N.C.G.S §47F-3-116. In California, owners are afforded the right to request dispute resolution before a lien is recorded. Cal. Civ. Code §5670.
Notably, the Uniform Common Interest Ownership Act (“UCIOA”)—a model statute adopted at least in part by Colorado, Nevada, Washington, and several other states—does not require written notice in advance of lien filing. However, even in those states, some associations’ declarations require written pre-lien notice before a board files a lien.
Contents of Notice of Lien.
The specific content of the document is governed by state law. In general, it must sufficiently describe the property, debt, and involved parties to put any prospective purchasers on fair notice of the lien’s existence.
Under Florida’s HOA law, a lien notice must identify the parcel, owner, delinquency date, and amount due, and can include (along with the assessment itself) any interest, late fees, and attorney’s fees owed by the homeowner—as long as the charges are authorized by the declaration. Fla. Stat. §0944605190. Fines can be included—but only if the fine amount is at least $1,000. Fla. Stat. §0944605190).
California and Arizona both exclude fines or penalties from the homeowner obligations that can be added into the amount claimed on a lien notice. Cal. Civ. Code §5725(b), A.R.S. §33-1807(A). North Carolina, though, lets HOAs include outstanding fines in their liens. N.C.G.S §47F-3-116.
A lien’s “priority” is the position it holds in relation to other liens on a property. Priority determines which liens get paid first in the event of a sale or foreclosure. In general, the earlier a lien was recorded, the higher its priority—this is called the “first-in-time” rule. So, a lien has a lower priority than earlier-recorded liens and higher priority than later-filed liens.
In many states, though, HOA assessment liens enjoy “super lien” status, letting HOA liens sometimes hold a higher priority than they otherwise would. A common approach is for an HOA lien to “relate back” to the date on which the community’s declaration was recorded. See, e.g., Fla. Stat. §0944605190.
In determining the lien’s priority, the relevant date becomes the date when the association’s declaration was initially filed, rather than the date when the specific lien notice was recorded.
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There are several exceptions to an HOA’s status as a “super lien.” Tax liens and other liens filed by government agencies are almost always excluded so that an HOA lien does not have a higher priority than the IRS or state taxing authority. And, concerning first mortgage liens, an HOA lien will only have superior priority if the lien notice (not the declaration) was recorded before the mortgage. See, e.g., Fla. Stat. §0944605190; A.R.S. §33-1256B.
An HOA enforces its lien by filing a civil lawsuit against the delinquent homeowner asking the court to enter judgment against the owner for the amount owed and/or to sell the property subject to the lien to satisfy the debt.
Statutes of limitations for enforcement of HOA liens are often shorter than for many other debts and liens. Where a judgment lien usually remains valid for ten or twenty years and can be renewed, an assessment lien expires if a suit is not filed to enforce the lien within six years of delinquency in Arizona (A.R.S. §33-1807(F)), four years in Georgia (O.C.G.A. §0944605190(c)), or within three years under the UCIOA approach used in multiple states. See, e.g., N.R.S. §0944605190); W.Va. Code §36B-3-116(d).
In Florida, the applicable period is one year for condo associations and five years for HOAs because the statute does not provide an expiration. Fla. Stat. §0944605190)(b). However, if a homeowner contests a newly filed lien by recording and serving upon the association a “Notice of Contest of Lien,” the association must file suit to enforce the lien within 90 days or the lien is deemed void. Fla. Stat. §0944605190(1)(b).
Before moving forward with a foreclosure, an HOA must satisfy any applicable statutory pre-foreclosure requirements. Though the timing and content of the notice can vary, the general requirement that HOAs provide advance notice to delinquent homeowners (and usually other lienholders) before commencing foreclosure applies in nearly every jurisdiction. In Texas, other lienholders are allowed to cure the homeowner’s delinquency before foreclosure.
Before a Florida association can pursue judicial foreclosure, it has to send written notice to the delinquent homeowner via certified mail at least 45 days in advance. Fla. Stat. §0944605190(5).
And, if the unpaid assessments total more than $100,000, the HOA’s board must first approve foreclosure by majority vote at a board meeting at which a quorum is present. Fla. Stat. §0944605190). Georgia also requires written notice, sent via certified mail at least 30 days in advance, advising the homeowner of the total delinquent amount and any interest being charged. Georgia law mandates that unpaid assessments total at least $2,000 before foreclosure is permitted. O.C.G.A. §0944605190(c).
Along with advance written notice of intent to foreclose, North Carolina requires HOA boards to formally approve foreclosure by vote at an executive meeting before foreclosing. N.C.G.S. §47F-3-116(f). Assessments must also be at least 90 days past due. Id.
In California, an HOA can only foreclose if the amount of unpaid assessments totals at least $1,800 or the assessments are at least 12 months past due. Cal. Civ. Code §5720.
Judicial vs. Non-Judicial Foreclosure.
In most states, HOAs must foreclose on their liens judicially. This means that the association needs to file a civil suit and ask the court to order a sale of the property, with the proceeds used to pay off the lien.
As a general matter, judicial foreclosures proceed similarly to other civil actions. The HOA must file a complaint with the court clerk and serve the defendant-homeowner with the legal process. Homeowners have the opportunity to contest the foreclosure if appropriate and assert any counterclaims they may have against the association.
If the court approves the foreclosure, it will enter an order directing that the property be sold, and the sale itself will be conducted by an authorized official—often the local sheriff. After the sale, and after any applicable redemption period, the sheriff, clerk of court, or another official responsible for the sale will issue a new deed recognizing the purchaser as holding title to the property.
In a minority of states, associations can foreclose non-judicially—in which case the sale occurs outside of court and is conducted by a trustee (usually a local attorney specializing in real estate law) under a power of sale included within the community’s declaration. Under Texas’s system, though, the HOA must still obtain an order from a local judge authorizing an expedited foreclosure before it can proceed outside of court.
Homeowner Right of Redemption.
In many, but not all, jurisdictions, delinquent homeowners facing foreclosure have an opportunity to “redeem” the property by tendering the amounts due after foreclosure proceedings have already commenced. The duration of the right and the amounts that must be paid vary between states.
Usually, the right of redemption ceases when a new deed is issued to the purchaser or soon thereafter.
In Florida, the right of redemption lasts until the clerk certifies the foreclosure sale, though the supervising judge can allow for a later date. Fla. Stat. §45.0315. Redemption requires the homeowner to pay all outstanding amounts, including assessments, interest, court costs, and any costs of foreclosure that have been incurred. Id.
Florida also lets homeowners submit a “qualifying offer” to the court before the judge has signed off on the order directing foreclosure. A qualifying offer states that the homeowner intends to pay all amounts outstanding within 60 days and has the effect of staying foreclosure proceedings during that period. Fla. Stat. §0944605190(6).
In Texas, a homeowner has 180 days from receipt of notice of the foreclosure sale to redeem the property. To do so, he or she must pay all amounts owed at the time of the sale, with interest, foreclosure costs including attorneys’ fees, taxes and recording fees, any post-foreclosure assessments or costs incurred by the association or third-party purchaser relating to the property, and the purchase price after deducting amounts applied toward the lien. Tex. Prop. Code § 209.011.
Small Claims Collection Actions and Money Judgments.
As an alternative to foreclosing on a lien, HOAs also have the option of pursuing legal collections actions for delinquent assessments against homeowners. The objective of the civil suit is to obtain a money judgment on behalf of the HOA against the delinquent homeowner.
Usually, HOAs can pursue delinquent assessments in small-claims court (or the equivalent in the applicable state).
If the amount owed exceeds the state’s small-claims jurisdictional limit (generally between $5,000 and $20,000), the HOA can file in the county court with jurisdiction over higher amounts.
Small-claims procedures vary among states. The basic process is that the HOA must first file its complaint with the court clerk and serve the complaint on the delinquent homeowner. Once served, the homeowner has the opportunity to file an answer admitting or contesting the debt. If the complaint is contested, the small-claims court sets a hearing and/or enters an order directing the parties to exchange documents and information.
In cases proceeding before a higher-level court, the parties will have the opportunity to conduct additional discovery.
If the court enters judgment for the homeowners’ association, it will have a judgment against the defendant homeowner personally, with all the rights that entail in the applicable state.
Depending on the state, a judgment can enable a successful plaintiff to garnish the defendant’s wages, attach personal property or bank accounts, and record a lien against any real estate owned by the defendant.
Absent a genuine error in the association’s calculation of assessments, HOA suits for unpaid assessments are normally difficult to defend against. The courts in most states have held that a homeowner’s assessment obligation is independent of the association’s duties.
In practice, that means that a homeowner cannot assert as a defense that the HOA has failed to perform its duties. See, Spanish Court Two Condo. Assn. v. Carlson, 12 N.E. 3d 1 (Ill. 2014); Blood v. Edgar’s, Inc., 632 N.E. 2d 419 (Mass. App. Ct., 1994).
Instead, a homeowner who believes an HOA is not meeting its obligations must file an action asking the court to order the HOA to perform its duties, rather than withholding payment as a “self-help” remedy.