Navigating HOA payment plans can be challenging, especially for boards unfamiliar with state laws. In Texas, payment plans are mandatory, and failure to follow the proper guidelines can result in penalties for the association. Understanding the law and the association’s governing documents is the first step in avoiding liability.
What are HOA Payment Plans?
An HOA payment plan is simply a formal agreement between an HOA and a homeowner to settle unpaid dues and assessments in installments over a fixed period. These plans prevent delinquencies from incurring additional penalties and escalating to legal action.
Are HOAs Required to Offer HOA Payment Plans in Texas?
When an owner falls behind on their dues, they often look for a way to settle it without facing legal repercussions. Oftentimes, it is because of financial hardship. This leads them to ask, “Can I pay the HOA in installments?”
In Texas, homeowners associations with more than 14 lots are required to offer payment plans for both regular dues and special assessments. This is in accordance with Section 209.0062 of the Texas Property Code.
Of course, there are certain guidelines and limitations that both boards and owners must understand.
What is the Minimum Term for an HOA Payment Plan?
In Texas, associations must allow a repayment period of at least 3 months from the date of the owner’s request. It is possible to offer a longer plan if the governing documents allow.
What is the Maximum Term for an HOA Payment Plan?
Texas law states that associations are not required to extend payment plans beyond 18 months from the owner’s request date.
Can an HOA Add New Penalties While the Plan is Ongoing?
No, associations can’t add new late fees or other monetary penalties on top of the original debt while the owner is following the plan. This is according to Texas law.
That said, an association can still charge reasonable administrative costs for managing the payment plan and interest. These don’t fall under monetary penalties.
When Can an HOA Deny a Payment Plan?
Associations can deny an owner’s payment plan request if:
- They defaulted on a previous plan within the last 2 years,
- They already received a plan within the last 12 months, or
- The request was put in after the statutory cure period had already expired under Section 209.0064.
Do Homeowners Need to Declare or Show Financial Hardship?
No, a homeowner does not have to prove financial hardship to qualify for a payment plan. Texas law simply requires associations to offer the plan in writing before pursuing collection actions.
The Advantages of HOA Payment Plans
Offering alternative HOA payment options can benefit both homeowners and the association itself. For owners, these plans can make overdue payments more affordable. Instead of paying a large balance all at once, they can space it out over a few months, thereby reducing the financial strain. Plus, they can avoid collection actions, liens, and even foreclosure.
For the association, payment plans increase the chances of collecting delinquent dues and assessments. It is far better to receive payments in increments than not at all. It still improves cash flow compared to waiting for collections or litigation.
Additionally, the HOA can reduce its legal costs and collection expenses. There’s no need to hire a collection agency or a foreclosure lawyer. All in all, it encourages owners to work with the HOA rather than against it, fostering a more harmonious community.
How HOA Payment Plans Work
Payment plans are not only required by Texas law but also offer several benefits to the community at large. Still, many boards don’t know the first thing about managing HOA payment plans. Here are the guiding strategies.
1. Adopt a Written Policy
According to Texas law, associations must formally adopt and record their payment plan guidelines in the real property records of the county where the subdivision is located. From there, board members must educate owners on the payment plan guidelines.
2. Require Down Payment
Typically, an owner must pay an initial amount upon the signing of the payment plan agreement. This shows goodwill and an intention to follow through on the plan.
3. Establish an Installment Schedule
Homeowners must commit to paying regular weekly or monthly payments to the HOA. Keep in mind that the minimum repayment term in Texas is 3 months, while the maximum is 18 months.
Of course, this doesn’t stop the owner’s regular dues. They must abide by the payment plan in addition to their normal ongoing dues to the association.
4. Factor in Additional Costs
Associations can’t add new monetary penalties while the plan is ongoing. That said, they can still charge reasonable administrative costs and interest during the plan.
This does not prohibit the HOA from levying late fees or interest on new unpaid balances (those not part of the plan). Remember that owners must still pay their regular dues in addition to the payment plan. If they default on those dues as well, the HOA can take enforcement action, including late fees.
5. Impose a Deadline
Owners must typically request a payment plan before the formal right-to-cure collection notice period expires.
6. Create a Contract
Associations should formalize the agreement in writing and have it signed. This contract must set out all the terms of the agreement, including the obligations of both parties.
How to Offer or Request HOA Payment Plans
In Texas, HOAs are legally required to offer payment plans, but owners must still put in a request.
An HOA board can’t turn an account over to a collection agency or attorney unless it has first sent a certified notice giving the owner at least 45 days to cure the delinquency. This formal notice must explicitly state that the owner has the right to request an alternative payment plan.
If the owner is eligible for the plan and makes the request within the deadline, the HOA board can’t arbitrarily deny it. The board is mandated to approve the request and grant a schedule that complies with state laws and the association’s governing documents.
Homeowners should not expect to automatically enter a payment plan with their HOA. They must actively respond to the notice sent to them by submitting a written request. Moreover, they must do so before the 45-day cure period expires.
Helpful to Both Parties
In any planned community, HOA payment plans can improve cash flow while lowering delinquency rates. Texas law explicitly requires associations to offer an alternative payment schedule, but reasonable limitations are also in place to protect the HOA.
PAMco offers exceptional HOA management services to communities in Central Texas. Call us today at 512-918-8100 or contact us online to learn more!
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