HOA collections play a significant role in the operational and financial stability of a community. Board members are responsible for collecting dues from homeowners. When these dues go unpaid, it can result in severe consequences for the HOA, making collection strategies all the more important.
The Importance of HOA Collection
A homeowners association relies on regular dues to function both day-to-day and in the long term. These dues cover the association’s shared expenses, including but not limited to maintenance costs, landscaping fees, insurance premiums, and professional fees.
Homeowners have a financial obligation to pay dues regularly. When a buyer purchases a home in an HOA, they become members of that association. With HOA membership comes perks, but it also comes with certain responsibilities, including the obligation to pay dues and assessments.
When a homeowner fails to pay their dues, they become delinquent. This can result in several consequences. Of course, unpaid dues don’t only affect the homeowners — they also affect the association itself. The same applies to condo associations.
A high delinquency rate can cripple an association’s budget and financial stability. Without dues, the association would have no way of paying for goods and services. This can lead to property breakdowns, amenity deterioration, and a drop in reputation.
The community’s residents will suffer negative effects, too. They are the ones who will have to use these poorly maintained common areas. Ultimately, curb appeal will suffer, and property values will decline.
This is why HOA dues collection is essential. Association boards should have a standard collection policy, complete with penalties for nonpayment. This not only encourages homeowners to stay current with their dues but also protects the association and its residents in the long run.
How to Collect Delinquent HOA Dues
When dues go unpaid, board members should take action. Allowing delinquencies to accumulate sends a negative message to homeowners and can lead to long-term financial instability.
Every community should have an HOA collection policy outlined in its governing documents. This policy should detail what constitutes a delinquent account and the consequences that can follow.
While no two associations are the same, the most common strategies for collecting delinquent HOA dues include sending a reminder, sending a demand letter, charging late fees or interest, offering a payment plan, hiring a collection agency, filing a lawsuit, attaching a lien, and foreclosing on the home.
Let’s break these down below.
1. Send a Reminder
Sometimes, homeowners forget to pay their dues on time. This can stem from busy schedules or a general lack of communication. While owners usually receive invoices, association boards should make it a habit to send reminders.
2. Send an HOA Dues Collection Letter
The most effective way to collect HOA fees is to begin with a demand letter. An association typically sends this to an owner who is already delinquent in their dues. This formal letter should outline the potential penalties for failing to settle the debt.
3. Charge Late Fees and Interest
Perhaps the most basic HOA collections strategy is to charge a late fee or interest. This compounds the total amount due, which is usually enough to push owners to settle their delinquencies.
4. Offer a Payment Plan
Payment plans make it easier for struggling homeowners to settle their unpaid dues in increments. Some states even require associations to offer a payment plan before taking further action.
In Texas, associations with more than 14 lots are required to offer homeowners a payment plan to settle their delinquent dues. The minimum term of the plans should be 3 months. This is following the Texas community association collection law, as outlined in Section 209.0062 of the Property Code.
If an owner has already participated in a payment plan within the last 12 months, they may no longer be eligible. The same applies to owners who have previously defaulted on a payment plan.
5. Hire an HOA Collection Agency
Associations can also send delinquent accounts to a collections agency. That said, if the association intends to charge attorneys’ fees or collection fees to the owner, it must first provide proper notice.
Section 209.0064 of the Texas Property Code outlines the conditions that an HOA must meet to charge a debt collection fee to the owner. These conditions include:
- Providing the owner with written notice via certified mail;
- Listing all delinquent amounts and the total amount due in the notice;
- Informing the owner of any available payment plans or other alternatives; and,
- Giving the owner at least 45 days to settle the total amount due.
6. File a Lawsuit
In some cases, the association may file a lawsuit against the delinquent homeowner. If the association wins, a judge may order the owner to settle the amount or allow wage garnishment.
7. Attach a Lien
Depending on state laws and the governing documents, an association may place a lien on the home of a delinquent owner. This lien allows the HOA to secure payment if the owner sells the property. Additionally, liens make refinancing more difficult.
In Texas, no law automatically gives associations the authority to create liens. Instead, the association’s governing documents must explicitly grant this power.
Before filing a lien, the association must provide two notices to the owner: first via first-class mail or email, and second via certified mail at least 30 days after the first notice. Keep in mind that an association may only file the lien 90 days after sending the second notice.
This HOA collections process is outlined in Texas Property Code Section 209.0094.
8. Foreclose
After filing a lien, an association can opt to foreclose on the home. From the foreclosure sale, the association can secure payment of the delinquent amount. Texas Property Code Sections 209.010 and 209.011 tackle notice requirements and right of redemption, respectively.
Other Strategies for HOA Delinquent Assessment Collections
There are other strategies for collecting HOA dues beyond those outlined above. These include waiving penalties temporarily, leasing the property, consulting with mortgage lenders, and requesting voluntary contributions.
Let’s break these down below.
1. Waive Penalties for a Temporary Time
Some associations waive penalties if owners settle their unpaid dues during a specific time window. This gives owners a limited timeframe to pay their debts without monetary consequence.
2. Lease the Property
If an HOA forecloses on a home and acquires it, it may choose to lease the property. This way, it can generate rental income to cover the unpaid amount.
3. Talk to Mortgage Lenders
Some mortgage lenders are willing to pay delinquent dues to preserve their financial interest in the property. Since the home is their collateral, they may be willing to compromise.
4. Ask for Voluntary Contributions
If the association is in dire need of a cash injection, it can turn to paying homeowners. The board can ask current homeowners to make voluntary contributions to cover the budget shortfall.
Of course, this is an unpopular option for many homeowners. Even if it is entirely voluntary, some may come to resent non-paying owners, which can result in tension within the community.
Do Unpaid HOA Dues Affect Credit Score?
Unpaid dues can negatively impact a homeowner’s credit score. Some associations include reporting delinquencies to credit reporting bureaus as part of their HOA collection process. Meanwhile, others don’t take this extra step.
That said, if an association refers the account to a collections agency, the agency will likely submit the report to a credit bureau. Liens and foreclosures also become a matter of public record, so just about anyone can find this information with a bit of research.
A Beneficial Plan
Associations rely on a standard and strict HOA collection policy to ensure long-term financial health. These strategies and practices will help stabilize cash flow and keep the association financially healthy.
Preferred Association Management Company offers exceptional HOA financial services to communities in Central Texas. Call us today at 512-918-8100 or contact us online to learn more!
RELATED ARTICLES:
