When it comes to HOA collections, there are certain actions that are prohibited by law. Board members must understand the extent of their authority to reduce legal exposure. If the board crosses a line, it can lead to liability and damage the trust owners have in their leaders.
What Regulates an HOA Collections Policy in California?
California HOA collections are primarily regulated by the Davis-Stirling Common Interest Development Act. This law governs common interest developments and sets requirements for assessment payments, delinquency notices, payment plans, liens, foreclosure, dispute rights, and annual disclosures.
Civil Code Section 5650 states that regular and special assessments become a debt of the owner when they are levied. Assessments become delinquent 15 days after they are due, unless the declaration gives owners a longer period. Once an assessment is delinquent, an association may recover reasonable collection costs, a permitted late charge, and interest within the limits set by law.
What Should an HOA Collection Policy Include?
Whether or not an HOA needs a written policy depends on state laws and the governing documents. In California, boards are required to establish a collection policy and enforce it consistently.
Boards must also distribute this policy annually as part of the annual policy statement. Without a written policy, owners may challenge the association’s authority to collect dues, charge late fees, place liens, or foreclose on delinquent properties.
A strong HOA collection policy should explain when assessments are due, when an account becomes delinquent, and how the association calculates late charges. It should also explain payment plan standards and the owner’s right to dispute the debt, request internal dispute resolution, and request alternative dispute resolution when applicable.
Delinquent Assessment Collection Policy Requirements
A delinquent assessment collection policy should focus on unpaid assessments rather than unpaid fines. This distinction is important because assessments fund the association’s operations, while fines are disciplinary charges for rule violations.
Under Civil Code Section 5730, the annual policy statement must include the required “Notice Assessments and Foreclosure” language. This notice explains that delinquent assessments may lead to a lien and, in serious cases, foreclosure. It also reminds owners that the association must follow Civil Code requirements before recording a lien.
Delinquent Accounts Collection Process for California HOAs
A California board should never jump straight from a missed payment to aggressive legal action. Proper delinquent accounts collection requires a clear process and accurate accounting.
Confirm the Debt and Send an Initial Notice
The first step is to verify the amount owed. The association should confirm the owner’s balance, payment history, late charges, interest, and collection costs before sending a demand letter.
An initial HOA dues collection letter should identify the balance and encourage payment before the matter escalates. This letter is not the same as the statutory pre-lien notice, but it can help resolve the delinquency early.
Apply Late Fees and Interest Correctly
An association’s authority to charge late fees on delinquent dues depends on state laws and the governing documents. In California, Civil Code Section 5650 allows a late charge that does not exceed 10 percent of the delinquent assessment or $10, whichever is greater.
The same section allows interest at an annual rate of up to 12 percent. Interest begins 30 days after the assessment becomes due, unless the declaration requires a lower rate. Boards should avoid stacking repeated late fees on the same unpaid assessment.
Send the Pre-Lien Notice
If the account remains delinquent, the association must send a pre-lien notice before recording a lien. Civil Code Section 5660 requires this written notice at least 30 days before lien recordation, and it must be sent by certified mail to the owner of record.
The notice must include an itemized statement of charges and a description of the association’s collection and lien enforcement procedures. It must also inform the owner of important rights, including the right to inspect records, dispute the debt, and request a board meeting to discuss a payment plan.
Consider Payment Plan Requests
California law allows an owner to submit a written request to meet with the board about a payment plan after receiving the pre-lien notice. If the request is made on time, the board must meet with the owner in executive session within 45 days of the postmark of the request, unless no regular board meeting falls within that period.
Even when an owner is on a plan, the association may still attach a lien to their home. Additional late fees should not accrue while the owner complies with the plan. If the owner defaults, the association may resume collection efforts.
Approve the Lien and Choose a Remedy
If the delinquency continues, the board may decide to record a lien. In California, this decision cannot be delegated to a manager or collection agent. Civil Code Section 5673 requires the board to approve the lien by majority vote in an open meeting.
After recording a lien, the association may pursue a money judgment, judicial foreclosure, or nonjudicial foreclosure, depending on the facts and legal requirements. Foreclosure should be a last resort. Under California’s statutory notice language, foreclosure is generally available only when delinquent assessments exceed $1,800 or are more than 12 months delinquent.
HOA Collection Policy for Unpaid Fines
Can an HOA charge fines for violations? Yes, but only if the governing documents authorize discipline and the association follows California law. Boards must adopt and distribute a schedule of monetary penalties as part of the annual policy statement.
Fines must be handled differently from delinquent assessments. Civil Code Section 5850 generally limits monetary penalties to the amount in the fine schedule or $100 per violation, whichever is lower, unless a higher scheduled penalty is allowed because the violation may cause an adverse health or safety impact.
Can an HOA Charge Late Fees and Interest on Unpaid Fines?
No, associations can’t charge interest on fines that owners fail to pay. This is not a legal way to collect unpaid fines under California law. Interest is only applicable to delinquent dues or assessments.
The same goes for late fees. Fines are not the same as delinquent dues, so an association can’t tack on late fees on top of the fine amount.
Necessary Help
Navigating HOA collections can be challenging for volunteer boards. It requires a clear policy, accurate records, consistent enforcement, and a comprehensive understanding of California law. To avoid liability, board members should consider obtaining professional assistance.
Optimum provides expert management services to community associations in Southern California. Call us today at (714) 508-9070 or contact us online to learn more!
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