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 not only leads to liability, but it can also damage the trust that owners have in their leaders.
What are HOA Collections?
In an HOA setting, collections refer to the act of imposing and soliciting amounts owed to the association. More often than not, these amounts come in the form of dues, late fees, and fines.
Homeowners associations rely on dues and assessments to fund day-to-day expenses and long-term reserves. Late fees are usually tacked on to encourage owners to settle unpaid dues. Meanwhile, fines are penalties for violating the association’s rules.
What Should an HOA Collections 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 required by Civil Code Section 5310. Without a written policy, owners may challenge the association’s authority to collect dues, charge late fees, place liens, and foreclose on delinquent properties.
This California HOA collections policy should outline the penalties and legal remedies for nonpayment. According to Civil Code Section 5660, it must define the policy for:
- Payment plans,
- Late fees and interest,
- An owner’s right to dispute the charge,
- An owner’s right to enter into internal dispute resolution, and
- Their right to ask for alternative dispute resolution.
As for fines, an association must also establish a detailed schedule. According to Civil Code Sections 5310 and 5850, boards must distribute the association’s fine policy to all members.
Are HOA Payment Plans Required?
Board members must check their state laws and governing documents to see if payment plans are mandatory. In California, payment plans are not a statutory requirement, but it is wise to consider offering them anyway.
To do this, an HOA must first have payment plan standards and distribute them to all owners. Even without written standards in place, an owner may request to enter a payment plan by meeting with the board. This request must be in written form.
This meeting must then take place in executive session within 45 days of the request. If there is no scheduled board meeting that falls within this window, the board may assign a committee of one or more members to meet with the requesting owner.
Boards have full discretion to approve or deny payment plans. It depends on the case. For example, if an owner is experiencing financial hardship, the board may allow them to enter into a payment plan. On the other hand, if an owner simply doesn’t want to pay the full amount, the board may deny the request.
Even when an owner is on a plan, the association may still attach a lien to their home. This way, if the owner defaults on the plan as well, the HOA can pursue other collection methods. That said, during the plan itself, additional late fees or interest may not accrue.
Can an HOA Charge Late Fees?
An association’s authority to charge late fees on delinquent dues depends on two things: state laws and the governing documents. In California, this authority inherently belongs to HOAs, so their CC&Rs and bylaws don’t need to grant it.
According to Civil Code Section 5650, delinquent dues can lead to the collection of:
- Late charges that don’t go beyond 10 percent of the delinquent amount or $10, whichever is greater,
- Interest that doesn’t exceed an annual rate of 12 percent, and
- Reasonable costs of HOA dues collection and attorney’s fees.
That said, there are other considerations and limitations.
- Notice. Notice is typically required before levying late fees and interest. Owners must receive an HOA dues collection letter that informs them of their balance and any applicable penalties.
- One Late Charge Only. Associations can’t impose late fees every month for the same unpaid amount. It’s only meant as a one-time penalty, but boards can charge interest afterward. This is part of California’s laws on HOA delinquent assessment collections.
- Reversals. Many HOAs allow a one-time reversal of a late fee per year if the owner requests it. Anything beyond that, the owner must write a letter asking for the waiver.
Can an HOA Charge Fines for Violations?
As with late charges, an association’s authority to levy fines for violations depends on state laws and the governing documents. In California, HOAs have the power to adopt and enforce rules, so it is implied that boards can impose fines for violations.
That said, associations must adopt a fair schedule for rule violations. Board members must also notify owners of this schedule. To adopt a fine schedule, the board must follow the same steps and requirements for adopting new rules.
Fines must always be reasonable, too. They must match the severity of the violation. If an owner simply forgot to mow their lawn for a weekend, it would not be reasonable to fine them $500.
Additionally, fine policies must detail the actual process of penalizing owners. It must begin with a written notice of the violation, followed by an opportunity to be heard. At this hearing, owners can present evidence and testimonies to defend their case.
HOA Collections for Unpaid Fines
After notice and a disciplinary hearing, the board can determine if there is cause to levy a fine. If the board pursues the fine, the owner must pay it. Failure to pay can result in a number of possible consequences.
Collection methods can include:
- Suspension of Privileges. An owner’s access to amenities and services may be temporarily halted until they pay the fine.
- Small Claims Court. An association may take the case to a small claims court, which can be relatively inexpensive compared to other legal options.
- Superior Court. Fines can accumulate over time, and if the amount exceeds the small-claims court limit, the HOA may sue in the superior court.
- Judicial Foreclosure. An association may include fines when initiating judicial foreclosures. That said, this is not possible for a nonjudicial foreclosure.
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 as per Civil Code Section 5725. 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 comprehensive understanding of the law and an ability to interpret governing documents. 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) 508-907 or contact us online to learn more!
