It is important to have an HOA collection policy to guide board members in the right way to collect unpaid dues. If an association allows delinquencies to accumulate, it can quickly fall into financial ruin. Yet, collecting dues without following due process can put the association in legal trouble.
What is an HOA Collection Policy?
In an HOA community, homeowners are obligated to pay regular dues to the association. The HOA uses these dues to cover various expenses, including maintenance, landscaping, utilities, insurance, and management fees. The obligation comes with HOA membership, which is often mandatory upon the purchase of a home in the community.
The HOA board is responsible for collecting these dues. The collection process begins with a notice, and homeowners can pay using the available methods. Most associations allow mail-in checks, ACH drafts, and online cash transfers. Some accept credit or debit card payments.
At the center of all this is the HOA collection policy. A collection policy details the requirements, timelines, and procedures for collection, as well as actions the association may take to collect unpaid dues.
It is important to have a collection policy as it establishes the standards by which the association and its members must act. Without one, board members may use arbitrary methods and rules, resulting in collections that are unfair and inconsistent.
What Should an HOA Collection Policy Include?
While every community is different, a standard collection policy should include due dates, delinquency conditions, late fees and interest, collection timelines, third-party involvement, and homeowner rights. Let’s discuss each of these below.
1. Due Dates
As a baseline, an HOA collection policy should set payment deadlines. Such information can usually be found under the CC&Rs or bylaws. Most associations are specific, indicating a fixed date (e.g., the first of the month).
2. Delinquency Conditions
An HOA delinquency policy should also be included. This should define when fees become delinquent. For example, an association might say that fees become delinquent 15 days after the due date.
Most associations allow for a grace period. In the example above, homeowners have 14 days to pay their dues without the account turning delinquent.
3. Late Fees and Interest
Washington law allows associations to impose late charges on delinquent fees (RCW 64.34.304, RCW 64.90.405, and RCW 64.38.020). The HOA collection policy should be specific, indicating the amounts or percentage of late fees and interest that delinquent accounts might incur.
4. Collection Timeline
This is a step-by-step process the association will take to collect delinquent dues. The collection policy should include a schedule for sending notices and escalation.
5. Third-Party Information
Some associations, depending on their governing documents, hire a collection agency to collect the unpaid dues. In this case, the collection policy should clearly identify the service provider.
The collection agency takes a percentage of the amount collected or charges a flat rate for each collection. It is worth noting that these agencies also report these unpaid dues to credit bureaus, which means delinquent owners’ credit scores can take a hit.
6. Homeowner Rights
Finally, an HOA collection policy should list down homeowner rights. These include the owner’s right to dispute the debt and inspect accounting records. If the CC&Rs allow payment plans, the policy should also indicate this.
The Importance of Distributing an HOA Collection Policy Update
If the board wishes to amend its collection policy, it must do so in accordance with due process and the applicable requirements. Amendments to the CC&Rs or bylaws typically require a membership vote, whereas operating rules and resolutions require only board approval.
Once passed, boards should distribute the amendment to all owners. This way, homeowners can familiarize themselves with the new rule. Failure to comply with due process and distribute amendments can void the change.
How to Enforce an HOA Collection Policy
Typically, enforcement procedures begin with an initial notice or reminder, followed by a formal notice of the delinquency. After that, the board can take further action, including late fees, suspension of privileges, hiring a collection agency, filing a lawsuit, placing a lien, or even foreclosing on the home.
Let’s discuss these below.
1. Initial Notice or Reminder
Shortly after the due date, boards should send an initial notice to residents reminding them to pay their fees. This usually occurs during the grace period, when dues have not yet become delinquent.
2. Formal Notice of Delinquency
The next step is to send homeowners association dues collection letters. This is a formal notice of delinquency sent via certified mail. The notice should include the amount owed, any additional fees incurred, and the potential actions the HOA can take if the delinquency remains unresolved.
3. Impose Late Fees and Interest
Most associations start penalties by imposing a late fee or interest charges. This compounds the amount the delinquent homeowner owes to the association. Sometimes, associations offer a payment plan with late fees waived.
4. Suspend Privileges
If the governing documents allow, an association may also choose to suspend a delinquent homeowner’s privileges. These include access to amenities and voting rights.
5. Hire a Collection Agency
If the delinquency persists, an association may hire a collection agency or attorney to collect the debt. Keep in mind that debt collectors must follow federal and state collection laws.
6. Go to Court
An HOA can also take legal action against the delinquent homeowner. Boards can sue for a money judgment, which would force the homeowner to pay or allow the association to garnish wages.
While effective, lawsuits can be time-consuming and expensive. Plus, there is no guarantee that the HOA will win. For this reason, it is important to consider less extreme methods first.
7. Place a Lien
An association may record a lien against the property of a delinquent homeowner. A lien is a legal claim that makes it harder for the homeowner to sell their home or refinance their mortgage.
For condominiums, unpaid dues automatically create a lien (RCW 64.34.364). The same goes for associations that operate under the Washington Uniform Common Interest Ownership Act (RCW 64.90.485). Meanwhile, liens only apply to HOAs under RCW 64.38.100 if their governing documents provide lien rights.
8. Foreclose
The most drastic measure an HOA can take to collect unpaid dues is to initiate foreclosure proceedings. This comes after placing a lien on the property.
Associations must follow foreclosure procedures under state laws and their governing documents. The Washington Homeowners’ Association Act (RCW 64.38.100) requires a first and second preforeclosure notice. It also states that an association can only foreclose if an owner owes at least three months’ or $2,000 worth of dues.
For Everyone’s Protection
An HOA collection policy sets the parameters for collecting unpaid dues. Every association should have one to standardize the collection process. This helps protect both the association and its members in the event of a dispute.
CWD Group helps community associations draft and enforce a fair collection policy. Call us today at 503-488-2008 or contact us online to learn more!
