The cost of delinquency

Nationwide, non-payment of HOA fees is among the top problems facing condo, single-family, and other planned development associations today, says Thomas M. Skiba, chief executive officer of the Community Associations Institute in Alexandria, Va.

Just a few homeowners who stop making HOA fee payments can cut into an association’s budget quickly. Annual HOA fees average $420 for single-family homes and $2,400 for condos, the U.S. Census Bureau says.

If too many homeowners stop paying their HOA fees, lenders may be unwilling to make mortgages or refinance properties in the community. Fannie Mae, for example, won’t guarantee loans in condominiums where more than 15% of the homeowners are 30 days or more overdue on HOA fees. That can hurt property values.

Act fast to collect overdue HOA fees

The sooner action is taken to collect past-due accounts, the better off everyone is. “We have been absolutely unforgiving on paying dues,” says Peter Mannetti, president of the Beauvallon condo association in Denver. With 25 of the 200 units in foreclosure, the association waits only 60 days before telling delinquent owners that the HOA is going to place a lien against the title to their home.

“We haven’t forgiven one late fee, one fine, one legal fee,” he says. “We don’t care if the dog ate your (payment) coupon. Some people do have hardships, but the minute you let one slide, you have a problem.”

How to collect overdue fees

If you serve on your HOA’s board, try these seven tips for collecting dues:

1. Seek help from experts. Consult your community association’s attorney and read for yourself what the bylaws say you can do about delinquent homeowners. Weigh the costs of the actions your board could take.

Legal fees for letters demanding payment can run $200 to $500 per home, but each case is different. Suing a homeowner individually and trying to garnish wages to collect delinquent fees could cost $2,000 or more. Your community’s attorney may be able to recommend a collection agency with experience working on HOA cases.

Foreclosing on a homeowner who owes back dues could cost much more and won’t result in payment unless the unit is worth more than the value of any mortgages and liens already on the property, plus attorney, home-sale, and court costs.

2. Consider taking away the right to use recreational facilities such as pools, gyms, and tennis courts, and suspending common-area privileges. That’s especially helpful if the home is occupied by tenants who will complain to the landlord if they can’t use amenities, says Los Angeles attorney Sandra Gottlieb, whose firm represents about 600 community associations. “We’ve seen payments begin within three to seven days after privileges are terminated,” she says.

3. Make renters pay fees if their landlords don’t. In the 200-unit Optima Village condominium in Plantation, Fla., the association requires tenants to sign a lease agreement promising to pay association dues if the landlord-owners don’t. This gives the HOA a backup source for payment.

4. Offer a payment plan to owners in financial distress. Divvy up the delinquent amount into monthly installments, Gottlieb says. Some associations may try for a 12-month plan, but a six-month deadline with an option to renew seems to produce better results, she says.

5. Put a lien on the house. A lien is a court document that tells title companies the HOA has to be paid when the home is sold or the homeowner refinances his mortgage. A lien probably won’t generate a payment until owners sell their home or refinance their mortgages, says attorney Loura Sanchez in the Denver suburb of Arvada.

Others disagree. Winston Park Association President Miles Moss says demand and warning letters, followed by liens, work in his Miami-area community, even when the homeowner has no plans to sell or refinance.

6. Sue the homeowner and try to garnish wages or bank accounts. Some, but not all, states allow HOAs to sue homeowners for unpaid dues and then garnish the homeowner’s wages or bank accounts, Sanchez says. Taking a case all the way to trial could cost the HOA several thousand dollars. Having an HOA officer take the case to small claims court may be an option in your area.

7. Talk to your association’s attorney about reverse foreclosure. Some communities in Florida are using a legal technique called reverse foreclosure to force banks to foreclose on unit owners who are making neither mortgage nor HOA fee payments. The move forces the bank to go ahead and foreclose on the unit. Once the bank owns the unit, it then has to make the HOA payments.