Take Action Against Delinquent Homeowners

Straight Talk on HOA Collections

When homeowners don’t pay their dues, HOA and condo associations have a variety of tactics available to them to collect unpaid fees.
As difficult as it may be, there’s really only one way to deal with homeowners who aren’t paying dues or making arrangements to pay a portion of their dues on a  regular basis: get tough.

No one enjoys forcing payment plans, filing liens, or even foreclosing on their neighbor’s home. But when homeowners don’t pay their homeowners association fees, the association has to try some or all of those tactics.

That may seem harsh, but when homeowners can’t (or won’t) pay HOA fees, the rest of the neighbors must pick up the slack through higher fees, special assessments, or reduced spending on community upkeep and amenities.

Delinquencies Lower Resale Values

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.

The Sooner You Act to Collect HOA Dues, The Better

The sooner action is taken to collect past-due accounts, the better off everyone is.   In this economy, you want to work with people who are willing to pay a reasonable amount to reduce their outstanding debt as long as they stick to a payment plan.  But when they refuse to pay anything or default on an agreed upon payment plan, you need to take the gloves off and act for the good of the entire community.

How to Collect HOA Dues without Breaking Your Budget

First, read your Covenants. If they allow you to shut off water, suspend access to the community’s gate, eliminate parking privileges or deny access to the community amenities, such as the pool, tennis courts and fitness room, you want to notify the homeowner that their privileges will be suspended if they do not pay and use the Covenants as the main weapon in your arsenal.

Second, consult an attorney to determine the best way to suspend HOA’s privileges for delinquent owners . For non-essential services, you may require as little as a certified letter tot he homeowner before cutting off access to the amenities.  In other cases, where essential services are involved, you may be required to obtain a judgment against the homeowner before suspending their access to the amenities and other privileges.   In either case, homeowners act quickly when faced with a potential interruption in services or other inconvenience.  That’s when they way to talk and work out an agreeable payment plan.

Third, file a lien against the property. 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.

Fourth, make renters pay fees if their landlords don’t. Adopt a rule that requires all renters to assume responsibility for HOA dues if the landlord-owners don’t.  This gives the HOA a backup source for payment.

Fifth, try to negotiate with homeowners after foreclosure. Notify delinquent homeowners that you will be filing a 1099-C Cancellation of Debt form with the IRS if they don’t pay their HOA dues.  When filing your taxes, the amount listed on the 1099-C form is claimed as income.  Because the homeowner never paid their HOA dues, it is considered money that you gained.  Many homeowners will negotiate with HOAs to avoid receipt of a 1099-C, which would result in more taxes.

Finally, don’t waste money paying lawyers to file suit against delinquent owners. Suing delinquent homeowners who don’t have the means to pay is a waste of your HOA’s operating monies.  In most cases, the HOA ends up paying far more to the attorneys than they could ever hope to recoup if a judgment is obtained against the owner.  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 is often the best option for an HOA.

Collecting HOA dues doesn’t have to be expensive or time-consuming.  Be firm with delinquent homeowners and be  smart about every HOA dollar you spend on collections and you will enjoy the results!