HOA Payment Plans: Should These Be Offered To Late Payers?

Would it be wise for board members to offer HOA payment plans to delinquent owners? As with many things, payment plans come with advantages and disadvantages. In some cases, though, an HOA may be legally required to offer them before proceeding with other collection efforts. It is important to consider everything first before taking any action.

What Are HOA Payment Plans?

Homeowners associations collect monthly dues to pay for the various expenses incurred by the community. As part of their agreement with the HOA, homeowners must pay these dues or face several possible penalties. Sometimes, though, a homeowner may be unable to meet this obligation. Their account then becomes delinquent.

Delinquencies can be problematic for HOA communities, especially if the rate spikes. When too many owners don’t pay on time, the association will face a budget deficit and cannot settle its payables. This will lead to a drop in living standards as maintenance work and insurance premiums go unpaid.

There are a few ways HOAs use to collect outstanding dues and assessments. It is common to start by applying a late fee or interest charge on the late payment. Some associations revoke member privileges when an owner fails to settle their account. Most others place a lien on the delinquent owner’s property. Owners can even lose their homes due to unpaid dues should the HOA decide to foreclose on the lien.

So, where do homeowners association payment plans come into play?

A payment plan is an agreement between a homeowner and the HOA wherein the former settles unpaid dues with the latter according to a schedule. It is essentially an installment plan for delinquent accounts. Payment plans help homeowners catch up on their outstanding balance while reducing bad debts for the association. It is a good way to collect unpaid dues from struggling homeowners, as it divides the sum into more manageable payments.

How Do HOA Assessment Payment Plans Work?

A payment plan consists of three parts — the total amount owed, the number of installments or payments, and the amount to be paid at each installment.

The formula is simple:

Amount to Be Paid at Each Installment = Total Amount Owed / Number of Installments

For example, if an owner has unpaid dues totaling $2,000, and both parties agree on a 10-month plan, then the owner must pay $200 per month ($2,000 divided by 10 months).

Theoretically, by the time the 10 months are up, the owner should have paid their whole balance.

Drafting the Plan

After negotiating the plan, a written agreement must be created that both parties must sign. This written agreement should outline the terms of the plan and include the following details:

• A declaration that the owner is struggling financially;
• The total amount the owner owes (and if it includes late fees);
• The duration of the plan or the number of installments;
• How much the owner must pay each installment/month, and,
• A declaration of the HOA’s right to pursue other collection efforts if the owner fails to fulfill the plan.

Once written, the association should inform the homeowners of the HOA’s standards for payment plans. It’s a good idea to disclose this information as part of the HOA’s yearly statement of collection procedures.

What About Late Fees?

HOAs should generally include all late fees in the total amount owed when calculating the monthly payment. However, during negotiations, the board may agree to waive the late fees, leaving the owner to settle only the original unpaid amount.

The Pros and Cons of HOA Dues Payment Plans

Although it is relatively simple to grasp the idea of payment plans, you may encounter some challenges when applied in practice. You must strike a balance that satisfies both the HOA’s receivables and the homeowner’s financial hardships.

HOA payment plans must be realistic. The monthly installment should be something the owner can afford, but the plan should still be within a reasonable timeframe. Payment plans with durations that are too long don’t tend to be successful.

When weighing payment plans for your association, consider the pros and cons.

Pros

• Homeowners can settle their unpaid dues using a reasonable schedule and in more manageable sums.
• Payment plans can reduce the number of delinquencies, liens, and foreclosures.
• Payment plans help turn bad debts into cash inflow.
• Associations can exercise more empathy, as not all owners stop paying dues on purpose.

Cons

• There is no guarantee that owners will pay.
• There is potential abuse, as shameless owners might take advantage of the association’s kindness and ask for payment plans even when they don’t need to.

State Laws on HOA Payment Plans: Are They Required?

In some states, homeowners associations are legally required to offer payment plans to delinquent owners. This is the case for HOAs in Colorado. According to Section 38-33.3-316.3 of the Colorado Common Interest Ownership Act, an HOA must make a good-faith effort to set up a payment plan that spans at least 6 months. However, the HOA is not required to offer a payment plan to someone who has already entered one in the past.

California has no legal requirement for an HOA to offer a payment plan. However, as per Civil Code Section 5665, an owner may submit a written request to discuss a payment plan. However, this does not hinder an association’s ability to place a lien on the owner’s property.

What Do Your Governing Documents Say?

Homeowners associations should turn to their governing documents if state laws are silent. Your CC&Rs and bylaws may require your association to offer payment plans to delinquent owners. It is important to inform all homeowners that such an option exists. Make sure to let them know how payment plans work.

If your governing documents are also silent, then your HOA is not obligated to offer payment plans. But, if you want to start offering payment plans, you must amend your governing documents. Most of the time, amending your governing documents will require a majority vote of approval from the association members.

When crafting your payment plan guidelines, concentrate on the specifics. Explain how owners can qualify for payment plans and what documents they must provide the board, if any. Including a provision that says your HOA can still record a lien even if an owner has entered a payment plan is also best. If an owner breaches the plan, your HOA should also be able to continue collection efforts.

There is a danger that owners may abuse the payment plan system if you start offering it. To counteract this, you should include a rule that says owners may only enter a payment plan once. Ask your HOA attorney to review the payment plan guidelines before recording them.

Should HOAs Publish Homeowner Names?

Some HOAs publish the names of homeowners on HOA payment plans to motivate them to keep up with their payments. However, doing so may be unethical or illegal. It’s also generally not a good idea.

There is no good reason to publish the names of those on HOA payment plans. Homeowners will only feel ashamed and disgraced. They may even take revenge against the HOA and confront the board.

In addition, it can lead to legal liability. The association may violate the Fair Debt Collection Practices Act or relevant state laws. Moreover, lists of delinquent accounts are often considered sensitive information not available for review. Likewise, lists involving homeowners on payment plans may also be confidential.

How to Protect the HOA

HOA payment plans can ensure some level of financial stability. However, they also pose several risks. The association should take the following precautions for protection:

1. File a Lien

The HOA should never jump directly into providing a payment plan once a homeowner’s account becomes delinquent. Instead, the first course of action should be to file a lien.

This is because a lien will ensure that the HOA has priority in case a creditor takes legal action against the homeowner. This protects the HOA from financial losses.

2. Evidence of Ability to Pay

The HOA should obtain evidence of the homeowner’s ability to pay before they sign an agreement. Make sure to ask them to submit a financial plan as proof. The board can also ask for documentation like credit reports, mortgage reports, and pay stubs. Finally, remember to look over all these documents with an HOA attorney.

3. Create a Written Agreement

An HOA should never provide a payment plan without a written agreement. This is because a written contract protects the HOA from financial losses. If both the board and the homeowner sign it, the HOA has proof that the parties agreed to the terms. This will be helpful in case the homeowner defaults on their payment plan.

Make sure to include the following information in the agreement:

• Terms and conditions
• The first payment amount and deadline
• Succeeding payment amounts and deadlines
• Late charges and accrual terms
• Waiver or non-waiver of past late fees
• Accepted payment methods (ideally, the HOA should aim for automatic withdrawals)

4. Get a Confession of Judgment

If a homeowner defaults on their HOA payment plan, the HOA may need to undergo a lengthy trial process to get a court judgment. To avoid this, the HOA should get a confession of judgment beforehand.

HOA Payment Plan Alternatives

While HOA payment plans are a great way to ensure homeowners pay their dues, they aren’t the only method for collecting unpaid dues. Moreover, when they are ineffective, HOAs should also consider other methods of collection, such as:

• Suspension of Rights & Privileges. HOAs can suspend a delinquent homeowner’s rights and privileges until their debts are paid. These include rights to use community amenities and facilities.
• Lien. HOAs can choose to place a lien on all delinquent homeowners’ properties. This gives the homeowner an obstacle if they want to sell their home or refinance their mortgage.
• Foreclosure. As a last resort, HOAs can foreclose the property of delinquent homeowners. HOAs can file a lawsuit and obtain permission from the court to sell the property. Alternatively, they can follow state laws and the process outlined in the CC&Rs to foreclose the lien without court assistance.

Consider Payment Plans for Your HOA

Regarding it, HOA payment plans can be a great tool to minimize delinquencies and ensure cash inflow for the association. While there are a couple of disadvantages, there are ways to curb them. If your association does not offer payment plans as of yet, now is the time to consider doing so.

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