No homeowners association is a stranger to delinquent members. But, should your board offer an HOA dues payment plan to those behind on their fees? Let’s find out.
HOA Dues Payment Plan: Is It Recommended?
Homeowners associations collect regular dues from their members. The HOA uses these dues to fund the various expenses associated with maintaining the community. This includes landscaping costs, maintenance costs, insurance premiums, the cost of certain services, and the like.
As with any system that requires people to pay, there will always be homeowners who miss payment deadlines in HOA communities. When that happens, your HOA board should move swiftly with collection actions. This is to discourage members from defaulting on their payments, even if it is just for a month, and create a block in your association’s cash flow.
For some associations, an HOA dues payment plan will naturally enter the conversation. The question, though, is whether or not these plans are recommended. As with many things, payment plans have their pros and cons.
The Case for HOA Dues Payment Plans
Under the pros column, an HOA dues payment plan gives indebted homeowners a chance to settle their balances.
Not all homeowners deliberately leave their dues unpaid. Sometimes, they run into financial problems and can’t quite come up with the amount just yet. A payment plan can help them make manageable payments without fear of accumulating more late fees.
In addition to this, offering payment plans for delinquent homeowners is advantageous to the association because that is still money coming in. Most HOA boards would take the payment plan simply because it is better than receiving nothing at all.
The Case Against HOA Dues Payment Plans
On the other hand, when you offer a delinquent owner an arrears payment plan, it does not always guarantee settlement. More shameless homeowners will see it as a chance to abuse your kindness, always promising to pay “the next time around.” The good news, though, is that associations have remedies for this, too.
What Do State Laws Tell You?
Before you consider whether or not to offer payment plans, you must first check the laws in your state. Some associations have no choice but to make payment plans an option for owners. For instance, homeowners associations in Colorado are required to offer payment plans before they take legal action, such as foreclosing on the property.
In other states, like California, an HOA board must consider a payment plan if an owner submits a written request to discuss it. Though, it is worth noting that homeowners associations in California are not legally obligated to offer payment plans to members.
And then there are states that remain silent on the issue. In that case, the next thing you should refer to is your governing documents.
Check Your Governing Documents
Many homeowners associations offer payment plans as required by their governing documents. You will usually find the details of such plans in your bylaws or CC&Rs. Make sure to inform all members of these standards so they know they have the option. In fact, in California, it is even mandatory.
If your association currently does not offer payment plans but would like to do so, then perhaps it is time to amend your governing documents. This will usually require a majority vote from the membership.
When creating your guidelines, focus on the specifics, such as how owners can qualify for a plan and what documents they need to submit. You should also make it clear that the HOA can still file a lien even with a plan in place and resume collection efforts should owners default on the plan as well.
Lastly, to prevent owners from abusing the setup, consider only entitling each owner to one payment plan. Have your attorney review the amendments before finalizing them.
How to Ensure Protection for Your HOA
Payment plans are great for both parties, but they do open the HOA to certain risks. To protect your association from these risks, make sure to do the following:
1. File a Lien
It is best to file a lien first once an owner becomes delinquent. Don’t skip this step and immediately jump into a payment plan with them.
Recording a lien secures your spot as one of the priorities in case a lender pursues legal action against the delinquent owner. A pre-lien notice is also what usually prompts an owner to request a payment plan in the first place.
There is no need to worry about payment plans clashing with liens. Associations generally retain the ability to file a lien even if the owner enters a payment plan. It is just another form of protection for the HOA.
2. Proof of Ability to Pay
Before agreeing to a payment plan, you need to secure proof that the delinquent owner has the ability to pay the HOA. This involves asking the owner to submit a plan they can follow as well as other documentation such as pay stubs, mortgage reports, and credit reports. As usual, it is best to have your HOA attorney look over these.
3. Document the Agreement
If you know anything about agreements, then you know that putting them in writing is a critical step in ensuring protection. The written agreement should include all the details of the payment plan, such as:
- The terms and conditions of the plan
- How much the first payment should be
- When the owner should make the first payment
- The amount due for succeeding payments
- When the owner should make succeeding payments
- Any late charges and whether or not they accrue
- Whether or not previous late fees have been waived
- Payment method/s accepted (automatic withdrawals are ideal)
Then, it is a good idea to have the owner and the board sign the HOA payment plan agreement. That way, you have proof that both parties agreed to the terms of the plan. This is particularly helpful if the owner suddenly defaults on their payment plan as well.
4. Obtain a Confession of Judgment
A confession of judgment basically allows the HOA to get a court judgment without needing to go through the entire trial process. It comes in handy when an owner fails to pay their outstanding dues according to the plan’s terms and conditions.
Tread With Caution
An HOA dues payment plan is typically not the go-to solution for associations with delinquent owners. But, it can be a helpful collection tool in your arsenal. Of course, payment plans come with risks, and your HOA board should take the necessary steps to ensure protection.
An HOA management company can help your board with collection efforts, including setting up and implementing a payment plan. Call Cedar Management Group today at (799) 252-3327 or contact us online to learn more about our services.
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