Do you know what happens when one of the owners in your community can’t or won’t pay their homeowner association dues? As an association board member responsible for collecting dues on the association’s behalf, what are your rights and responsibilities in such a situation? What are the courses of action available to you? Keep reading to find out.
Don’t Ignore Late Dues Payments
The most important thing to remember is that you can’t ignore the problem. As much as any of us hate to be the bad cop, if you’re on the board your fiduciary responsibility is to all the members of the association as a whole. If you ignore the non-payment of dues, you are doing an injustice to all the other owners in the association who are meeting their obligations.
Here are three more reasons you can’t ignore late due payment:
- If your association gets a reputation for letting responsible members carry financial weight for the slackers, they’ll likely start selling, word will get out, and property values in your community will fall.
- Failing to collect unpaid dues will deprive your association of funds needed for maintenance, upkeep, landscaping and servicing the common areas. The cost of ignoring non-payers is thus much greater than what they owe because it affects property values across the whole community.
- If you fail to pursue the collection of unpaid dues, your fellow association members may file suit against you to force you to act. Otherwise, you could be in violation of your fiduciary duty to look after their interests and could be removed from the board.
What You Can’t Do to Collect Late Dues
It’s imperative that you don’t publicly shame owners into catching up on their dues by publicizing their names; this is prohibited in practically every state. Remember that the business of collecting unpaid dues is between the board and the individual owners. No one else should know.
You may need to disclose the aggregate amount of shortage to any association member who asks to inspect the books but, in many states, you must redact anything that would personally identify anyone who’s in arrears.
What You Should Do to Collect Late Dues
First, get an attorney. You will hopefully be able to collect the amount in arrears in due course. But if you don’t, this process may well eventually result in a lien filing and an eventual foreclosure. If this comes to pass, you’ll want your legal ducks in a row from the very beginning.
Note: This is one area where it may well pay to have a professional association manager in on the process. While board members often serve short terms and are typically new to the process of collecting late dues themselves, a veteran association management firm will have already been through this process many times.
Next, check your bylaws and covenant documents carefully. If they were well-drafted to begin with, they will outline a process that you must follow whenever you attempt to collect dues payments in arrears. In most cases, you’ll have to send one or more registered letters, so you’ll have a receipt in hand if you need to go through a legal process.
There’s usually nothing wrong with a reminder phone call or two, but ensure you don’t run afoul of the Fair Debt Collection Practices Act. This statute prevents you from disclosing information over the phone about the unpaid dues to anyone but the responsible party, prohibits “harassment” and restricts the hours at which you can call.
Can You Charge a Late Fee?
You may charge a late fee only if the fee has been specified in your association’s CC&Rs, duly passed by the association board or by voters in accordance with your association’s governing documents and bylaws.
Can You Arrange a Dues Payment Plan?
Life happens. If you were in the non-payer’s shoes and facing financial challenges, you’d probably appreciate a chance to work out a payment plan. Some states, including California (under the Davis-Sterling Act), grant the owners the right to petition the association to arrange a payment plan. These plans can include ongoing fees and assessments, but don’t allow for the continual charging of late fees if the homeowner is in compliance with the terms of the plan that you work out together.
In the vast majority of cases, working out a payment plan is cheaper and more successful for the board, while simultaneously being less traumatic for the owner than a foreclosure or forced sale.
Small Claims Court or Liens?
If attempts to resolve the delinquency fail, you may be forced to take the owner to small claims court. Specific rules on how to do this vary by jurisdiction. A court may issue a judgment that can eventually result in a wage garnishment until the dues are paid.
You can also potentially get a lien on the home. Once you have one in hand, you can, as a last resort, begin the foreclosure process within 30 to 90 days after the lien has been recorded, depending on the jurisdiction. The association board must usually vote to proceed with foreclosure. Generally, you must formally offer the owner in arrears a “meet and confer” session to address the problem.
If that doesn’t work, you must go through the courts, serve a summons and, once the title has been transferred, engage in a waiting period before you can put the house up for sale.
Closing Thoughts on How to Collect Late Dues
Let’s face it: dealing with the non-payment of association dues, and dues-wrangling in general, is anything but a pleasant job. Anyone who doesn’t enjoy confrontation or stays away from awkward conversations would want to avoid it.
Fortunately, association board members like yourself have allies who will happily be your dues wrangler – not to mention legal advisor, maintenance mogul and more. If you want to save time and avoid stressful situations like collecting late dues, get a free quote from a professional association manager.