Understanding the Scope of Collection Costs, Late Charges, and Interest an HOA Can Collect on Delinquent Assessments
The extent of a homeowners association’s (“Association” ) right to recover collection costs, attorney fees, late charges, and interest on assessments that have not been timely paid by homeowners (“Owners” ) is set forth in the applicable statutory laws of the state in which the Association is domiciled. A typical statutory provision would provide that when a regular or special assessment remains unpaid for more than 15 days after its due date, the association may recover the association may recover the reasonable costs of collection, including attorney fees, and may impose a late charge that does not exceed 10% of the delinquent assessment or $10, whichever is greater.
Beyond the state law provisions, the Association’s governing documents may specify other provisions that could be different than the provisions contained in the state statutes. Typically, unless the applicable state statute specifies that conflicting provisions in an association’s governing documents control, the provisions contained in the state statutes will control but, if the Association’s governing documents specify a longer delinquency period or a smaller late charge, or both, then are specified in the state statute, the provisions in the governing documents will control concerning those items .
A late charge should not be imposed prior to the expiration of the required number of days that are allowed for payment of the required assessment and should not be for an amount that exceeds what is permissible under the state statutes and/or the Association’s governing documents. Additionally, absent a statutory provision that provides otherwise, an Association should not impose more than one late charge on an Owner for any one delinquency.
When an Association retains an attorney or a collection agency to assist in the collection effort, the Owner cannot be charged for additional fees that the Association did not have the right to collect. The Owner can, however, be charged for those amounts that the Association is required to pay to the attorney or collection agency for their services and costs—to the extent that they are reasonable.
In addition to the delinquent assessment(s), plus the late charge, and collection costs/attorney fees, Owners are typically responsible for the payment of interest on “all sums” calculated at an interest rate that is allowed or provided for in the state statutes and/or the Association’s governing documents. The interest charges should not be added until after the expiration of the required period that is specified in the statutes and/or governing documents (i.e. 30 days). Because different amounts get added to the total that is claimed to be due by the Association as costs and fees increase, the computation of the appropriate interest to be charged to the Owner becomes complicated. To reduce confusion and conflicts over the amounts that are appropriately owed, Associations should use standardized forms that clearly detail the items that Owners are required to pay to cure the delinquencies.
Frequently, Associations and Owners dispute whether or not the Association is entitled to collect additional costs, charges, and legal fees when the Association has not filed formal legal proceedings against the Owner. Unless the wording of the state statute, or the Association’s governing documents, mandate that a formal action must be filed to collect these sums, the costs, charges, and legal fees incurred by the Association are recoverable even if formal legal action has not been initiated by the Association. When there is no court action involved, Owners who are faced with claims for unpaid assessments coupled with the additional sums that are tacked on for the collection costs, attorney fees and interest are typically at a disadvantage in determining the reasonableness of the additional amounts as those sums are added on unilaterally and the Owner does not have the ability to contest them without going to court. Recognizing this, Association’s should strive to insure that the amounts being claimed from the Owners are correctly calculated, clearly identified, and are reasonable.
An Association’s board of directors should be familiar with the provisions in the Association’s governing documents and the relevant state statutes relative to the right to collect and recover collection costs, attorney fees, late charges, and interest on assessments that have not been timely paid by Owners and the Association should make Owners aware of these provisions. Many unnecessary costly disputes between Associations and Owners over these items could be avoided by one or both of the parties having a better understanding of the extent to which an Owner is liable for these amounts.
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