Court Limits Amount of Interest, Late Fees, and Attorney Fees HOA Can Collect

Louisiana Appellate Court Decision (October 18, 2017).

This case involved a dispute between a homeowners association (“Association”) and a homeowner (“Owner”) over the amount of interest, late fee charges, and attorney’s fees Owner was responsible for after Association took action to collect delinquent assessments. The unpaid assessments, which were payable twice per year,  totaled $10,320.00 and dated back approximately four years before Association took action to collect them. When Association finally took action to collect the assessments, it also requested attorney fees at the rate of 35%, late fees at the rate of 10%, and interest at the rate of 12%.

Prior to going to trial, Owner paid Association the total unpaid assessments so the only issues that remained for trial were related to Association’s claims for the attorney fees, late charges and interest. The trial court awarded Association $500 in late fees, $800 for interest, and $4,067 for attorney fees, court costs and judicial interest—an amount that was less than the total interest, late fees, and attorney fees that was sought by Association in the case. Association appealed the trial court’s decision.

Regarding the amount of interest Association could charge on the unpaid assessments, the appellate court found that the trial court committed legal error in awarding 12% conventional interest to Association based on the maximum conventional interest rate that is provided for in the applicable Louisiana statutes.  This finding was based on the fact the Association’s governing documents (covenants) contained a provision that set forth a range for the interest rate that could be charged on delinquent assessments. The relevant language in the covenant provided for an interest rate “as may be determined by the Board from time to time” so long as it did not exceed 18% and/or the maximum rate authorized by Louisiana law.  Since Louisiana law set a maximum rate of 12%, this would have enabled Association’s Board to arbitrarily choose any rate between zero and 12%.

The appellate court also found that Louisiana statutes mandate that conventional interest must be fixed in writing, and therefore the interest rate set forth in a contract must be fixed, or certain, so that the parties are clear as to the amount of interest that is being charged.  The appellate court found that Association’s covenants do not explicitly set forth the interest rate, and therefore, the rate is not fixed in writing. As a result, Association was only entitled to collect interest at the legal rate calculated from the date that the assessments became due.

With regard to 10% charge for late fees, Association’s covenants contained a provision stating that “any assessment delinquent for a period of more than ten (10) days after the date when due shall incur a late charge in an amount as may be determined by the Board from time to time…”  The appellate court found that: (i) the assessment by Association for the 10% late fees was based on a resolution adopted by Association’s Board in 2002 that provided for the assessment of a 10% late fee for the current period and each previous delinquent assessment; and (ii) there was no evidence that the Board’s 2002 resolution was ever made a part of Association’s covenants or transmitted to Association’s owners as an amendment to the covenants.  Without the resolution becoming part of Association’s covenants, the relevant provision in the covenants was vague and ambiguous because it did not contain a definitive method for determining the amount of late fees that could be charged.

In reviewing the trial court’s award of attorney fees, the appellate court ruled that trial courts have discretion to decide the appropriate amount of attorney fees to award and absent a showing of “clear abuse,” the award will not be reversed on appeal. Because the appellate court found that the trial court had committed reversible error concerning the amount of interest and late fees that could be charged, it stood to reason that it abused its discretion in calculating the award of attorney’s fees that were based on a percentage of the other erroneous awards. Thus, the appellate court also vacated the award of attorney’s fees and remanded the matter back to the trial court for a determination of the correct amount.

See case decision: English_Turn_Prop._Owner’s_Ass’n_Inc._v._Contogouris_(La._App._4_Cir._2017)2