Recovering Collection Costs Such as Interest, Late Charges & Attorney Fees Incurred in Collecting HOA Assessments

The payment of homeowners’ association assessments by the individual owners is critical to the proper functioning of a homeowners association. Homeowners who don’t pay their share of the assessments deprive the association of budgeted funds that are necessary for the payment of association expenses and create a hardship for the entire community and all of the other homeowners. Such a situation frequently results in extra costs for other homeowners and cutbacks in expenditures which over time negatively impact property values.

Because of the importance of collecting assessments in a timely manner, homeowners associations must implement and follow policies and procedures relative to the collection of delinquent assessments. As a result, homeowners associations frequently incur additional expenses in connection with their efforts to collect assessments that homeowners do not timely pay. Typically incurred collection expenses consist of items such as late charges, interest on delinquent assessments, and attorney fees. The extent to which those collection costs can be recovered from the homeowner, in addition to the unpaid assessments, is provided for in state statutes and/or the association’s governing documents. The language of the applicable statutes and/or the association’s governing documents should make it clear whether or not the charges in question are recoverable even if formal legal action (a lawsuit against the homeowner) is not initiated. Unless otherwise stated in the statutes, provisions set forth in statutes that specify the types and amounts of collection costs that can be recovered will control over conflicting provisions that are contained in the association’s governing documents.

Based on the authority granted in the state statutes and/or the association’s governing documents, it is common for homeowners associations to impose a late charge on assessments that are not paid within a specified number of days from their due date (i.e. 15 days). It is not always clear whether or not multiple late charges can be imposed on a single delinquent payment, but the common practice is to impose a single late charge for any one delinquency. Typical statutes and/or provisions in an association’s governing documents also contain language that authorizes the association to collect interest on all sums that remain delinquent for more than a specified number of days (i.e. 30 days), at a maximum specified interest rate (i.e. 12%), plus reasonable fees and costs of collection, which include attorney fees. When these collection costs start getting added to the amount of the unpaid assessments, the delinquent amounts owed by a homeowner can quickly spiral into large sums that the typical homeowner does not have the ability to pay.

To avoid having to deal with the consequences of not paying assessments and the related additional expenses that a homeowners association imposes on delinquent amounts, it is prudent for homeowners to pay disputed amounts under protest and then take appropriate action, such as the filing of a small claims case, to seek the recovery of the disputed amounts that were paid. In situations where the unpaid assessments are not disputed, but the homeowner is experiencing temporary financial hardship and needs more time to pay the amounts that are owed, homeowners should request the structuring of a payment plan that will allow for payment of the delinquencies over a period of time. Homeowners experience financial hardships for a variety of reasons, and it is common for state laws and/or association governing documents to require association boards of directors to make good faith efforts to work out payment plans with delinquent homeowners.

Lawrence Szabo has practiced business and real estate law in California since 1974. He has served as legal counsel to homeowners associations, association members, and property managers, has mediated disputes, has personally resided in multiple communities that are governed by a homeowners association, has held positions as both an officer and director of a homeowners’ association, and has served on and chaired HOA committees. His educational background, professional training together with his hands-on experience in the operations of homeowners associations has provided him with a unique and extraordinarily high level of knowledge and expertise in the field of homeowners associations and common interest developments, and the myriad of issues with which they are confronted.