How to Collect and Manage Homeowners Fees

Note: NonProfit Central does not offer legal advice. These are simply options to consider with your HOA team and legal counsel.
A Homeowner’s Association (HOA) is an organization created by the real estate developer during the process of property development. During the property development stage, The Homeowners Association is responsible for directing structural standards, design elements and other intricacies in an effort to maintain uniformity in the development. Upon completion, it is the role of The Homeowners Association to maintain the quality of the development while preserving its value. The HOA charges a Homeowners fee monthly or annually. The Homeowners Fee is beneficial to the homeowner as they allow for a well-kept community which helps to maintain or increase the value of their home. Fees usually cover shared property (tennis court, pool, park, clubhouse) and shared services such as gardening, lawn care and snow or debris removal.
Sometimes, after the homeowner has occupied their residence, they refuse to pay Homeowners Fees. This means the association loses money or could force other homeowners to pay higher fees in an effort to pick up the slack. Community upkeep and maintenance of amenities are at risk because of a shortage of funds.
As hard as it may be, in this instance, the HOA manager must get tough. Non-payment of fees can have adverse effects to homeowners as well as potential homeowners. Lenders may become unwilling to offer mortgages or refinance properties in this development. It might not be a job you as the manager will enjoy, but you will have to place liens on homes, force payment plans and possibly foreclose on some of these delinquent homes.

1. Discontinue Privileges to Shared Property and the use of Shared Services: It is highly likely that amenities are among the reasons the homeowner was attracted to this development. If you take away the perks they have grown accustomed to living with, they will be encouraged to pay the fees to enjoy them again.
2. Offer a Payment Plan: Homeowners Fees are usually rolled into mortgage payments. It is highly unlikely that a homeowner would intentionally avoid mortgage payments. In cases like this, it may indicate financial distress on the homeowners’ part. The HOA Manager can devise a suitable payment plan to facilitate payment over an extended period of time. Restrict payments plans to between six and eight months; shorter terms are proven to be more effective.

If the tactful approach proves futile, then you may need to consider these options.

1. Put a lien on the house: A lien is a legal document authorizing the right to keep property belonging to another person until a debt is paid or an obligation is fulfilled. Placing a lien on the property of delinquent homeowners gives the HOA standing as a creditor to be paid from proceeds acquired if the property is sold or refinanced. This option is only effective if there is a lot of equity in the property. If there is little equity, the HOA would be paid last (if at all)
2. Consult the Experts: As the Manager of The Homeowners Association, it is your responsibility to be educated about your legal rights. Seek advice from the association’s lawyer. The lawyer may recommend a letter demanding payment be issued by the delinquent homeowners. Consider your options carefully; these letters attract a legal fee. Can The Homeowners Association afford it? Suing the homeowner and attempting to garnish wages will cost even more. As manager, you must ultimately decide if spending several thousand dollars in legal fees is the best option. You may also consider small claims court.
3. File Foreclosure Proceedings: In order for a foreclosure sale to occur The Homeowners Association must prove that there is indeed a valid debt, there is a default in payment of the said debt, there is a legal right to foreclose, and that all parties involved have been served with the notice of hearing. Typically, the homeowner will challenge the case. It is your responsibility as the HOA manager to consult with your attorney to ensure you have a solid case before filing. Chances are, the homeowners have been delinquent in mortgage payments as well. If this is the case, a mortgage foreclosure will follow; a mortgage foreclosure will take precedence over the HOA foreclosure. At this point, it is highly unlikely that the HOA will recover the debt.

Homeowners are aware of homeowners fees prior to purchasing a property. The entire community suffers if the Homeowners Association is strapped for cash. The Homeowners Association must exercise suitable methods to collect these mandatory fees. Methods will vary depending on circumstances. All Homeowners Association has rules and bylaws; they must be enforced consistently and equally.
*image source: cyfairrealestate.com