A strong HOA delinquency policy can maintain a positive cash flow and prevent special assessments. Yet, many associations don’t have a consistent policy that they can enforce. Without one, collection efforts can’t follow a standard process, often resulting in invalidated decisions and increased legal exposure.
What is an HOA Delinquency Policy?
Homeowners and condo associations are responsible for collecting regular dues. These dues are paid by owners and pay for the association’s day-to-day and long-term expenses.
Of course, owners don’t always meet their financial obligations to the HOA. Sometimes, owners will forget to make a payment or intentionally default on their dues. This can result in a negative cash flow for the association.
An HOA delinquency policy outlines how an association can handle unpaid dues. This policy is a formal, documented set of procedures that dictate the timeline for grace periods, late fees, notices, and escalating collection actions. It ensures that all residents are treated fairly.
What to Include in an HOA Delinquency Policy
All associations experience delinquency at one point or another. When that happens, it is important to have a standard policy in place.
At a minimum, an HOA delinquency policy should include the following:
- Grace periods for past-due fees
- When collection efforts must begin
- Penalties for nonpayment, such as late fees, interest, and suspension of privileges
- Deadlines for settling outstanding balances
- Options available for homeowners
Associations must ensure that this policy is clearly written in the governing documents. Additionally, boards must communicate this policy to all owners and distribute it. This way, owners are aware of the potential consequences for nonpayment.
Furthermore, it is a good idea to remind residents of the delinquency rules. Publishing the policy in newsletters, posting it on social media, or sending email updates are all suitable actions.
Escalation Process of an HOA Delinquency Policy
While exact steps can vary from one community to another, the escalation ladder for an HOA delinquency policy typically follows:
1. Warning and Grace Period
Most associations start with a written warning and a grace period. This grace period can range anywhere from 5 to 15 days, depending on the association. Some even go over that.
A grace period gives owners a little more time to settle their dues without incurring any penalties yet. Sometimes, owners simply forget the deadline, so it’s good to show some consideration.
2. Formal Notice of Unpaid Dues
Once a payment is considered late, the association can send a written notice to the owner. This notice should include the total outstanding balance, descriptions, and an explanation of penalties that may follow. It must also outline the payment deadline.
3. Late Fees and Interest
Depending on state laws and the governing documents, some associations may impose late fees or interest charges on unpaid dues.
In Virginia, Section 55.1-1824 (for HOAs) and Section 55.1-1964 (for condos) apply. According to these statutes, the board may charge a late fee, within limits, for any fee or assessment that an owner fails to pay within 60 days of the deadline. This means that associations can’t charge late fees on unpaid dues that are only 30 days past due.
4. Suspension of Privileges
Some communities temporarily revoke an owner’s privileges for nonpayment of dues. In Virginia, Section 55.1-1819 (for HOAs) and Section 55.1-1959 (for condos) allow such a penalty. According to these laws, if an owner is more than 60 days behind on their dues, the board may suspend that owner’s right to use certain association facilities or services.
That said, there are limitations. The association can’t prevent the owner from getting to their home, block access through common areas needed to reach the lot, or shut off services if doing so would create a health, safety, or property risk.
5. Payment Plans
If the governing documents permit, owners may request to enter a payment plan due to financial hardship. This helps to avoid further penalties for the owner. At the same time, it allows the association to earn revenue.
In some cases, the board can even offer to waive late fees and interest charges. The owner will have to pay the principal in installments over 6 to 12 months.
Of course, payment plans come with a risk of abuse. To combat this, owners should be allowed to enter a plan only once every set number of years. Moreover, if the owner defaults on the plan, collection efforts can continue.
6. Collection Agency
If the previous steps don’t produce results, the board can hire a collection agency. This agency is responsible for collecting delinquent HOA accounts. Most agencies charge a flat fee or a portion of the fees they collect in exchange for the service, but the latter is often preferred.
7. Legal Action
If the collection agency fails to secure the debt, the HOA can pursue legal action. Filing a lawsuit can result in a court order authorizing wage garnishment or other forms of recovery.
8. Liens
Associations can place a lien on a delinquent owner’s property. While HOAs don’t automatically have an enforceable lien, they can make it official by filing a document called a Memorandum of Lien with the circuit court clerk. This filing must occur within 12 months of the first unpaid amount.
The timing for filing a Memorandum of Lien is crucial. If the HOA waits longer than 12 months, it may lose its lien rights for those dues.
Additionally, before recording the lien, the HOA must send the owner a written notice by certified mail. The notice must be sent at least 10 days before the lien is filed. Once the lien is recorded, the HOA can pursue foreclosure.
9. Foreclosure
An HOA can only foreclose on a home if the total secured debt exceeds $5,000. The $5,000 threshold does not include attorney fees and collection costs. Instead, it consists of the actual dues, late fees, interest, and other amounts secured by the lien.
If the debt is less than $5,000, the HOA can still collect, but it can’t foreclose under Section 55.1-1833 (for HOAs) or Section 55.1-1966 (for condos) of Virginia law.
When is the HOA Delinquency Timeline Triggered?
For most associations, the HOA delinquency policy is triggered once payments are 30 to 60 days late. This usually marks the beginning of the formal collection process. That said, in Virginia, Section 55.1-1824 (for HOAs) and Section 55.1-1964 (for condos) permit late fees only after dues are 60 days past due.
A Matter of Importance
An HOA delinquency policy plays a vital role in securing debt and improving cash flow. Without a formal policy, associations will certainly run into budget shortfalls and problems with inconsistent enforcement. Boards should make sure they have a standard policy reflected in the governing documents.
Keymont Community Management offers expert management services to associations in Virginia, Maryland, and Washington, DC. Call us today at 703.752.8300 or request a proposal to start your journey!
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