Do homeowners associations have right to charge late fees, foreclose?

Question: We have had an established homeowners association and most homeowners pay their dues in a timely manner, however, there are a few who constantly are late and some as much as a year past due. Association rules allow us to charge 12-percent interest on late payments and even to foreclose. Is there a way to remedy this situation and have these few homeowners pay their annual dues without having to obtain the services of an attorney?

Answer: Your homeowners association has the right to charge late fees and to foreclose when owners don’t pay their association bills, but what seems to be missing is the right to charge owners for legal fees when they set off the need to use an attorney. It should also be pointed out that 12-percent interest is less than many if not most credit cards charge. Effectively, you’re extending a loan to non-payers at favorable rates.

Rather than not using a qualified attorney, someone with real estate experience, the better option is to hire a lawyer to review the current rules, write new ones as necessary, inform the members as you go along and then begin enforcement under the new standards on a given date. As soon as members understand that they will be responsible for both interest and legal fees you can bet that delinquency levels will fall.

A rigorous application of the association rules sounds good in theory but the association might also want a hardship clause to work out a payment with distressed homeowners – say, people who have lost their jobs, just gotten divorced, had a spouse die, or faced major health bills. These may well be owners who would like to pay but literally do not have the means to do so.

It’s important to get all dues paid because if an association member wants to finance or refinance a property lenders will want to know about the HOA and its finances. Thus having unpaid members can impact other property owners.

It’s worth noting that most lenders today would rather modify a mortgage than foreclose, even when they can. The reason is that the lender has more to lose in a foreclosure than with a loan modification. In a similar sense, foreclosing an association member could lead to a discounted sale price, a price that would show up on comps as other units come up for sale. That could impact home values for the entire community – and not in a good way.

For specifics, and I almost hate to suggest this, you really need to speak with a local attorney who works with homeowner associations.

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