This is the third in a series of postings providing a detailed look at the governing documents for the homeowners associations (HOAs).
So let’s talk assessments.
In the Declaration, the origin of an expense determines how it will be paid. Some items clearly benefit the entire community, and so are paid through the regular annual operating budget. Other expenses are linked directly to a subset of homeowners, and are billed exclusively to them. Some expenses will occur in future years, requiring the collection of capital funds or initiation fees. And some unplanned expenses require the imposition of emergency funding via a special assessment.
Community-wide assessments may be evenly divided among all homes, or split based on percentage of ownership tables, with larger homes paying a greater share. They may also be calculated based on utility meter readings. If the Association is handing the master billing for a particular utility, it has the right to turn off said utility whenever a homeowner becomes delinquent. For condominiums, this power may only be invoked after obtaining a $750+ judgment against the home.
There are also indirect assessments, which arise if the Association orders owners to conduct repairs or safety-related measures (such as the purchase of fire extinguishers), or to obtain homeowners insurance. Regardless of the type of assessment, courts have made it clear that nothing mitigates the requirement to pay. Full payment is required even if a homeowner does not use the community pool, or has incurred personal expenses due to poorly maintained roads. Any dispute the homeowner has with the Association must be taken up separately.
Individuals who enter in to contracts with a homeowner may also be held liable for unpaid assessments. If outstanding debt wasn’t collected from the seller of the home at the sale, the buyer may be pursued for the full amount. The Declaration may also stipulate that tenants in an HOA be required to pay full monthly rents to the Association until an owner’s outstanding balance is cleared. Facing this, the tenant may decide to break the lease rather than get caught in the crossfire. To avoid losing tenants, the landlord often settles accounts with the Association.
While many communities offer homeowners the ability to spread out the payment of an assessment over a period of time, technically the full amount is due on the first day of the fiscal year. When a homeowner becomes delinquent, the Association has the option to call the full annual amount due. This is known as acceleration, and is normally invoked toward the start of the year, providing a higher dollar amount to be pursued via lawsuits.
During the collections process, the homeowner may enter into an agreement to pay back outstanding assessments over a span of months. However, remember that payments of fines, late charges, interest, and legal fees often come before the principal balance is addressed. If the payment agreement doesn’t suspend future late charges, or the homeowner is slow in paying debt, many more months may be required before payments actually start being applied to principal.
Stay tuned for future blogs on specific sections of the governing documents that Boards need to heed!