HOA payment plans are a common remedy that homeowners associations adopt to lower delinquency rates. But, is there a requirement for HOAs to offer these plans? And how do they work exactly?
What Are HOA Payment Plans?
A payment plan is an agreement where a homeowner promises to make regular payments to a homeowners association in an effort to settle their unpaid dues. It is designed to alleviate the financial burden on homeowners, especially those who are struggling with funds, while still making sure the HOA lessens its accounts receivables or bad debts. The goal of a payment plan is to make it easier and more manageable for delinquent owners to settle their debts by essentially chopping them up into installments instead of having them pay it all in one lump sum.
While payment plans are simple enough, in theory, they can be complex in practice. Homeowners associations have to strike the right balance when it comes to what the delinquent owner can afford and how long the plan should last. HOA payment plans should be realistic, meaning regular payments have to fit within the budget of the homeowner. They should also span a reasonable amount of time. Plans that stretch out too much tend to fail.
How Does an HOA Payment Plan Work?
There are three components to the formula of a payment plan: the total amount owed, the number of payments, and how much the owner should pay each month. These three are tied together, with one always dependent on the other two.
To calculate the number of payments, take the total amount owed and divide it by how much the owner should pay each month. To calculate how much the owner should pay each month, take the total amount owed and divide it by the number of payments that the governing documents allow. For example, if an owner owes the HOA a total of $1,200, and both parties agree to have it paid within 12 months, then the owner should pay $120 each($1,200 divided by 12 months).
In theory, the owner would have settled their entire balance once the time is up. Keep in mind that the total amount owed usually also includes all fines and late fees.
Entering the Payment Plan Agreement
While it is customary to include all fines and late fees in the calculation, owners can sometimes negotiate with the HOA board to waive those fees. But, the original sum of dues and assessments owed is typically not negotiable.
Once an owner and their HOA consent to a payment plan, it is necessary to draft a written agreement. At the very least, this agreement must include the following details:
- A declaration of the owner’s financial hardship
- The total amount owed (and whether or not it includes late fees)
- Number of required payments or the duration of the plan (i.e. how many months they have to pay)
- The amount the owner must pay each month
- The homeowners association’s right to continue collection efforts should the owner breach the plan
Are HOAs Required to Offer Payment Plans?
To understand whether or not it is mandatory for a particular HOA to offer payment plans, there are two areas to check: state laws and governing documents.
Certain states have laws that require associations to pursue other means of collection (such as payment plans) prior to foreclosing on a homeowner’s property. Colorado is one such state, with their law stipulating 6 months as a minimum plan duration. In California, on the other hand, no such law exists. However, if a homeowner submits a request for a payment plan to their HOA, California law says that the HOA must consider it. If an HOA offers payment plans, it is best — and even state-mandated, in some cases — to provide a notice of standards to all owners.
Boards must also refer to their association’s governing documents for guidance. If an HOA’s bylaws or CC&Rs require payment plans to be offered, then the board must do so when a homeowner becomes delinquent. The governing documents may also include additional requirements, such as minimum durations and whether to include late fees in the calculation.
Even if it is not mandatory for an HOA to offer payment plans, it is still a good idea to allow it if an owner submits a request. Entering a payment plan is better than losing the unpaid dues altogether. It is also more favorable to collect delinquent dues and assessments in a peaceful manner rather than go through a long and costly foreclosure process.
Not Required? Offer Payment Plans With Caution
Payment plans definitely have their benefits. But, homeowners associations that offer it should do so with caution. For one thing, there is always a risk that an owner will default on their payment plan, too. This is unsurprising considering their financial condition. If this happens, HOAs should continue with the collection efforts they started from before the commencement of the plan. This may include attaching a lien to the owner’s property and then initiating foreclosure proceedings.
Additionally, it’s generally unwise for HOAs to offer payment plans voluntarily. Some owners might abuse it. They might stop paying their dues, knowing that they have a payment plan to fall back on. To avoid this, a good rule to enact is to only allow payment plans once per owner.
Publishing the Names of Homeowners on Payment Plans
Some HOA board members might feel that publishing the names of delinquent owners will encourage them to pay. But, it can be illegal or unethical to perform such a practice. The same goes for publishing the names of owners who are on HOA payment plans.
First of all, there is no reason for the association to publish this kind of list. Exposing those who are on payment plans will only humiliate them. It may even cause them to stop paying in retaliation. Owners who are prone to violent outbursts may also confront the board on their actions.
Moreover, publishing such a list can result in legal liability for the association. Even if state laws don’t say anything about the matter, it’s still ill-advised. Plus, the association can find itself in violation of fair debt collection practices.
While owners can generally request to see association records, these typically don’t include sensitive information. A list of owners on payment plans would fall under that category.
Seeking Professional Assistance
HOA payment plans are an effective way to collect unpaid dues and assessments. But, they can quickly go south when imposed improperly. The best way to manage your payment plans is to hire professional help in the form of a lawyer or an HOA management company.
This is where Elite Management Services comes in. Call us today at (855) 238-8488 or contact us online to request a free proposal.
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