1 in 5 Americans has a chance of ending up in a home that has homeowner’s fees.
HOA dues vary widely, with a 2015 average of around $300 nationally but almost $600 in NYC. HOA assessments help to keep communities cohesive and clean.
What happens when homeowners won’t pay them, though?
Keep reading to learn all about HOA assessments and what happens when homeowners won’t pay them.
What Are HOA Dues?
A Homeowner’s Association (HOA) is a legal entity. It’s set up to maintain and manage a particular neighborhood or community. Typically, the members consist of homeowners living in the community. Usually, the original developer is the one who creates the HOA.
The rules of an HOA community are outlined in a document called the Declaration of Covenants, Conditions, and Restrictions (CC&Rs). The primary purpose of HOA is to collect fees and assessments and to also enforce the community rules. HOA communities can be a group of townhomes, condos, or single-family homes. Depending on state laws, homeowners’ associations could govern subdivision communities, too.
HOA dues are what homeowners must pay monthly or yearly to the HOA. The HOA collects these fees to pay for a variety of things in the community, such as:
- Snow removal
- Pest control
- Repairs and maintenance for shared facilities
- The salaries of HOA employees
To figure out what amount each homeowner must pay, the HOA typically makes a budget and divides the total expenses by how many homes are in the community. Generally, homeowners pay on a monthly basis or some sort of fixed schedule throughout the year.
What Are HOA Assessments?
HOA special assessments can be one-time expenses. If, for some reason, the HOA’s funds can’t cover the cost of a significant improvement or repair, the HOA will levy a special assessment.
For example, they might levy an HOA special assessment to pay new tennis courts or a new road.
What if Homeowners Won’t Pay Their Dues?
Most HOAs have the power to put a lien on a homeowner’s property if they become delinquent on paying their monthly fees or any monthly assessments. Once a homeowner becomes delinquent on payments, a lien might automatically attach to that property.
Typically, the lien gets attached on the date the assessments became due and unpaid. Sometimes, the HOA records the lien with the county recorder to offer public notice of the lien.
Depending on the rules set forth in a community’s CC&R, some of the things a homeowner becomes responsible for are:
- Late charges
- Unpaid assessments
- Fines (in some circumstances)
- Reasonable costs of collecting (i.e., attorneys’ fees)
With a lien on the property, the homeowner can’t refinance or sell their home. It can be foreclosed to satisfy a debt, too.
Foreclosure of an HOA Lien
If there’s a lien on a homeowner’s property, the HOA may foreclose on that lien. Even if there’s a mortgage on that particular property, the CC&R and state law permits the HOA to foreclose on the home.
It can foreclose through a nonjudicial foreclosure or a judicial foreclosure, of course, dependent on state laws and the CC&R. In order to do so, the HOA has to file a lawsuit against the homeowner. They must obtain judgment from the court, allowing them to sell the home to satisfy the lien.
For a nonjudicial foreclosure, the HOA doesn’t have to go through the state’s court, but can opt to follow certain procedures as dictated by the state and the law.
Where Does the Mortgage Go?
Sometimes, the CC&R or state laws include a provision that the HOA lien has priority over all potential future liens. The exception to this rule is a first mortgage, recorded before the date that the assessment was rendered delinquent.
When this is the case, the first mortgage lien remains on the property after the HOA foreclosure.
It’s not the HOAs obligation to pay the mortgage holder if it obtains title to the property. The debt obligation remains with the borrower.
If the borrower stops making payments to the first mortgage holder, the HOA can then decide to:
- Pay the mortgage holder to stop the home from foreclosing
- Let the first mortgage holder foreclose
If they let the first mortgage holder foreclose, the home gets turned over to a new owner who will then pay the assessments owed. They could also try to rent out the home until the first mortgage holder’s foreclosure is over.
Many state laws have due process requirements on HOAs, determining how and when they’re allowed to foreclose an assessment lien. In California, for example, the delinquent assets have to equal or exceed $1,800. Plus, the delinquency has to be at least 12 months old.
In many cases, the HOA will foreclose if a homeowner defaults on assessments.
Depending on the state, you could purchase back the property after a foreclosure. If your state provides a right of redemption after the foreclosure sale, you can repurchase your property. The redemption time frame varies, depending on which state you’re in.
HOA Dues Help Keep a Community Thriving
HOAs use HOA dues to ensure that homeowners pay their assessments and community fees. Plus, they help keep communities clean and up-to-date and safe.
Once in a while, though, there are homeowners who aren’t happy with having to pay dues and so they refuse to pay. If this happens, you can put a lien on their home with the hopes that they’ll settle their debts.
Our services can help you foster community relations and create a positive and healthy environment. From administrative services to compliance services, an HOA can help your community become the best version of itself.
Are you ready to find out how we can help make your community a better place to live? Contact us to get started or with any questions you have!